North Carolina Sales Tax
North Carolina Sales Tax At a Glance
State rate: 4.75%
Maximum combined rate: 7.5%
Sourcing: Destination
Tax Holidays: None
Governing Body: North Carolina Department of Revenue
North Carolina state-wide sales tax affects many purchases within the borders of the state as well as additional local taxes that apply in certain cities and counties within the state.
In this guide we will review the items on which sales taxes apply in North Carolina, how nexus is established for those who do business in the state, and the process for acquiring a permit to collect sales tax and subsequently collecting that sales tax each reporting period.
North Carolina Sales Tax Rates
The following rates apply at the state and city level:
- The State of North Carolina charges a sales tax rate of 4.75%
- Counties and municipalities in North Carolina charge additional sales tax with rates between 2% and 2.75% for a maximum rate of 7.5%.
Because each North Carolina county and city charges a slightly different sales tax rate in North Carolina, it is recommended you use a sales tax calculator to determine the rate that will apply for your municipality.
Determining Sales Tax Nexus in North Carolina
If you operate your small business solely in North Carolina and what you sell is subject to sales tax, you must collect tax on each applicable purchase. However, if you live outside the state and do business in North Carolina, you’ll need to establish sales tax nexus first to determine if you must collect and remit sales tax payments to the Department of Revenue for North Carolina.
The following situations constitute sales tax nexus in North Carolina:
- If you have an office or other place of business in the state
- If you have any agent of your business in the state, including employees, independent contractors, or representatives.
- If you operate or occupy a warehouse, storage place, salesroom, or distribution hub within the state where your goods are stored.
To learn more about establishing sales tax nexus and determining if you’ll need to collect sales tax in the state, you can visit the North Carolina Department of Revenue website here.
With the opening of Amazon fulfillment centers in North Carolina in recent years, if you use the FBA program to fulfill your orders on Amazon, make sure you check if your goods will be stored there. If so, you may have nexus in the state.
Additionally, economic nexus is established in North Carolina if a remote seller makes 200 or more transactions or $100,000 or more in gross sales to North Carolina residents in a calendar year.
What Is Eligible for Sales Tax in North Carolina?
If you’ve established that you must collect sales tax in North Carolina, the next step is determining which items or services you sell are taxable in the state. All tangible personal property is subject to sales tax, and like many states, the bulk of services in North Carolina are not taxable. Here are some things to keep in mind when determining if you should collect tax:
- Services – Most services in North Carolina are exempt from sales tax. The exception is if you produce a good through manufacturing or production services. There are additional exceptions in certain counties. As listed on the Department of Revenue website, admission charges to entertainment activities and dry cleaning and laundry services are both taxed in 72 counties in the state. Sales tax also applies to telephone and video programming services like cable TV, digital property downloads and transfers, and service contracts on installations.
- Bringing Items in From Outside the State – If you purchase an item from outside the state of North Carolina and bring it into the state you may be responsible for paying sales tax on that item directly if it was not collected by the merchant.
- Exceptions to Sales Tax in North Carolina – There are limited exceptions to sales tax on tangible personal property in North Carolina, including some types of groceries, medical devices and equipment, and certain chemicals and materials that are used in development and research.
It is recommended that you fully review the Department of Revenue’s G.S. § 105-164.13 to determine what exemptions apply to you if you do business in North Carolina.
Registration
Once you have established that you have sales tax nexus in North Carolina, you must register with the state to acquire a sales tax permit for collection. The state offers two ways to register for the collection of sales tax, including:
- Register for your permit online on the Department of Revenue’s website.
- Download form NC-BR and mail it to the Department of Revenue.
You’ll need all of your business information, including your Federal Employer Identification Number and, if you are located in the state, your North Carolina Secretary of State Number. The state offers a checklist for business registration, including the information you will need. This list also applies to sales tax permit registration.
Filing
You will pay North Carolina sales and use tax by:
- For Those in State – North Carolina is a destination-based sales tax collection state. This means that you will collect based on where the buyer is located. Because there are variable rates in all of North Carolina’s counties and some cities, you will need a tax calculator to determine the rate you’ll be charging for each purchase.
- Out of State Sellers – For out-of-state sellers, the same destination charges apply if you have nexus and are selling to a buyer in the state. This means you will need to track and collect sales tax on those transactions within the state.
- Shipping Charges – Shipping charges are taxable within North Carolina and should be included when calculating total sales tax due at the time of a transaction.
- Filing Your Tax Returns – The North Carolina Department of Revenue has an online portal through which you can pay your sales tax due here. You can also use the form E-500 to pay via mail, or find instructions for using EDI (Electronic Data Interchange) here.
How frequently you file will be determined by the amount of sales tax owed to the state. When you receive your permit, North Carolina will assign you a filing frequency, with the due dates listed below.
Deadlines
Quarterly: If sales tax liability is consistently less than $100 per month, filers can submit their tax returns every quarter on the following due dates:
| Period | Due Date |
|---|---|
| January – March (Q1) | April 30 |
| April – June (Q2) | July 31 |
| July – September (Q3) | October 31 |
| October – December (Q4) | January 31 |
Monthly: For those with tax liability between $100 and $20,000 per month, filing is expected every month on the following dates:
| Period | Due Date |
|---|---|
| January | February 20 |
| February | March 20 |
| March | April 20 |
| April | May 20 |
| May | June 20 |
| June | July 20 |
| July | August 20 |
| August | September 20 |
| September | October 20 |
| October | November 20 |
| November | December 20 |
| December | January 20 |
Monthly with Prepayment: North Carolina does not offer an annual payment option. They do, however, require monthly prepayment if the tax liability is greater than $20,000 per month consistently. The prepayment must be at least 65% of the tax due for the current month or the same month from the previous year. For those that this applies to, returns must be filed and paid online. This does not apply to those who file the E-500E for utility and liquor sales tax or the E-500J for machinery and equipment sales taxes.
Penalties and Interest for Late Payments
If payment is remitted late, there is a 10% failure to pay the penalty that will be due with the next payment. Interest will be charged as well from the date of the last received payment.
If payment is on time but filing is late, there is a failure to file penalty of 5% per month with a maximum fine of 25% for a single return.
For those with a zero return, filing is still required by the listed due date. There is no penalty for failing to file a zero return, but after 18 months, the permit may be revoked for lack of filing.
Resources:
North Carolina Sales Tax Software
For those who are required to file and remit sales tax in the State of North Carolina, there are a number of factors to keep in mind. TaxTools sales tax software can help manage the destination-based sales tax collection and remittance required by the state with data review and sorting features and ensure tax compliance each step of the way. It can work in conjunction with your current website and eCommerce setup or can be integrated into your transaction setup. If you would like to learn more, contact us today or signup here for a free trial of the TaxTools software.
Last updated July 2024