WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in North Carolina is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in North Carolina include physical property, like furniture, home appliances, and motor vehicles.
Prescription Medicine, groceries, and gasoline are all tax-exempt.
Some services in North Carolina are subject to sales tax. For a detailed list of taxable services download this PDF from the North Carolina Department of Revenue website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
North Carolina requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR NORTH CAROLINA SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Your Social Security Number (SSN) or Federal Employer Identification Number (FEIN), and North Carolina Secretary of State Number (SOS), if applicable
- Your business name, address, phone number
- Partner or Responsible Person, if applicable (name, title, SSN, address)
- Details about your business (begin date, type of business, etc.)
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Durham, North Carolina. Since books are taxable in the state of North Carolina, Mary charges her customers a flat-rate sales tax of 7.5% on all sales. This includes North Carolina’s sales tax rate of 4.75%, Durham’s sales city tax rate of 2.25%, and Mary’s local district tax rate of 0.5%.
The state of North Carolina follows what is known as a Destination-based sales tax policy. This means that long-distance sales within North Carolina are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Ashville, North Carolina. A customer living in Cary, North Carolina finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 4.75% tax rate for North Carolina plus 2% for Wake County’s tax rate and. At a total sales tax rate of 6.75%, the total cost is $373.63 ($23.63 sales tax).
North Carolina businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your North Carolina seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
Recommended: Hiring a business accountant can help your business file tax returns as well as issue payroll and manage bookkeeping. Schedule a consultation with a business accountant today to save thousands of dollars on your taxes.
How to File
North Carolina requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Quarterly filing: If your business collects less than $100 in sales tax per month then your business should file returns on a quarterly basis with approval from the secretary of state.
- Monthly filing: If your business collects more than $100 in sales tax per month then your business should file returns on a monthly basis.
Note: North Carolina requires you to file a sales tax return even if you have no sales tax to report.
All North Carolina sales tax return deadlines fall on the 30th day of the month unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
- Q1 (Jan. - Mar.): Due April 30
- Q2 (April - June): Due July 31
- Q3 (July - Sept.): Due October 31
- Q4 (Oct. - Dec.): Due January 31
Monthly filing: The 30th of the following month, or the next business day, e.g. April 30th for the month of March, or May 31th for the month of April.
Penalties for Late Filing
North Carolina charges a late filing penalty of 5% per month or partial month up to a maximum of 25% of the tax that is reported on the tax return.
North Carolina also charges a late payment penalty that is equal to 10% of the tax that is unpaid.
North Carolina Helpful Resources
General Information Tax Assistance Number: