North Carolina Contractor Taxes and Licensing: RMI Sales Tax, Licenses and Income Tax

North Carolina taxes repair, maintenance and installation (RMI) services to real property, so a contractor fixing a roof leak or replacing a water heater must register and collect sales tax on the charge. Capital improvements, like new construction or a remodel, are real property contracts: the contractor pays tax on materials and charges no tax on labor.

What makes North Carolina different for contractors?

North Carolina is the southern state where a service call can be a taxable sale. Since the 2016–2017 changes to its sales tax, NCDOR treats repair, maintenance and installation services to real property as retail sales. A plumber who builds a new house charges no tax on labor; the same plumber fixing a leak in that house next year collects tax on the whole bill. The line between the two is the capital improvement, and NCDOR has a form for it.

This page summarizes NCDOR, the licensing boards and the Industrial Commission as of 2026-10-19. It's not tax advice. RMI rules have many edge cases, so work with a CPA who knows North Carolina contractors.

Is contractor labor taxable in North Carolina?

For repair, maintenance and installation, yes. NCDOR says "the sales price or gross receipts from repair, maintenance, or installation services performed to real property are subject to sales or use tax." For capital improvements, no: "a real property contract is for construction, reconstruction, or remodeling with respect to a capital improvement to real property," and the contractor pays tax on materials instead. NCDOR treats services to real property as retail sales unless a real property contract is substantiated.

Mixed contracts: under G.S. 105-164.4H(d)(1), if the RMI share "is less than or equal to twenty-five percent (25%) of the contract price," the whole contract is treated as a real property contract. Above 25%, only the RMI portion is taxed.

How do materials, E-589CI and resale certificates work?

"A real property contractor is the consumer of the tangible personal property" it installs (G.S. 105-164.4H(a)), so you pay sales tax on materials for capital improvement jobs. For RMI work, you're the retailer: "a person performing repair, maintenance, and installation services to real property is required to register, collect, and remit the tax to the Department."

• E-589CI, Affidavit of Capital Improvement: given by the owner or hiring contractor at the start of work to show a job "is to be taxed ... as a real property contract for a capital improvement." The person who issues it is liable if it's wrong.
• E-589P, Affidavit of Tax Paid by Real Property Contractor: given at the end of a job; it relieves the owner and general contractor of joint use tax liability.
• E-595E: the resale certificate, used when buying items you'll resell. Misusing an exemption certificate carries a $250 penalty per misuse.

Out-of-state purchases without North Carolina tax mean use tax; see use tax for contractors. For the broader picture, read sales tax on labor vs. materials.

What is North Carolina's sales tax rate?

Retail sales, including RMI services, are "subject to the 4.75% general State rate and applicable local and transit rates." Counties add "either a 2.00% or 2.25% local rate," and "four counties impose an additional .50% transit rate." Charge the rate for the county where the work is done.

Which North Carolina contractor licenses do you need?

G.S. 87-1 requires a general contractor license when "the cost of the undertaking is forty thousand dollars ($40,000) or more." Electrical and plumbing/heating are different: there's no dollar minimum. Local licensing: building departments check licenses when issuing permits; ask your city or county about any local business registration. See our contractor license guide.

What income and franchise taxes apply in North Carolina?

North Carolina's individual income tax is a flat 3.99% for 2026; NCDOR's 2026 estimator multiplies taxable income by 0.0399. Estimated payments are required if your tax due after withholding and credits "is $1,000 or more." Corporations pay 2.00% corporate income tax for 2026 and franchise tax of "$1.50 per $1,000 of the corporation's tax base," with a $200 minimum.

Plan state and federal quarterly estimated taxes together. The quarterly estimated tax calculator gives a federal starting point.

When is workers' comp required in North Carolina?

The North Carolina Industrial Commission says "all businesses employing three or more employees on a regular basis are covered by the Act." Corporate officers count toward the three, though they may exclude themselves; sole proprietors, partners and LLC members aren't automatically counted. When work is sublet, coverage rules apply regardless of headcount, and a general contractor that doesn't get a sub's certificate of insurance can be liable for the sub's workers. See workers' compensation for contractors.

Local taxes in North Carolina

• County sales tax of 2.00% or 2.25%, plus 0.50% transit tax in four counties, on RMI charges.
• Permits that require proof of licensing.
• Local business registration or permits where your city or county requires them. Check locally.

Neighboring state guides

Compare South Carolina, where contractors generally don't charge tax, Tennessee, Georgia and Kentucky.