NC Sales Tax: A Comprehensive Guide for Businesses and Consumers

Understanding North Carolina Sales and Use Tax

Navigating the complexities of sales tax can be challenging for both businesses and consumers. In North Carolina, understanding the nuances of Nc Sales Tax and use tax is crucial for compliance and financial planning. This guide provides a detailed overview of these taxes, clarifying key definitions, regulations, and obligations within the state.

Key Definitions: Sales Tax and Use Tax

To effectively understand NC sales tax, it’s essential to differentiate between sales tax and use tax. While often used interchangeably, they serve distinct purposes within the state’s tax framework.

State Sales Tax Explained

In North Carolina, state sales tax is levied on the retail sale of tangible personal property. This encompasses a wide range of goods, from everyday consumer products to business equipment. Additionally, sales tax applies to meals and admissions to entertainment events. Unless specifically exempted by North Carolina statutes, these transactions are subject to both state and local sales taxes. It’s important to note that the term “sales tax” is typically used by the seller, the party responsible for collecting the tax from the purchaser and remitting it to the state.

State Use Tax Clarified

State use tax, on the other hand, applies to goods “consumed” within the operation of an organization or business in North Carolina. This tax is applicable to purchases made outside of North Carolina but used within the state, or purchases made within NC where sales tax was not initially collected. Like sales tax, use tax applies unless a statutory exemption exists. The term “use tax” is primarily used by the purchaser, as they are responsible for remitting this tax directly to the state on items where sales tax was not collected at the point of purchase. The interchangeable use of “sales and use tax” can sometimes lead to confusion, particularly when dealing with operational purchases.

Direct Pay Permits: A Streamlined Approach

For certain organizations in North Carolina, like Duke University, the state issues direct pay permits. These permits, such as the ones held by Duke University (#209) and Duke University Health System (#468), simplify the tax process. A direct pay permit allows organizations to purchase goods without paying sales tax to the vendor at the time of sale. Instead, the organization directly remits any applicable NC use tax to the North Carolina Department of Revenue.

By presenting a copy of their direct pay permit to vendors, eligible organizations ensure they are not incorrectly charged sales tax. However, it’s critical to remember that North Carolina law restricts the use of direct pay permits for purchases from hotels, restaurants, and food caterers. Organizations must still pay sales tax on these specific types of transactions at the point of purchase.

Certificate of Resale: For Businesses in Retail

A Certificate of Resale (Form E-590) is another important tool within the NC sales tax system. This certificate is specifically designed for businesses engaged in retail sales. When a business purchases items intended for resale, they can provide a Certificate of Resale to their supplier. This certificate exempts the resale items from sales tax at the time of purchase, as the sales tax will be collected when the retailer sells those items to the end consumer. Typically, most departments within organizations will not require Form E-590. Exceptions include entities like gift shops or retail outlets that routinely sell merchandise to customers.

Understanding “Tax Exempt” Status in North Carolina

It’s crucial to understand that “tax exempt” status, as granted by the IRS, is different from NC sales tax exemptions. While Duke University and Duke University Health System have IRS-recognized “tax exempt” status, this does not automatically exempt them from North Carolina sales and use taxes. In fact, North Carolina mandates that organizations like Duke and DUHS must collect sales tax on all taxable revenue streams.

Furthermore, these organizations are also obligated to pay sales or use tax in NC on their purchases. The direct pay permits issued to Duke and DUHS facilitate the self-assessment and direct remittance of use tax, rather than paying sales tax to vendors upfront (excluding hotels, restaurants, and caterers).

However, North Carolina law does provide a benefit for nonprofit organizations. Duke University and DUHS, as qualifying nonprofits, are eligible for a semiannual refund of NC sales tax and use tax paid on tangible personal property used in their nonprofit operations.

Special Note: Sales Tax on Alcohol Purchases

It’s important to highlight a specific exception regarding NC sales tax refunds. North Carolina does not refund sales tax paid on alcoholic beverages to tax-exempt entities. This legislative change, effective for purchases made from July 1, 2006, onwards, applies to all alcohol purchases, regardless of where they are made – restaurants, caterers, grocery stores, or package stores. Organizations should be aware of this non-refundable NC sales tax when budgeting and making purchases.

Collecting Sales Tax in North Carolina

North Carolina Statute 105-164.4 clearly outlines the requirement for entities like Duke University and Duke University Health System to collect NC sales tax. This obligation extends to all sales of tangible personal property, meals, and admissions to entertainment events, unless a specific exemption applies.

Examples of Sales Subject to NC Sales Tax Collection

Several types of sales commonly conducted by organizations are subject to NC sales tax. These include:

• Sales of food and beverages to students, faculty, staff, and visitors.
• Sales of textbooks and other educational publications.
• Sales of branded merchandise, such as clothing and souvenirs.
• Sales of surplus property and used equipment.
• Sales of miscellaneous items like cookbooks, photographs, and promotional materials.
• Rental of equipment to non-university or non-health system groups.
• Sales of merchandise or goods through auctions, whether live or silent.
• Sales of tickets or admissions to entertainment events (detailed further below).

