# 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.

## Key takeaways

- RMI services to real property are taxable retail sales, and providers must register with NCDOR, "regardless if that is their only business activity."
- Capital improvements (construction, reconstruction, remodeling) are real property contracts: tax on materials, none on labor. Form E-589CI documents them.
- Mixed jobs: if the RMI portion is 25% or less of the contract price, the whole job is a real property contract.
- General contractor license at $40,000 or more; electrical and plumbing/heating licenses at any job size.
- Flat 3.99% individual income tax for 2026; workers' comp at three employees, and subs need coverage regardless of size.

## 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.

**RMI vs. capital improvement in North Carolina (illustrative)**

| Job | Likely treatment | Tax on the invoice? |
| --- | --- | --- |
| Building a new home | Capital improvement (real property contract) | No; contractor pays tax on materials |
| Kitchen remodel | Capital improvement | No; contractor pays tax on materials |
| Fixing a roof leak | Repair (RMI) | Yes, on the sales price |
| Servicing an HVAC system | Maintenance (RMI) | Yes, on the sales price |

_Source: NCDOR contractor notice and G.S. 105-164.4H, verified 2026-10-19. Real cases turn on facts; check NCDOR's directives._

**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](https://www.brix.so/learn/use-tax-for-contractors). For the broader picture, read [sales tax on labor vs. materials](https://www.brix.so/learn/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?

**North Carolina contractor licenses by trade**

| Trade | Agency | License and trigger | Link |
| --- | --- | --- | --- |
| General contractor | NC Licensing Board for General Contractors | License when the undertaking costs $40,000 or more | [NCLBGC](https://www.nclbgc.org/faq-consumers/) |
| Electrical | State Board of Examiners of Electrical Contractors | License for any electrical contracting; limited, intermediate and unlimited classes by project size | [NCBEEC](https://www.ncbeec.org/g-s-87-43-electrical-contractors-licensing-law/) |
| Plumbing and heating (HVAC) | State Board of Examiners of Plumbing, Heating, and Fire Sprinkler Contractors | Class I (all structures) or Class II (single-family detached), any paid work | [G.S. 87-21](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_87/GS_87-21.html) |
| Roofing | No separate state roofing board found | General contractor license at $40,000 or more | [NCLBGC](https://www.nclbgc.org/faq-consumers/) |

_Sources: G.S. 87-1, 87-21, 87-43 and board sites, verified 2026-10-19._

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](https://www.brix.so/learn/contractor-license).

## 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](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors) together. The [quarterly estimated tax calculator](https://www.brix.so/tools/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](https://www.brix.so/learn/workers-compensation).

## 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](https://www.brix.so/taxes/south-carolina), where contractors generally don't charge tax, [Tennessee](https://www.brix.so/taxes/tennessee), [Georgia](https://www.brix.so/taxes/georgia) and [Kentucky](https://www.brix.so/taxes/kentucky).

BRIX keeps service calls and project work as separate jobs with separate quotes and invoices, which helps your bookkeeper split RMI work from capital improvements. It also tracks licenses, insurance certificates from subs and permits, and flags renewals. Tax treatment stays with you and your CPA.

- [Scheduling and dispatch](https://www.brix.so/features/scheduling-dispatch): Assigns the right crew to the right job based on skills, location and availability.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [Compliance and permit tracking](https://www.brix.so/#use-cases): Tracks licenses, safety documents and permits and flags renewals before they lapse.

## Frequently asked questions

### Do contractors charge sales tax in North Carolina?

On repair, maintenance and installation services to real property, yes: the contractor must register with NCDOR and collect tax on the sales price. On capital improvements like new construction or remodeling, no: the contractor pays tax on materials and doesn't charge tax on the job.

### What is Form E-589CI?

It's the Affidavit of Capital Improvement. The owner, lessee or hiring contractor gives it at the start of work to substantiate that a job is a real property contract for a capital improvement. The person who issues it is liable if that treatment turns out to be wrong.

### What if a job is part repair and part remodel?

Under G.S. 105-164.4H, if the repair, maintenance and installation portion is 25% or less of the contract price, the whole contract is treated as a real property contract. If it's more than 25%, only the RMI portion is taxed.

