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North Carolina 2023 Sales Tax Guide

North Carolina 2023 Sales Tax Guide

North Carolina Sales Tax in a Word

As a small business owner, navigating the world of sales tax can feel like a rollercoaster ride. One moment you're on top of the world, and the next, you're plunging into the depths of tax jargon and complex calculations. But fear not, fellow entrepreneur! In this ultimate guide to filing and paying sales taxes in North Carolina, we'll take you by the hand and guide you through the twists and turns of the process, making sure you come out victorious on the other side.

We'll tackle everything from when to file and pay your sales tax, to the different penalties and incentives you should be aware of. And because we know how important it is for you to get it right, we'll dive deep into the "How Do I File a North Carolina Sales Tax Return?" section, providing a detailed, step-by-step guide that'll leave no stone unturned.

So, buckle up and join us on this thrilling adventure as we conquer the world of North Carolina sales tax returns together. By the end, you'll be equipped with the knowledge and confidence you need to file your returns like a pro, while avoiding common pitfalls and costly mistakes. Let's get started!

 
 

 

 


North Carolina Sales Tax Contacts

Understanding who to contact for guidance on sales tax matters is essential for smooth sailing through the tax compliance process. In this section, we'll introduce you to the agency responsible for managing North Carolina sales tax and provide their contact information.

 

Who manages North Carolina sales tax and what is their contact information?

The North Carolina Department of Revenue (NCDOR) is the government agency in charge of administering and enforcing sales tax laws in the state. They offer a variety of resources and support to help businesses understand and comply with sales tax regulations.

 

Mailing Address

For general correspondence:
North Carolina Department of Revenue
P.O. Box 25000
Raleigh, NC 27640-0640

For mailing sales tax returns and payments, refer to the specific instructions provided in your sales tax return form.

Phone Numbers

General sales tax information and assistance: (877) 252-3052

Email

Use the NCDOR's Contact Us form to submit your inquiry electronically.

Website

North Carolina Department of Revenue

 

For complex sales tax issues or situations unique to your business, consider consulting with a tax professional or attorney who specializes in sales tax law. They can provide tailored guidance and help you navigate the intricacies of North Carolina sales tax compliance.

 

 

Do You Have Nexus in North Carolina?

Determining whether you have a tax nexus in North Carolina is a crucial first step in understanding your sales tax obligations. A nexus is a connection between your business and the state that requires you to collect and remit sales tax on transactions with customers in that state. In this section, we'll explore the various types of nexus and how they are established in North Carolina.

 

What Creates Sales Tax Nexus in North Carolina?

In North Carolina, nexus can be established in multiple ways, including physical, economic, affiliate, click-through, and marketplace. Understanding each type of nexus will help ensure compliance with sales tax laws.

 

What creates physical nexus in the state of North Carolina?

Physical nexus is established when your business has a tangible presence in the state. This can include:

  • Having a store, office, warehouse, or other place of business in North Carolina

  • Employing salespeople, agents, or representatives in the state

  • Owning or leasing property, such as inventory or equipment, in North Carolina

  • Regularly attending trade shows or conducting in-person sales activities in the state

 

What creates economic nexus in the state of North Carolina?

Economic nexus is triggered when a business exceeds a certain threshold of sales or transactions in the state, even without a physical presence. In North Carolina, you establish an economic nexus if, during the previous or current calendar year, you have:

  • More than $100,000 in gross sales sourced to North Carolina, or

  • 200 or more separate transactions sourced to North Carolina

 

What creates affiliate nexus in the state of North Carolina?

Affiliate nexus is established when a business has a connection to another company or individual in North Carolina that helps promote or facilitate sales in the state. This can include:

  • Having a parent company, subsidiary, or sister company in North Carolina

  • Sharing management, business systems, or employees with an in-state company

  • Using an in-state company to conduct sales, marketing, or advertising activities on your behalf

 

What creates click-through nexus in the state of North Carolina?

