Want to win in ecommerce in the Tar Heel State? Start by getting the hang of their sales tax. North Carolina, with its lively cities and beautiful pine forests, is a great place for online businesses. But remember, understanding North Carolina sales tax is super important.
This guide breaks down everything you need to know about North Carolina’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle North Carolina’s sales tax with confidence and ease.
Sales Tax Nexus in North Carolina
When a business creates either a physical or economic nexus, it is required to collect sales tax in North Carolina.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in North Carolina include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Click-through Nexus: You could trigger a physical nexus if you collaborate with an independent contractor, agent, or other representative living in the state, whether they operate online or in person. They must have collectively sold more than $10,000 worth of products for delivery in North Carolina in the preceding four quarterly periods.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus.
Beginning October 1, 2018, the threshold for economic nexus in North Carolina is $100,000 in gross revenue or 200 transactions in the previous or current calendar year’s sales.
While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the governing law for sales tax nexus requirements in North Carolina.
North Carolina Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in North Carolina.
Tangible Products
Almost all goods are taxable in North Carolina, including:
- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Automobiles
- Home Goods
- Newspaper
The goods that are exempt from sales tax are:
- Groceries – Sales of qualifying are subject to the 2% local sales tax. Non-qualifying food (dietary supplements, food sold through a vending machine, prepared food, certain bakery items, soft drinks, candy) and prepaid meal plans are subject to the North Carolina state sales tax rate and applicable local and transit sales tax rates.
- Machinery and Equipment – Including mill and manufacturing machinery
- Electricity, Fuel, and Natural Gas – Electricity, fuel, and natural gas sold to a manufacturer for use in a manufacturing operation are tax-exempt
Services
In North Carolina, the majority of service-based transactions such as professional services, advertising, and janitorial services are not subject to sales tax.
However, certain services are deemed taxable in North Carolina, such as:
- Service Contracts – The work agreement between a customer or client and a person or a company is subject to the North Carolina state sales tax rate and applicable local and transit sales tax rates.
- Video Programming Services
- Dry Cleaning and Laundry Services
- Repair, Maintenance, and Installation Services
- Telecommunications Services and Ancillary Services
- Prepaid Telephone Calling Services
- Satellite Digital Audio Radio Services
- Admission Charges to an Entertainment Activity
Refer to the North Carolina Department of Revenue for further information on the taxability of services.
Software-As-A-Service (SaaS)/Digital Products
SaaS is not taxable in the state of North Carolina, as it has no specific taxable authority.
Digital products (i.e., ebooks, downloadable video content, mobile apps) are taxable.
Shipping/Handling
Shipping and handling charges in the state of California are taxable. But if the item you’re purchasing is tax-exempt, you may not be required to pay sales tax.
Sales Tax Permits and Licenses in North Carolina
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in North Carolina, the next important step is getting your North Carolina Seller’s Permit, also known as a sales tax permit.
Seller’s Permit
You can register for a North Carolina sales tax permit online at the North Carolina Department of Revenue.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale, or the expected date to start dates)
- Payment Information
Registration fee
There is no fee to register for a sales tax permit.
Renewal
In North Carolina, you don’t have to renew your sales tax permit. However, you will have to notify the North Carolina Department of Revenue if your business address changes.
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In North Carolina, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
In North Carolina, the resale certificate is known as Form E-595E, or the Streamlined Sales and Use Tax Certificate of Exemption. In most cases, this form needs either a sales and use tax registration number or an exemption number to be valid. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. North Carolina is a party to this program, meaning it does follow the uniform rules and definitions established by SST.
Check with the North Carolina Department of Revenue for the most current information on North Carolina’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in North Carolina
Sales Tax Computation
In North Carolina, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s North Carolina Sales Tax Calculator to compute for sales tax.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in North Carolina and sells to a customer in Charlotte, NC, with a ZIP code of 28215. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
North Carolina |
4.75% |
| County: |
Mecklenburg |
2.00% |
| District: |
Tenth District |
0.50% |
| City: |
Charlotte |
0.00% |
| Combined Sales Tax Rate = |
7.25% |
|
Origin-based vs. Destination-Based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax.
North Carolina is a destination-based state, meaning sales tax is determined based on the buyer’s location. That means for a North Carolina-based seller, sales tax is generally based on the buyer’s location when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from California to a customer in Raleigh, North Carolina, where you have nexus, you’d apply Raleigh’s sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in North Carolina
The next step after collection is filing and remitting your North Carolina sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually. For the first 6 months after registering for sales tax, all businesses are required to file sales tax returns monthly. However, taxpayers whose total monthly sales tax liability is consistently less than $100 can request to file their tax returns only once every three months to the
North Carolina Department of Revenue.
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with North Carolina’s sales tax regulations.
Due Dates
In North Carolina, the due date falls
on the 20th day of the month. For instance, sales tax collected in January is due by February 20th for monthly filers.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of January, and the February 20th deadline falls on a holiday or weekend, you’ll have until February 21st, the following business day, to submit.
If you’re a quarterly filer, the due date for remittance falls
on or before the last day of January, April, July, and October for the preceding three-month period.
Monthly Prepayments
Businesses with a notable sales tax liability may need to make monthly prepayments ahead of their monthly return filings. The specifics of these monthly prepayments depend on the business’s prior year’s tax liabilities.
For North Carolina, businesses are required to make a prepayment of the next month’s liability when they file their monthly return due on or before the 20th day of each month. The prepayment must be equal to at least 65% of any of the following:
- The amount of sales tax due for the current month
- The amount of sales tax due for the same month in the preceding year
- The average monthly amount of sales tax due in the preceding calendar year
Filing Sales Tax Returns
To file your sales tax return for North Carolina, a few options are available:
- File online through North Carolina’s website portal.
- Fill out Form E-500 and file and pay by mail
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. However, North Carolina does not offer a discount.
Sales Tax Holiday
Currently, for 2023-2024, there are no planned sales tax holidays in North Carolina.
Penalties for Sales Tax in North Carolina
Like in most states, sales tax is a big part of how North Carolina generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in North Carolina:
- Civil penalties amounting to 5% of the total sales tax due if not more than one month, and an additional 5% for each lapsed month or fraction (maximum of 25% in aggregate) or $5 or which is greater;
- On the criminal side, offenses can be classified as either misdemeanors or felonies, depending on the severity and specific circumstances.
Have any questions? Connect with TaxHero today for a free sales tax consultation about your business in North Carolina or any state!
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