Exemptions from Collecting NC Sales Tax

While NC sales tax collection is broadly applicable, some specific items are exempt. These exemptions include:

• Gift certificates (as sales tax is applied when the gift certificate is redeemed).
• Prescription drugs and medications.
• Prescription eyeglasses and contact lenses.

Sales of Tickets and Admissions to Entertainment Events: Specific NC Sales Tax Rules

Effective January 1, 2014, North Carolina expanded NC sales tax to include admissions to a wide array of entertainment activities. Understanding these rules is vital for event organizers.

1. Taxable Entertainment Events: Examples of events now subject to NC sales tax include:

   • Sporting events of all kinds.
   • Live performances, such as concerts, plays, and shows.
   • Motion picture screenings and film festivals.
   • Admissions to museums, cultural sites, gardens, exhibits, shows, and guided tours.
   • Fundraising events that include entertainment.
   • Lectures sold to the general public. (Lectures exclusively for students are considered educational and are exempt from sales tax.)
   • Meals sold as part of a ticketed event.

2. Amenities Included in Ticket Price: If amenities like parking are included in the ticket or admission price, these are not subject to NC sales tax, provided they are genuinely bundled and not separately stated.

3. Sales Tax Display on Tickets: NC sales tax must be either separately itemized on the ticket or receipt, or if included in the total price, a statement like “Sales tax included in ticket price” must be prominently displayed. This ensures transparency for the purchaser.

4. Handling and Convenience Fees: Any handling fees or convenience fees associated with ticket sales are also subject to NC sales tax. These fees are considered part of the taxable sales price.

5. Special Rule for 2014 Events: A specific rule applied to events in 2014. If ticket sales for a 2014 event began before January 1, 2014, and at least one ticket was sold in 2013, then NC sales tax was not required to be collected on any ticket sales, whether in 2013 or 2014. This was a transitional rule for the implementation of the new entertainment tax.

Out-of-State Sales and NC Sales Tax

Determining NC sales tax obligations for out-of-state sales requires careful attention.

1. Sales Delivered Outside North Carolina: NC sales tax should not be charged on sales where the customer takes possession of the purchased items outside of North Carolina. The location of delivery is the determining factor.

2. Sales in Other States: If an organization conducts sales activities while physically present in another state (e.g., selling educational materials at a conference), it’s crucial to contact the Corporate Tax Department beforehand. This will help determine if sales tax obligations exist in that other state. If so, the department can assist with compliance and reporting requirements for that jurisdiction.

Accounting for Collected NC Sales Tax

Properly accounting for collected NC sales tax is essential for accurate financial reporting and compliance.

1. Retail Sales of Tangible Property: NC sales tax collected on retail sales of tangible personal property should be recorded in General Ledger (G/L) account 346400, designated for “Sales – Merchandise Subject to NC Sales Tax.” The total amount collected, including the sales tax, is recorded in this account. The Corporate Tax Department will then calculate and remit the tax due to the state. Departments using different G/L accounts should notify the Corporate Tax Department for proper handling.

2. Sales of Tickets/Admissions to Entertainment: NC sales tax related to ticket and admission sales for meals and entertainment events should be recorded differently. The gross sales amount (including tax) is initially received. The net sales (excluding tax) should be recorded in G/L account 347000, “Sales – Tickets/Admissions Charges.” The NC sales tax portion collected should be separately recorded in G/L account 208001, “Sales Tax Accrued – Tickets/Admissions.” The Corporate Tax Department handles the remittance of this tax.

   • To calculate the NC sales tax amount from gross sales for tickets/admissions, use the following formula:
     • Net Sales = Gross sales (including sales tax) / 1.075 (assuming a 7.5% combined state and local rate – adjust based on actual rate)
     • Sales Tax = Net Sales x 0.075 (or the applicable combined rate)

3. Sales Tax Outside Home County: It’s important to notify the Corporate Tax Department if retail sales subject to NC sales tax occur outside the organization’s designated “home county.” Home counties are:

   • Durham County for Duke University and Duke University Health System.
   • Wake County for Duke Raleigh Hospital and Duke HomeCare and Hospice.
   • Carteret County for the Marine Lab.

   For ticket/admission sales, the county where the event is held is considered the relevant county for NC sales tax collection and rate application. Notify Corporate Tax of events outside the home county to ensure correct county tax rate application and reporting. This is crucial as North Carolina requires reporting of sales tax collected by county.

4. Exempt Retail Sales: Sales of merchandise exempt from NC sales tax should be recorded in G/L account 346600, “Sales – Merchandise Exempt from NC Sales Tax.” Notify Corporate Tax of the types of exempt retail sales recorded under this account for informational purposes and proper categorization.

Use Tax on Purchases Made in North Carolina

Understanding NC use tax obligations on purchases is as critical as understanding sales tax collection. For organizations like Duke, the direct pay permit system simplifies vendor interactions, but internal processes must correctly handle use tax.

