Real Property Contracts

A real property contract is a contract between a real property contractor and another person to perform a capital improvement to real property. A transaction must meet the definition of a “capital improvement” to qualify as a real property contract. Generally, Form E-589CI, Affidavit of Capital Improvement, must be issued and kept on file for a real property contract.

What Sales and Use Tax is Due?

The sales and use tax applies to the sales price or purchase price of an item sold to a real property contractor for use by the real property contractor to fulfill a real property contract. The real property contractor is the consumer of the item that the real property contractor purchases, installs, or applies for others to fulfill a real property contract and that becomes part of real property or used to fulfill the contract. Real Property Contractors should use Form E-589P, Affidavit of Tax Paid by Real Property Contractor to certify they have paid the sales and use tax due on all items used in a real property contract and provide the affidavit to the owner, tenant/lessee, and/or general contractor involved in the real property contract.

What is a Capital Improvement?

A capital improvement is one or more of the following:

• New construction, reconstruction, or remodeling.
• Performance of work that requires the issuance of a permit under the State Building Code, other than repair or replacement of electrical components, gas logs, water heater, and similar individual items that are not part of new construction, reconstruction, or remodeling.
• Installation of a transmission, distribution, or other network asset on land owned by a service provider or on a right-of-way or easement in favor of a service provider, notwithstanding that any separately stated charges billed to a customer for repair, maintenance, and installation services or a contribution in aid of construction are included in the gross receipts derived from services subject to the combined general rate under G.S. § 105-164.4. For purposes of this subsection, the term “service provider” means a person, including a governmental entity, who provides any of the services listed in this subsection, and the term “governmental entity” means a state agency, the federal government, or a governmental entity listed in G.S. § 105-164.14(c). The services are:
  • Telecommunications service or ancillary service.
  • Video programming.
  • Electricity or piped natural gas.
  • Water or sewer service.
  • Is capitalized and depreciated under Generally Accepted Accounting Principles or International Financial Reporting Standards.
  • Is depreciated under the Internal Revenue Code.
  • Is expensed under Section 179 of the Internal Revenue Code.

  How Do I find More Resources?

  You may visit the following links to find more resources related to real property contracts.

  • Sales and Use Tax Bulletin 72, Real Property Contracts provides additional information on the following:
    • What qualifies as a capital improvement, including the determination and treatment of remodeling.
    • What documentation substantiates a real property contract.
    • How to treat a mixed transaction contract which includes both a real property contract for a capital improvement and repair, maintenance, and installation services for real property that are not related to the capital improvement.

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