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North Carolina is a great location to start an ecommerce business. But you need to understand the taxation laws before you begin.
Sales tax at a glance
North Carolina sales tax rates & calculations in 2023
The North Carolina sales tax rate in 2023 is 4.75% to 7.5%. This comprises a base rate of 4.75% plus a mandatory local rate of up to 2.25%. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 7.5%.
Recent tax rate changes in North Carolina
On July 1, 2022, North Carolina's cigarette tax has been fixed at $0.30 per pack of 20. But as average cigarette prices have increased, the effective tax rate has declined, helping maintain the costs.
FAQs
How do you calculate North Carolina sales tax?
To calculate North Carolina sales tax, you can use the formula:
Sales tax = (4.75% + local rate) * purchase price.
For instance, if the local rate is 2%, and the purchase price is $100, the sales tax would be $6.75.
What’s the difference between destination-based and origin-based sales tax states?
- Destination-based sales tax states - The sales tax rate is determined based on the location where the product or service is delivered to the customer (the destination). For example, if you ship a product to a customer in North Carolina, you would charge the sales tax rate for their location in NC regardless of where your business is located.
- Origin-based sales tax states - The sales tax rate is determined based on the seller's location or where the sale originated. For example, if you operate your business in California and ship products to customers in other states, you would only charge the California sales tax rate regardless of where the customer is.
Is the North Carolina sales tax destination-based or origin-based?
North Carolina has a destination-based sales tax system. The sales tax rate is determined based on the customer's ship-to address.
For example, if you operate your business in Virginia and ship products to customers in North Carolina, you would charge the sales tax rate applicable to the customer's location in NC.
Is North Carolina a streamlined sales tax state?
North Carolina is a Streamlined Sales Tax state. They joined the Streamlined Sales and Use Tax Agreement (SSUTA) in 2005.
Sales tax nexus and registration
Who should collect sales tax in North Carolina? Let’s look at the nexus thresholds.
Sales tax nexus in North Carolina
FAQs
Do I need a North Carolina seller's permit if I’m only a wholesaler?
Yes, wholesalers in North Carolina need a seller's permit to buy items tax-exempt for resale.
Do I need a North Carolina seller's permit if I only sell temporarily in the state?
Yes, even temporary sellers like vendors at craft fairs need a North Carolina seller's permit if they meet the sales tax nexus thresholds.
What's taxable, and what's exempt?
Let’s look at the taxable items exempt from sales taxes in North Carolina.
What's taxable in North Carolina
North Carolina sales tax applies to sales of most tangible personal property and some services, including
- Retail sales of goods
- Food sold in restaurants, bars, hotels, etc.
- Telecom services
- Admissions to entertainment events
- Accommodation rentals
Exemptions from sales tax in North Carolina
Some exemptions include:
- Most groceries and non-prepared food
- Food stamps
- Prescription medicines
- Certain farm equipment & supplies
- Newspapers
FAQs
Are groceries taxable in North Carolina?
Besides prepared foods, most groceries are exempt from sales tax in North Carolina.
Is clothing taxable in North Carolina?
Yes, clothing is generally taxable in North Carolina.
Are digital products taxable in North Carolina?
Yes, North Carolina taxes digital products like ebooks, music downloads, streaming services, etc.
Is software-as-a-service (SaaS) taxable in North Carolina?
No, North Carolina does not tax SaaS or other digital services.
Are services taxable in North Carolina?
Some services like telecom, accommodations, and repairs are taxable in North Carolina. Most professional and personal services are not taxable.
Excise & discretionary taxes
Excise taxes are taxes levied on specific goods or services. Discretionary taxes are taxes that local governments impose, and the rates can vary from city to city.
Excise taxes in North Carolina
North Carolina has taxes on:
- Alcoholic beverages - 7% sales and use tax combined.
- Cigarettes - 45c per pack of 20
- Tobacco products other than cigarettes - 12.8% on the product price
- Motor fuels - 40.5c per gallon
- Piped natural gas - 7% sales and use tax combined.
Remote sellers in North Carolina
Remote sellers with over $100,000 in sales or 200 transactions in North Carolina must collect and remit sales tax. This economic nexus threshold took effect November 1, 2018.
Discretionary taxes in North Carolina (local sales taxes)
North Carolina allows counties and cities to impose local sales taxes up to 2.25% on top of the state sales tax.
Collecting sales tax in North Carolina
Let’s look at the steps to collect sales tax in North Carolina now.