### When do you need a general contractor license in North Carolina?

When the cost of the undertaking is $40,000 or more, under G.S. 87-1. Electrical, plumbing and heating contractors need a license for any paid work in their trade, with no dollar minimum.

### What is North Carolina's income tax rate for 2026?

A flat 3.99% for individuals, per NCDOR's 2026 estimator. Estimated payments are required if your tax due after withholding and credits is $1,000 or more. Corporations pay 2.00% income tax plus franchise tax.

### How many employees before workers' comp is required in North Carolina?

Three regular employees, and corporate officers count. If you sublet work, coverage rules apply regardless of how many employees each party has, and a general contractor can be liable for an uninsured sub's workers.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [South Carolina Contractor Taxes and Licensing: Sales Tax, Licenses and Income Tax](https://www.brix.so/taxes/south-carolina)
- [Tennessee Contractor Taxes and Licensing: Sales Tax, Business Tax and Licenses](https://www.brix.so/taxes/tennessee)
- [Georgia Contractor Taxes and Licensing: Sales Tax, Licenses and Income Tax](https://www.brix.so/taxes/georgia)
- [Kentucky Contractor Taxes and Licensing: Sales Tax, Occupational Taxes and Licenses](https://www.brix.so/taxes/kentucky)

## Sources

- [NCDOR — Sales and Use Tax Changes Effective January 1, 2017: Contractors](https://www.ncdor.gov/documents/important-notices/sales-and-use-tax-changes-effective-january-1-2017-contractors/open) (checked 2026-10-19)
- [NCDOR — Important Notice: Affidavit of Tax Paid by Real Property Contractor](https://www.ncdor.gov/taxes-forms/sales-and-use-tax/other-sales-and-use-tax-resources/important-notices-issued-sales-and-use-tax-division/important-notice-affidavit-tax-paid-real-property-contractor) (checked 2026-10-19)
- [NCDOR — Form E-589CI, Affidavit of Capital Improvement](https://www.ncdor.gov/documents/files/form-e-589ci-affidavit-capital-improvement/open) (checked 2026-10-19)
- [NCDOR — Sales tax guidance for newly registered taxpayers (rates, E-595E)](https://www.ncdor.gov/taxes-forms/sales-and-use-tax/sales-and-use-tax-forms-and-certificates/sales-and-use-tax-registration-applications/sales-tax-guidance-newly-registered-taxpayers) (checked 2026-10-19)
- [N.C. Gen. Stat. § 105-164.4H, Real property contractors](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-164.4H.html) (checked 2026-10-19)
- [N.C. Gen. Stat. § 87-1, General contractor defined ($40,000)](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_87/GS_87-1.html) (checked 2026-10-19)
- [NC Licensing Board for General Contractors — Consumer FAQ](https://www.nclbgc.org/faq-consumers/) (checked 2026-10-19)
- [NC State Board of Examiners of Electrical Contractors — G.S. 87-43](https://www.ncbeec.org/g-s-87-43-electrical-contractors-licensing-law/) (checked 2026-10-19)
- [N.C. Gen. Stat. § 87-21, Plumbing, heating and fire sprinkler licensing](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_87/GS_87-21.html) (checked 2026-10-19)
- [NCDOR — 2026 Individual Income Tax Estimator Worksheet (3.99%)](https://www.ncdor.gov/taxes-forms/individual-income-tax/estimated-income-tax/2026-individual-income-tax-estimator-worksheet) (checked 2026-10-19)
- [NCDOR — Estimated Income Tax](https://www.ncdor.gov/taxes-forms/individual-income-tax/estimated-income-tax) (checked 2026-10-19)
- [NCDOR — Corporate Income and Franchise Tax Rates](https://www.ncdor.gov/taxes-forms/corporate-income-franchise-tax/corporate-income-and-franchise-tax-rates) (checked 2026-10-19)
- [NC Industrial Commission — Workers' compensation insurance requirements](https://www.ic.nc.gov/wcinsrqmt.html) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/north-carolina