September 10, 2015
Administration
All state and most local taxes and various fees are administered by the North Carolina Department of Revenue. The Department was first created in 1921 to address the recently enacted personal income tax. During its first year of operations, the Department collected $3 million in taxes. At that time, there were only 16 employees. However, today the agency has grown to over 1,400 employees with local services in eleven cities scattered across the state. Most businesses and taxpayers come in contact with revenue collection agents, tax auditors and personnel in taxpayer assistance.
There are seven major divisions in the Department of Revenue, these are as follows: Tax Enforcement; Income Tax, Sales & Use Tax; Examinations; Documents and Payment Processing; Collections; and, Taxpayer Assistance. Mr. Eric Wayne is currently the sales tax division director and Ms. Ginny Upchurch is the assistant division director. Both with offices located in the Revenue building
on Wilmington Street in Raleigh
Registration Requirements
Before a person (natural person or artificial entity) may engage in business as a retailer or a wholesale merchant, the person must obtain a sales tax certificate of registration. A wholesale merchant or retailer who has more than one business is required to secure only one certificate of registration to cover all operations of the business locations throughout the state. Sales tax certificates of registration are not assignable to subsequent business owners. The certificate of registration is valid unless it becomes void or is revoked for failure to comply with sales and use tax provisions. A certificate issued to a retailer who makes taxable sales may become void if, for a period of 18 months, the holder files no return or files returns showing no sales.
When a business partnership dissolves, and each partner in the partnership operates a business individually, one partner may retain and use the partnership's registration number and the other partner can be assigned a new registration number without an additional registration fee. However, when a business partnership or proprietorship is succeeded by a corporation, a new sales tax registration fee is required to be paid by the corporation. Retailers must obtain a sales tax certificate of registration if they either (1) are also wholesale merchants, or (2) deliver property for storage, use, or consumption but do not have a place of business located within North Carolina to register with the North Carolina Department of Revenue.
Revocation of certificate
Certificate holders who fail to comply with North Carolina sales and use tax provisions may have their certificate revoked or suspended after a hearing. Also, a certificate may be revoked or suspended after a hearing if the licensee sells or holds for sale in North Carolina, other than for export to a foreign country, a package of cigarettes that: (1) does not meet federal labeling requirements; (2) is labeled "For Export Only," "U.S. Tax Exempt," or "For Use Outside U.S." or has similar wording; (3) has been altered by adding or deleting labels, wording, or warnings described in (1) or (2) above; (4) has been imported into the United States in violation of federal law; or (5) violates federal trademark or copyright laws. The Secretary must give the registered wholesale merchant or retailer 10 days' notice in writing, specifying the time and place of the hearing and requiring the licensee to show why the license should not be revoked. The notice of revocation may be served personally or by registered mail directed to the last known address of the licensee.
Obligation to Collect Sales Tax From Customers
The sales tax imposed by the North Carolina tax statutues is intended to be passed on to the purchaser of a taxable item and borne by the purchaser instead of by the retailer. A retailer must collect the tax due on an item when the item is sold at retail. The tax is a debt from the purchaser to the retailer until paid and is recoverable at law by the retailer in the same manner as any other legal debts. A retailer is considered to act as a trustee on behalf of the State when it collects tax from the purchaser of a taxable item. Sales taxes are considered state funds at the moment of collection. The tax must be stated and charged separately on the invoices or other documents of the retailer given to the purchaser at the time of the sale except for either of the following: Vending machine sales or when a retailer displays a statement indicating the sales price includes the sales tax.
Obligation to Report Use Tax on Purchases
The state use tax is imposed on: (1) tangible personal property or digital property purchased inside or outside North Carolina for storage, use, or consumption in the state, including property that becomes part of a building or other structure; (2) tangible personal property or digital property leased or rented inside or outside North Carolina for storage, use, or consumption in the state; and (3) services sourced to North Carolina. The use tax is a complementary tax and does not apply in situations in which the sales tax is collected.
The term "use" is defined as the exercise of any right, power, or dominion whatsoever over tangible personal property, digital property, or a service by the purchaser and includes withdrawal from storage, distribution, installation, affixation to real or personal property, and exhaustion or consumption of the property or service by the owner or purchaser. The term does not include the sale of property or a service in the regular course of business or a purchaser's use of tangible personal property or digital property in any of the circumstances that would exclude the storage of the property from the definition of "storage." A retailer required to collect local sales tax must collect a local use tax on a transaction if the local sales tax does not apply.
Storage.— The term “storage” is defined as the keeping or retention in North Carolina for any reason other than for sale in the regular course of business, of tangible personal property or digital property purchased from a retailer. The term does not include a purchaser's storage of tangible personal property or digital property in any of the following circumstances:
- when the purchaser is able to document that at the time the purchaser acquires the property, the property is designated for the purchaser's use
outside the state and the purchaser subsequently takes it outside the state and uses it solely outside the state (temporary storage);
- when the purchaser acquires the property to process, fabricate, manufacture, or otherwise incorporate it into or attach it to other property for
the purchaser's use outside the state and, after incorporating or attaching the purchased property, the purchaser subsequently takes the other
property outside the state and uses it solely outside the state.
The term "storage" does include purchases of tangible personal property by a purchaser that, at some point in the future, may be used by the purchaser outside North Carolina but it is not known for certain at the time of the purchase. Tax paid in another state.— When sales or use tax has previously been paid on an item of tangible personal property in North Carolina or in another state, that payment may be credited against any sales or use taxes owing to the state of North Carolina.