Click-through nexus is established when a business has an agreement with a North Carolina-based affiliate who refers customers to the out-of-state business through a website link or other online means. In North Carolina, you establish click-through nexus if you:

  • Have an agreement with a North Carolina resident or business that refers potential customers to your business through a website link or other online means, and

  • Generate more than $10,000 in sales through these referrals during the immediately preceding four sales tax quarters

 

What creates marketplace nexus in the state of North Carolina?

Marketplace nexus is established when a business sells products or services through a third-party online marketplace, such as Amazon or eBay, that collects and remits sales tax on their behalf. In North Carolina, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of their sellers, as long as they meet the state's economic nexus threshold.

 

Does North Carolina have use tax laws?

Yes, North Carolina enforces use tax laws, which apply to taxable items and services purchased from out-of-state vendors that don't collect North Carolina sales tax. Businesses operating in North Carolina are responsible for reporting and remitting use tax on their sales tax returns. It's essential to track your out-of-state purchases and calculate the appropriate use tax to ensure compliance with state regulations

 
 
 
 

 

 

North Carolina Sales Tax Registration

Once you've determined that you have a sales tax nexus in North Carolina, the next step is to register your business for sales tax. In this section, we'll walk you through the process of registering for a North Carolina sales tax license, discuss the costs involved, and highlight any additional agencies you may need to register with.

 

How to Register for Sales Tax in North Carolina

To register for a North Carolina sales tax license, follow these steps:

  1. Create an online account: Visit the North Carolina Department of Revenue (NCDOR) Online Business Registration portal to create an online account. This account will be used to manage all of your sales tax filings and payments.

  2. Complete the application: Fill out the online application form, providing information about your business, such as its legal name, address, business structure, and estimated sales tax liability. Be prepared to provide details about your business activities, including the types of products or services you sell and any related licenses or permits you hold.

  3. Submit supporting documents: Depending on your business, you may be required to submit additional documentation, such as a Federal Tax ID Number (also known as an Employer Identification Number or EIN), a copy of your lease agreement, or proof of business registration with the North Carolina Secretary of State.

  4. Review your application: Double-check your application for accuracy and completeness before submitting it. Incomplete or inaccurate applications may cause delays in the registration process.

  5. Wait for approval: After submitting your application, the NCDOR will review your information and determine if your business is eligible for a sales tax license. This process typically takes a few weeks, but it may take longer during peak periods or if your application requires additional review.

  6. Receive your license: Once your application is approved, you'll receive a sales and use tax registration certificate, which must be displayed at your place of business. You'll also receive your account number, which you'll need when filing and paying your sales tax.

 

How Much Does it Cost to Register for a North Carolina Sales Tax License?

There is no cost to register for a sales tax license in North Carolina. However, you may be required to post a security bond if the NCDOR determines your business poses a risk of non-compliance. The amount of the bond will vary based on your estimated sales tax liability.

 

Do I Need a Federal Tax ID Number or EIN to Register for a North Carolina Sales Tax License?

Yes, most businesses will need a Federal Tax ID Number (also known as an Employer Identification Number or EIN) to register for a North Carolina sales tax license. You can apply for an EIN online through the IRS website. If you're a sole proprietor without employees, you may be able to use your Social Security Number instead of an EIN.

 

Which Agencies in North Carolina Might I Need to Register With Additionally?

In addition to registering with the North Carolina Department of Revenue, you may need to register your business with other state agencies, depending on your business activities. Some common agencies businesses may need to register with include:

  • North Carolina Secretary of State: If your business is structured as a corporation, limited liability company (LLC), or limited partnership, you must register with the North Carolina Secretary of State. This registration is separate from your sales tax registration.

  • North Carolina Department of Labor: If you have employees, you may need to register with the North Carolina Department of Labor for unemployment insurance, workers' compensation, and workplace safety regulations.

  • North Carolina Division of Employment Security: Employers must also register with the North Carolina Division of Employment Security to report employee wages and pay unemployment insurance taxes.

 

 

Collecting Sales Tax in North Carolina

As a business owner, it's essential to understand how to collect sales tax in North Carolina to ensure compliance with state regulations. In this section, we'll discuss whether North Carolina is an origin or destination sales tax state, which sales are subject to sales tax, and what is exempt. We'll also cover the process for handling sales tax exemptions and what to do if you lose an exemption certificate.

