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

Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.

Economic Nexus

Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.

Calculating Nexus in North Carolina

Physical Nexus

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

Economic Nexus

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

Affiliate Nexus

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

Click-Through Nexus

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

Marketplace Nexus

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.

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:

1. 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.
2. 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.
3. 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.
4. Check Your Application: Give your application a once-over for accuracy before you send it off. Mistakes can slow things down.
5. 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.
6. 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 Carolina 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.

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:

1. Gather Your Records: Collect all sales receipts, invoices, and exemption certificates.
2. Log In to Your NCDOR Account: Visit the NCDOR website and log in.
3. Select Filing Frequency: Choose monthly, quarterly, or annual filing.
4. Fill Out the Return: Enter details about sales, exemptions, and taxes collected. Include local and use taxes.
5. Review and Submit: Double-check for accuracy, then submit your return and payment online.
6. 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.

Navigating the complexities of sales tax in North Carolina requires a comprehensive understanding, especially for businesses and consumers alike. North Carolina's sales tax system encompasses a range of aspects, from general rates to specific tax events and regulations concerning different types of goods, such as food. This article aims to provide a detailed overview of the sales tax structure in North Carolina, offering insights into how it affects everyday transactions and business operations.

Overview of North Carolina Sales Tax

North Carolina sales tax plays a crucial role in the state's revenue system, funding various public services and infrastructure projects. The sales tax rate in North Carolina is set at a standard rate, but it's important to note that local jurisdictions can add additional taxes on top of the state rate, making the effective sales tax rate vary depending on the location within the state. This makes understanding the sales tax in North Carolina 2023 crucial for accurate financial planning and compliance.

Tax-Free Weekend and Tax on Food

One of the highlights for shoppers in North Carolina is the tax-free weekend, an annual event that allows consumers to purchase certain items without paying sales tax. This event significantly benefits back-to-school shoppers, offering savings on clothes, school supplies, and electronics.

When it comes to food, groceries are taxed at a lower rate than other goods. However, prepared food at restaurants and other establishments is subject to the full sales tax rate. The distinction between grocery tax and food sales tax is an important consideration for both consumers and businesses in the food industry.

Business Tax Compliance

For businesses operating in North Carolina, compliance with sales tax regulations is paramount. This includes obtaining a reseller's license or certificate of resale, which allows businesses to purchase goods for resale without paying sales tax upfront. Additionally, businesses must navigate sales tax filing, ensuring they accurately report and remit the sales taxes collected from customers.

Businesses providing services should also be aware of the NC sales tax on services, which applies to specific service categories. Understanding which services are taxable is crucial for compliance and accurate billing practices.

Online and Retail Sales Tax

North Carolina retail tax and North Carolina use tax are important for retailers and online sellers. The use tax applies to goods purchased out-of-state for use in North Carolina, ensuring that local businesses are not at a competitive disadvantage against out-of-state sellers. With the rise of e-commerce, NC sales tax online payment systems have become an essential tool for businesses to efficiently manage their sales tax obligations.

Registration and Payment

To legally collect sales tax, businesses must go through North Carolina sales tax registration and obtain an NC sales tax ID. After registration, paying North Carolina sales tax can be done through various methods, including online payments, which simplifies the process for many businesses.

Conclusion

Understanding the North Carolina sales tax rate, NC sales tax rate, and NC state sales tax rate 2023 is essential for anyone making purchases or doing business in the state. Whether it's planning for the tax-free day North Carolina or navigating food taxes in North Carolina, being informed helps ensure compliance and can lead to significant savings. For the most accurate and up-to-date information, it's recommended to consult the North Carolina Department of Revenue or a tax professional.