Purchases Authorized by Duke University/Duke University Health System

1. Duke Purchase Orders: Duke Purchase Orders direct vendors to the Procurement Webpage for NC sales tax and use tax information. Vendors (excluding hotels, restaurants, and food caterers) should not charge sales tax on Duke purchases when a valid purchase order is used. Duke self-assesses and remits any applicable NC use tax.

2. Purchases Without Purchase Orders: For departmental purchases made without a purchase order, a copy of Duke’s direct pay permit should be provided to vendors (again, excluding hotels, restaurants, and food caterers). This informs the vendor not to charge sales tax. Departments are then responsible for ensuring NC use tax, if applicable, is properly accounted for. Invoices and Accounts Payable Check Requests should generally exclude NC sales tax charges (except for alcohol, hotels, restaurants, and caterers, where sales tax is correctly charged).

   If a vendor invoice incorrectly includes sales/use tax (outside of the exceptions), departments can authorize payment, coding the sales tax portion (excluding alcohol sales tax) to fund 100-1000 using G/L account 146000, “Sales Tax Receivable.” Occupancy tax charged by hotels is separate from sales tax and is charged directly to the department’s expense. Because NC sales tax on alcohol is non-refundable, always request a separate invoice for alcoholic beverages.

   Petty Cash Purchases: The same rules apply to petty cash purchases. Reimbursement requests should code any NC sales tax paid (excluding alcohol sales tax) to fund 1001000 using G/L account 146000, “Sales Tax Receivable.”

Purchases Authorized by Individuals (e.g., Employee Purchases)

1. Duke Corporate Card Purchases: Corporate cards display Duke’s direct pay permit number, exempting most purchases from NC sales tax at the point of sale. However, this exemption does not apply to prepared food and beverage sales, or accommodations like hotels and motels. Vendors should charge sales tax on these items even when a corporate card is used. Duke can claim a refund for most NC sales/use taxes paid via corporate card, except for alcohol purchases. Again, request separate invoicing for alcohol.

   Departmental administrators are responsible for ensuring sales/use tax paid via corporate cards is correctly coded to facilitate refund claims. Incorrect coding may result in the department absorbing the cost of the tax. Occupancy tax on hotels remains a departmental expense, not sales tax.

   • Coding Sales/Use Tax Paid via Corporate Card:
     • NC sales tax (excluding alcohol) paid with the corporate card is coded to tax receivable code fund 1001000 G/L account 146100 for Duke and DUHS.
     • Sales tax paid in states other than North Carolina via corporate card should not be coded to fund 1001000 G/L account 146100. Duke cannot claim refunds from other states, and the department absorbs this out-of-state tax, coding it to the same account as the purchased item or service.

2. Purchases Not Using a Corporate Card: Effective January 1, 2014, Duke can claim refunds for NC sales/use tax paid by individuals using personal cash or credit cards for business expenses. Reimbursements for tax paid personally should be coded to G/L account 146000. Similar to corporate card purchases, sales tax paid in states other than North Carolina is not refundable and is absorbed by the department, coded to the same account as the purchase.

Sales Tax in Other States While Traveling on Duke Business

For Duke personnel traveling out of state on official business, certain states offer sales tax exemptions.

1. Duke University Personnel: Duke University personnel are exempt from sales tax in the following states when making purchases for Duke business. Prior to traveling, obtain the necessary sales tax exemption paperwork from the Corporate Tax Department, as exemptions must be claimed at the point of sale. Refunds of sales tax paid in these states are not possible.

   • Florida
   • Illinois
   • Kansas
   • Kentucky
   • Massachusetts
   • Michigan
   • Minnesota
   • Missouri
   • New Jersey
   • New York
   • Tennessee
   • Texas
   • Virginia
   • Wisconsin

2. Duke University Health System Personnel: DUHS personnel have sales tax exemptions in a more limited set of states for DUHS business travel. Obtain exemption paperwork from Corporate Tax before traveling. Refunds are not available.

   • Tennessee
   • Texas

Reporting Requirements for NC Sales and Use Tax

Compliance with NC sales tax and use tax regulations includes specific reporting obligations.

1. Duke self-assesses NC use tax due on invoices and eligible procurement card purchases.

2. The Corporate Tax Department handles payment of NC sales/use taxes, remitting a prepayment by the 20th of the current month and the balance by the 20th of the following month.

3. All NC sales/use tax paid by Duke (self-assessed or paid to vendors, as per the guidelines) is initially recorded as a corporate receivable. Duke then files a semiannual refund claim with the State of North Carolina for the accumulated sales/use tax receivable. This refund claim includes a breakdown of taxes paid by county within North Carolina.

Understanding and adhering to these NC sales tax and use tax guidelines is essential for all departments and personnel within Duke University and Duke University Health System to ensure compliance, accurate financial reporting, and maximization of eligible tax refunds. This guide serves as a comprehensive resource for navigating these complex regulations.