 

Is North Carolina an Origin or Destination Sales Tax State?

North Carolina is a destination sales tax state, which means that sales tax is based on the location where the buyer takes possession of the item or receives the service. As a seller, you will need to collect sales tax based on the rate applicable to the customer's location, including any local taxes, and remit the collected tax to the North Carolina Department of Revenue.

 

What Sales are Subject to Sales Tax in North Carolina?

In general, sales tax applies to the retail sale of tangible personal property and certain services in North Carolina. Some examples of taxable items and services include:

  • Furniture, electronics, and appliances

  • Clothing and accessories

  • Books, magazines, and digital publications

  • Prepared food and beverages

  • Admissions to entertainment events, such as movies, concerts, and sporting events

  • Hotel and other short-term accommodations

  • Certain repair, maintenance, and installation services

 

Is Software as a Service (SaaS) taxed in North Carolina?

Generally speaking, SaaS is not taxable in North Carolina. In 2018, the North Carolina Department of Revenue issued a private letter ruling stating that subscription fees for SaaS products are non-taxable. This is because SaaS is considered a service, and services are not generally subject to sales tax in North Carolina.

However, there are some exceptions to this rule. For example, SaaS that is considered to be a digital good, such as a software application, may be taxable. Additionally, SaaS that is provided to a consumer in North Carolina may be taxable if the consumer does not have a business use for the software.

If you are unsure whether or not your SaaS service is taxable in North Carolina, it is a good idea to consult with a tax professional. They can help you understand the state's complex tax laws and regulations and ensure that you are in compliance.

 

What is Exempt from North Carolina Sales Tax?

There are several items and services that are exempt from sales tax in North Carolina, including:

  • Prescription medications

  • Certain medical devices and supplies

  • Groceries (unprepared food and beverages)

  • Newspapers and certain digital publications

  • Educational and religious materials

  • Sales to nonprofit organizations for their own use

  • Sales to the federal government or its agencies

 

Who is Eligible for North Carolina Sales Tax Exemptions?

Some entities are eligible for sales tax exemptions in North Carolina, including:

  • Nonprofit organizations, such as churches, schools, and charities
  • Federal, state, and local government agencies
  • Qualified agricultural producers
  • Certain manufacturers and industrial processors

What Should I Do If My Customer is Exempt from Sales Tax in North Carolina?

If your customer is exempt from sales tax, you should obtain a valid North Carolina sales tax exemption certificate (Form E-595E) from the customer, which verifies their exempt status. Keep this certificate on file for your records, as you may be required to provide it during a sales tax audit.

 

What Happens If I Lose a North Carolina Sales Tax Exemption Certificate?

If you lose a North Carolina sales tax exemption certificate, you should request a replacement from the customer who provided it. In the meantime, you may be held liable for any uncollected sales tax if you cannot prove that the customer is exempt. To avoid this issue, consider maintaining electronic copies of all exemption certificates and reviewing your records regularly to ensure they are up to date.

 

 

Filing and Paying Sales Taxes in North Carolina

Now that you're registered and collecting sales tax in North Carolina, the next step is to file and pay your sales taxes. In this section, we'll discuss when to file and pay, how to file a North Carolina sales tax return, potential penalties for late or incorrect filings, and any available sales tax incentives.

 

When to File and Pay Sales Tax in North Carolina

The North Carolina Department of Revenue requires businesses to file and pay sales tax on a monthly, quarterly, or annual basis, depending on their tax liability. 



The filing frequency and dues dates are as follows:

Monthly Filing with Prepayment

A taxpayer who is consistently liable for at least $20,000.00 a month in State and local sales and use taxes must make a monthly prepayment of the next month's liability when filing the monthly return.

Returns and payments are due by the 20th of the month following the reporting period.

Monthly Filing

Businesses with a tax liability of more than $100 per month and less than $20,000 per month must file and pay their sales tax monthly.

Returns and payments are due by the 20th of the month following the reporting period.

