What is Nexus?You'll need to collect sales tax in North Carolina if you have nexus there. There are two main ways that sellers can be tied to a state when it comes to nexus: physical, or economic.
Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.
Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.
Calculating Nexus in North Carolina
You have a physical nexus if your business has a real presence in North Carolina. This includes:
- Operating locations like stores or offices
- Having employees, agents, or reps in the state
- Owning or renting property, like stock or equipment
- Regularly taking part in trade shows or face-to-face sales in North Carolina
An economic nexus happens if your sales or transactions in the state cross a certain threshold, even without a physical presence. In North Carolina, this kicks in if, in the last or current year, you have:
- Over $100,000 in sales in the state, or
- 200 or more transactions in the state
You get an affiliate nexus if you're linked to a company or person in North Carolina who helps you make sales. This could be:
- Having a related company like a parent or subsidiary in the state
- Sharing management, systems, or staff with an in-state company
- Using a company in North Carolina for sales, marketing, or advertising
A click-through nexus is formed when you partner with a North Carolina affiliate who directs customers to you online. You have this nexus if:
- You have a deal with someone in North Carolina who sends customers to you via a website link or other online methods, and
- You make over $10,000 from these referrals in the past four sales tax quarters
A marketplace nexus occurs when you sell through an online marketplace like Amazon or eBay, which handles the sales tax for you. In North Carolina, these marketplaces are in charge of collecting and remitting sales tax for their sellers if they meet the state's economic nexus threshold.
North Carolina taxes satellite TV at a higher rate than cable, possibly to keep extraterrestrial channels luxurious.
Sales Tax Registration in North Carolina
How to Get Your North Carolina Sales Tax Permit
Here’s how to get your North Carolina sales tax license sorted:
- Set Up an Online Account: Head over to the North Carolina Department of Revenue (NCDOR) Online Business Registration portal and create an account. This is where you’ll manage your tax filings and payments.
- Fill Out the Application: Complete the online form with details about your business like name, address, business structure, and your estimated sales tax liability. You’ll need to include what you sell and any licenses or permits you have.
- Provide Additional Documents: Some businesses might need to submit extra stuff, like a Federal Tax ID Number (EIN), lease agreement copy, or proof of business registration with the North Carolina Secretary of State.
- Check Your Application: Give your application a once-over for accuracy before you send it off. Mistakes can slow things down.
- Wait for Approval: The NCDOR will take a few weeks to review your application and decide if you’re good for a sales tax license. It might take a bit longer at busy times or if they need to look at your application more closely.
- Get Your License: Once approved, you’ll get a sales and use tax registration certificate to display in your business and an account number for filing and paying your sales tax.
Cost of Registering for a North Carolina Sales Tax License
Good news - it’s free to register for a sales tax license in North Carolina. But, if the NCDOR thinks your business might not comply with the rules, they might ask for a security bond based on your estimated sales tax liability.
Federal Tax ID for North Carolina Sales Tax License
Yep, most businesses will need a Federal Tax ID Number (EIN) to register. You can get one online through the IRS. Sole proprietors without employees might get away with using their Social Security Number instead.
Other North Carolina Registrations to Consider
Depending on what your business does, you might also need to register with:
- North Carolina Secretary of State: Required if you’re a corporation, LLC, or limited partnership.
- North Carolina Department of Labor: For unemployment insurance, workers' comp, and workplace safety if you have employees.
- North Carolina Division of Employment Security: To report employee wages and pay unemployment insurance taxes.
Guide to collecting sales tax in North Carolina
Is North Carolina an Origin or Destination Sales Tax State?
North Carolina uses destination-based sales tax. This means you collect sales tax based on where your customer receives the goods or service. Make sure to include any local taxes and then send what you've collected to the North Carolina Department of Revenue.
What Sales are Subject to Sales Tax in North Carolina?
Mostly, sales tax in North Carolina hits retail sales of tangible stuff and some services. Taxable items and services include:
- Furniture, electronics, appliances
- Clothes and accessories
- Books, magazines, digital publications
- Prepared foods and drinks
- Entry fees to events like movies or concerts
- Short-term lodging
- Certain repair, maintenance, and installation services
Is Software as a Service (SaaS) Taxed in North Carolina?
As of 2018, SaaS (Software as a Service) generally isn’t taxed in North Carolina. It’s seen as a service, which typically escapes sales tax. But, there are exceptions. For instance, if SaaS is more like a digital good, or if it’s used by a consumer without a business purpose, it might be taxable. If you’re not sure about your SaaS, talking to a tax expert is a wise move.
What is Exempt from North Carolinane Sales Tax?
Several things dodge sales tax in North Carolina, like:
- Prescription meds
- Some medical equipment and supplies
- Groceries (unprepared food and drinks)
- Newspapers and some digital reads
- Educational and religious stuff
- Sales to nonprofits for their use
- Sales to the federal government or its agencies
Who is Eligible for North Carolina Sales Tax Exemptions?
Groups that often get a pass on sales tax in North Carolina include:
- Nonprofits (churches, schools, charities)
- Government agencies
- Certain farmers
- Some manufacturers and industrial processors
What To Do If Your Customer is Exempt from Sales Tax in North Carolina?
If your customer is tax-exempt, get a valid North Carolina sales tax exemption certificate (Form E-595E) from them and keep it on file. This is important for audits.
What if You Lose a North Carolina Sales Tax Exemption Certificate?
If you lose a certificate, ask the customer for a new one. Without it, you might be on the hook for any sales tax not collected. To stay safe, keep digital copies and regularly check that your records are complete.
The Tar Heel State taxes prepaid telephone calling cards but not payphone calls – a nod to nostalgic communication.
Steps for Filing a North Carolina Sales Tax Return
The North Carolina Department of Revenue has different filing schedules based on your tax liability:
- Monthly Filing with Prepayment: If you owe at least $20,000 a month, you need to prepay the next month's liability and file monthly. Due by the 20th of the following month.
- Monthly Filing: For tax liabilities between $100 and $20,000 per month. Due by the 20th of the next month.
- Quarterly Filing: If your monthly tax liability is $100 or less, you can file quarterly. Due by the last day of the month after the quarter ends.
What If a Filing Date Falls on a Weekend or Holiday?
If a filing date lands on a weekend or state holiday, you'll submit your return and payment on the next business day.
How to File a North Carolina Sales Tax Return
Filing your sales tax return online is simple:
- Gather Your Records: Collect all sales receipts, invoices, and exemption certificates.
- Log In to Your NCDOR Account: Visit the NCDOR website and log in.
- Select Filing Frequency: Choose monthly, quarterly, or annual filing.
- Fill Out the Return: Enter details about sales, exemptions, and taxes collected. Include local and use taxes.
- Review and Submit: Double-check for accuracy, then submit your return and payment online.
- Keep Records: Hold onto your filings for at least three years.
Penalties for Late Filing in North Carolina
Missed or wrong filings can lead to penalties:
- Late Filing: 5% per month, up to 25% max.
- Late Payment: 10% of unpaid tax.
- Negligence: 10% if due to negligence.
- Fraud: 50% for fraudulent underpayment.
- Plus, interest on unpaid taxes.
Sales Tax Incentives in North Carolina
North Carolina offers several incentives:
- Refunds for Eligible Businesses: Refunds on purchases for manufacturers, data centers, etc.
- R&D Exemptions: Tax exemptions on items for research activities.
- Renewable Energy Exemptions: Tax exemptions on renewable energy project equipment.
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