How to collect sales tax in North Carolina if you are not based in North Carolina (Out-of-State)
If you meet the economic nexus thresholds for North Carolina, you must register with the NCDOR and collect applicable state and local sales tax on taxable sales shipped to North Carolina, even if you do not have a physical presence in the state.
You can register for a seller’s permit online through the NCDOR website. Once registered, you can begin collecting and remitting North Carolina sales tax.
Should you collect sales tax on shipping charges in North Carolina?
Yes, if the sale is taxable, the shipping charges are also taxable in North Carolina.
Filing & paying sales taxes
Filing and paying sales taxes in North Carolina
Businesses registered for a seller's permit in North Carolina must file sales tax returns and remit any collected sales tax monthly or quarterly. Returns and payments are due by the 20th of the month following the reporting period.
Sales tax return filing schedule and due dates in North Carolina
The NCDOR assigns a filing frequency to businesses based on their anticipated taxable sales. This schedule is either monthly or quarterly.
The following due dates apply to North Carolina sales tax returns:
Monthly
If the total tax liability is less than $20,000 and at least $100 per month, must file monthly.
Note: If your monthly tax collection exceeds $20,000, you are required to file monthly with prepayment. The prepayment must be 65% of the tax due for the current month, tax due for the same month in the previous year, or the average monthly tax in the previous calendar year.
Quarterly
If the monthly tax liability is less than $100, you must file your taxes quarterly.
Filing penalties in North Carolina
Businesses that fail to file their North Carolina sales tax returns on time are subject to a penalty of 5% of the tax for each month, or fraction thereof, that the return is late up to a maximum of 25% of the tax.
When are returns due in North Carolina?
The due date for filing returns in North Carolina is the 20th of the month following the period end date.
For example, if the filing period ends on March 31, the return is due April 20.
FAQs
What are the North Carolina sales tax due dates?
The due dates for filing North Carolina sales tax returns are:
- Monthly filers: 20th of the following month
- Quarterly filers: Last day of month after quarter ends
I didn’t collect any North Carolina sales tax during this period. Do I still need to file a return?
Yes, you still need to file a zero-tax North Carolina sales tax return even if you didn't collect any sales tax.
Can I get an extension on filing my North Carolina sales tax return?
You can request up to a six-month extension to file your North Carolina sales tax return by submitting form D-410. However, any tax due must be paid on time—the extension is for filing only.
Can I amend a North Carolina sales tax return?
Yes, you can file an amended return in North Carolina to correct errors or report additional tax due. You may be charged penalties and interest.
Audit & appeals process
The audit & appeals process is a series of steps a business must go through if the North Carolina Department of Revenue audits them. The process begins with the auditor contacting the business to schedule an audit.
The auditor will then review the business's records and tax returns to determine if sales tax was not paid. If the auditor finds any discrepancies, they will report their findings.
The business then has the opportunity to appeal the findings. If the appeal is denied, the business can then appeal to the North Carolina Court of Appeals.
North Carolina sales tax audit process
The North Carolina sales tax audit process is:
- Auditor contacts business to schedule audit
- Entrance conference held
- Records requested and reviewed
- Audit conducted and findings reported
- Taxpayer disputes audit findings
- Taxpayer appeals assessment
What to expect during the audit?
The auditor will review sales records, exempt sales, and use tax payments to identify unreported tax liability.
After the audit–Appealing the results
Contesting audit findings with the auditor in North Carolina helps you:
- Resolve documentation issues
- Correct calculation errors
- Avoid unresolved disputes that may lead to an appeal
Sales tax registration
Here are the steps for registering for sales tax in North Carolina:
How to register for sales tax in North Carolina?
To register for sales tax in North Carolina, you can visit the North Carolina Start My Business website. You will need to provide:
- Your business information
- Ownership information
- Social Security Number or EIN
- Description of business activities
- Projected sales
Once registered, you must collect and remit North Carolina sales tax.
Registration requirements for online sellers in North Carolina
Online sellers with over $100,000 in sales or 200 transactions in North Carolina in the current or prior calendar year must register to collect sales tax.
Cost of registration for a North Carolina sales tax license
There is no cost to register for a certificate of registration in North Carolina.
Agencies to register within North Carolina
You only need to register with the NCDOR or NC Start My Business website to obtain a seller's permit/sales tax license in North Carolina.
More Information & Contacts
For sales tax filing and appeals in North Carolina, contact:
- North Carolina Department of Revenue
- Phone number: 1-877-252-3052
- Website: www.ncdor.gov
There you have it—a comprehensive guide on North Carolina's sales tax rules and regulations. Need help filing taxes for your ecommerce store? Get a demo with Numeral now.