Quarterly Filing

Businesses with a tax liability of $100 or less per month may file and pay their sales tax on a quarterly basis. 

Returns and payments are due by the last day of the month following the reporting period.

 

What if a North Carolina Sales Tax Filing Date Falls on a Weekend or Holiday?

If a North Carolina sales tax filing date falls on a weekend or state holiday, the return and payment are due on the next business day.

 

How Do I File a North Carolina Sales Tax Return?

Filing a North Carolina sales tax return is a straightforward process that can be completed online. Here's a step-by-step guide on how to file your sales tax return:

  1. Gather your records: Before you begin, gather all of the necessary records, including sales receipts, invoices, and exemption certificates. You'll need this information to complete your sales tax return accurately.

  2. Log in to your NCDOR account: Visit the North Carolina Department of Revenue website and log in to your account using your username and password.

  3. Choose your filing frequency: Select the appropriate filing frequency (monthly, quarterly, or annual) based on your tax liability.

  4. Complete the sales tax return form: Fill out the sales tax return form, providing information about your total sales, exempt sales, taxable sales, and any sales tax collected. Be sure to include any local taxes you've collected, as well as any use tax you may owe.

  5. Review your return: Double-check your return for accuracy before submitting it. Errors or omissions can result in penalties or delays in processing your return.

  6. Submit your return and payment: Once you've completed your return, submit it along with your payment (if applicable) through the NCDOR's online payment portal. You can pay using an electronic funds transfer (EFT), credit card, or debit card.

  7. Keep records of your filings: Maintain records of your submitted sales tax returns and payments for at least three years, as the NCDOR may request them during an audit.

 

What are the various penalties that can be assessed for sales tax filing in North Carolina?

If you fail to file or pay your sales tax on time, the North Carolina Department of Revenue may assess penalties, including:

  • Late filing penalty: A penalty of 5% per month or part of a month the return is late, up to a maximum of 25% of the tax due.

  • Late payment penalty: A penalty of 10% of the unpaid tax, regardless of the reason for the late payment.

  • Negligence penalty: A penalty of 10% of the tax due if the underpayment is due to negligence.

  • Fraud penalty: A penalty of 50% of the tax due if the underpayment is due to fraud.

In addition to penalties, you may also be charged interest on any unpaid taxes at the statutory rate.

 

Does North Carolina offer any sales tax incentives?

North Carolina offers several sales tax incentives, exemptions, and credits to promote economic development and encourage investment in the state. Some examples include:

  • Sales tax refunds for eligible businesses: Certain businesses, such as manufacturers, data centers, and major recycling facilities, may qualify for sales tax refunds on purchases of machinery, equipment, and other items used in their operations.

  • Sales tax exemptions for research and development: Businesses engaged in research and development activities may qualify for a sales tax exemption on purchases of tangible personal property used in their research activities.

  • Sales tax exemptions for renewable energy projects: Equipment used in renewable energy projects, such as solar and wind energy systems, may be exempt from sales tax.

To learn more about available sales tax incentives, visit the North Carolina Department of Revenue website or consult with a tax professional familiar with North Carolina sales tax laws.

 

 

5 Tips to Avoid Common Mistakes When Filing North Carolina Sales Tax Returns

Filing sales tax returns can be a complex and time-consuming task, but avoiding common mistakes can streamline the process and save you from potential penalties. Here are five tips to help you avoid errors when filing your North Carolina sales tax returns:

  1. Stay organized: Develop a system for keeping track of your sales records, including invoices, receipts, and exemption certificates. Proper organization will make it easier to accurately complete your sales tax return and ensure you have the necessary documentation in case of an audit.

  2. Double-check your tax rates: Sales tax rates can change frequently and vary by location. Always verify the current tax rates for your customers' locations before filing your return. The North Carolina Department of Revenue provides a Sales and Use Tax Rates by County resource to help you determine the correct rates.

  3. Understand your filing frequency: Knowing whether you need to file monthly, quarterly, or annually is crucial to avoiding late filing and payment penalties. Be sure to understand your tax liability and the corresponding filing frequency for your business. If your tax liability changes, you may need to adjust your filing frequency accordingly.

  4. File and pay on time: Late filing and payment can result in costly penalties and interest charges. Mark your calendar with the due dates for your sales tax returns and set reminders to ensure you don't miss the deadlines. If a filing date falls on a weekend or holiday, remember that your return and payment are due on the next business day.

  5. Review your return carefully: Before submitting your sales tax return, take the time to double-check your calculations and review your entries for accuracy. Common mistakes include transposed numbers, incorrect tax rates, and missing or incomplete information. Catching these errors before submitting your return can save you time and potential penalties.

By following these tips, you'll be better prepared to file accurate and timely North Carolina sales tax returns, avoiding common mistakes that could lead to penalties or additional scrutiny from the Department of Revenue.

 
 
 
 

In Conclusion: Taking Charge of Your North Carolina Sales Tax Returns Journey

And there you have it, intrepid business adventurer! We've covered the ins and outs of filing and paying sales taxes in North Carolina, from understanding when to file and pay, to learning how to avoid common mistakes that could lead to penalties. By now, you should feel well-prepared and confident to tackle your sales tax returns with ease and expertise.

Remember, the key to a successful sales tax journey lies in staying organized, keeping up-to-date with tax rates, understanding your filing frequency, and being diligent about deadlines. Armed with this knowledge and our trusty tips, you're ready to face any sales tax challenge that comes your way.

As you embark on this exciting new chapter of your small business journey, know that we're here to support you every step of the way. We believe in your success, and we're committed to helping you navigate the sometimes turbulent waters of sales tax compliance.

So, go forth and conquer, and let your North Carolina sales tax returns be a testament to your dedication, resilience, and entrepreneurial spirit. Happy filing!

 


 

Ready to work with a North Carolina sales tax expert?

We've love to work with you!

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Have sales tax in more than one state?

Check out All of our Sales Tax Guides

Alabama Sales Tax Guide

Hawaii Sales Tax Guide

Massachusetts Sales Tax Guide

New Mexico Sales Tax Guide

South Dakota Sales Tax Guide

Alaska Sales Tax Guide (N/A)

Idaho Sales Tax Guide

Michigan Sales Tax Guide

New York Sales Tax Guide

Tennessee Sales Tax Guide

Arizona Sales Tax Guide

Illinois Sales Tax Guide

Minnesota Sales Tax Guide

North Carolina Sales Tax Guide

Texas Sales Tax Guide

Arkansas Sales Tax Guide

Indiana Sales Tax Guide

Mississippi Sales Tax Guide

North Dakota Sales Tax Guide

Utah Sales Tax Guide

California Sales Tax Guide

Iowa Sales Tax Guide

Missouri Sales Tax Guide

Ohio Sales Tax Guide

Vermont Sales Tax Guide

Colorado Sales Tax Guide

Kansas Sales Tax Guide

Montana Sales Tax Guide (NA)

Oklahoma Sales Tax Guide

Virginia Sales Tax Guide

Connecticut Sales Tax Guide

Kentucky Sales Tax Guide

Nebraska Sales Tax Guide

Oregon Sales Tax Guide (N/A)

Washington Sales Tax Guide

Delaware Sales Tax Guide (N/A)

Louisiana Sales Tax Guide

Nevada Sales Tax Guide

Pennsylvania Sales Tax Guide

West Virginia Sales Tax Guide

Florida Sales Tax Guide

Maine Sales Tax Guide

New Hampshire Sales Tax Guide (NA)

Rhode Island Sales Tax Guide

Wisconsin Sales Tax Guide

Georgia Sales Tax Guide

Maryland Sales Tax Guide

New Jersey Sales Tax Guide

South Carolina Sales Tax Guide

Wyoming Sales Tax Guide

 

And don't forget to check out our blog about Economic Nexus, which serves as an invaluable resource for businesses who have sales that are subject to sales tax. 

 

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This blog is for informational purposes only and the information is accurate as of 2023-06-19. If you want legal advice on sales tax law for your business, please contact a State and Local Tax (SALT) professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.

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