North Carolina Sales Tax Rate Guide for Business Filings

The North Carolina sales tax significantly influences businesses throughout the state. This tax applies to the retail sale, lease, and rental of tangible personal goods and certain digital properties, as well as a variety of services. Understanding these taxes ensures compliance and helps in accurate financial planning.​

Understanding these tax rates is vital for proper pricing, accounting, and compliance with state laws. In this guide we will cover the North Carolina sales tax rates, how to collect sales tax and any penalties. Let’s get started with a brief understanding of the sales tax rate in North Carolina.

What Is the Sales Tax Rate in North Carolina?

The North Carolina sales tax rate is set at 4.75%. This statewide base rate applies to all retail sales, leases, and rentals of most goods, as well as taxable services. Local jurisdictions may impose additional sales taxes, which can vary depending on the  city.

For example:

• Houston: 8.25% (6.25% State + 2% Special Tax)
• Chicago: 10.25%. (6.25% State + 1.75% County + 1.25% Local + 1.0% RTA)

Including local taxes, the total North Carolina sales tax rate can range from 6.75% to 7.5%. Each city determines its specific rate, leading to the variation across different areas.

It’s important for businesses to verify the applicable tax rate in their specific locality to ensure accurate calculation and compliance.

North Carolina Sales and Use Tax Overview

Business owners need to collect and remit state sales and use taxes in order to stay compliant with state regulations. The North Carolina Department of Revenue oversees the collection of North Carolina sales tax by businesses on most goods and services.

Taxable and Exempt Items

Taxable Items:

• Most Physical Goods: This includes items like clothing, electronics, and furniture.​
• Specific Services: Services such as construction, digital products (e.g., SaaS), and rental services are taxable.​

Exempt Items:

• Groceries: Most non-prepared food purchases are exempt from sales tax.​
• Prescription Drugs and Medical Devices: These items are exempt to reduce healthcare costs.​
• Farm Equipment: Equipment used in farming is exempt to support agricultural activities.​
• Sales to Nonresidents: Purchases made by out-of-state buyers for use outside North Carolina are exempt from sales tax, promoting interstate commerce.
• Newspapers and Certain Publications: These are exempt to support the dissemination of information.

When Do Businesses Need to Collect Sales Tax in North Carolina?

Businesses need to collect North Carolina sales tax when they establish a significant connection to the state, known as a nexus. This nexus can be physical, such as having an office, store, or employees in the state, or economic, achieved by surpassing a set sales threshold. For a detailed understanding, refer to our sales tax guide to navigate the requirements effectively.

Physical Nexus

This occurs when a business maintains a physical presence within North Carolina. Any office, warehouse, or even a temporary presence at trade shows establishes a physical nexus.

Economic Nexus

Economic Nexus is triggered when a business’s annual sales to customers in North Carolina exceed $100,000. This rule aligns with the state’s aim to ensure that businesses contributing significantly to the market through remote sales comply with tax regulations.

Failure to Collect North Carolina Sales Tax

Failure to collect North Carolina sales tax leads to serious repercussions. Businesses in North Carolina are required to collect sales tax on applicable sales and remit it to the state’s Department of Revenue. This process ensures that the state funds necessary public services effectively.

If a business does not collect the correct amount of North Carolina sales tax, it may face audits, penalties, and interest on the due amounts. Sales tax compliance with these regulations is crucial for maintaining financial health and legal standing in North Carolina.

Penalties for Late Filing and Payment

1. Late Filing Penalty:

• If you file the North Carolina sales tax return late, a penalty of 5% of the tax due is charged for each month or part of a month that the return is late, up to a maximum of 25% of the tax due.

2. Late Payment Penalty:

• For payments not made by the due date, the penalty is also 5% of the unpaid tax for each month or part of the month that the payment is late, with a cap at 25% of the tax due.

3. Interest Charges:

• In addition to penalties, interest accrues on the unpaid tax from the due date until the tax is paid.

4. Reduction Measures:

• Notably, starting from July 1, 2027, North Carolina will reduce the late payment penalty rate to 2% per month, capping at a maximum of 10%.

For more information, you can visit the North Carolina Department of Revenue (NCDOR) site here.

Also read: U.S. Sales Tax Penalties: What Are the Penalties for Filing Late[Not Paying]?

To avoid costly penalties, streamline your North Carolina sales tax compliance with Commenda. From automated tax calculations to effortless filing, Commenda ensures accuracy and keeps your business tax-ready.

North Carolina Sales Tax for Out-of-State and Amazon FBA Program Sellers

North Carolina imposes a sales tax on the sale of tangible goods and some services, with the tax collected and remitted by sellers to the state tax authorities. For out-of-state, understanding the sales tax obligations in North Carolina is crucial, especially regarding nexus, which is the connection that triggers tax responsibilities.

For Amazon FBA sellers, storing inventory in North Carolina can also establish a nexus. This means if Amazon stores your goods in one of its North Carolina fulfillment centers, you are likely required to collect and remit sales tax for sales made to North Carolina residents.

Once you establish nexus, you must register with the North Carolina Department of Revenue, collect the correct amount of North Carolina sales tax, and remit it according to the state’s filing schedule. This is to stay compliant with the state’s tax rules.

Registering for a North Carolina Seller’s Permit

Registering for a North Carolina Seller’s Permit is essential for any business selling goods or services in this state. And there are two ways to register for a North Carolina sales tax permit, either by paper application or via the online website. It is recommended to register via the website.

How to Register for a Seller’s Permit

Here’s how to register for the permit-

1. Visit the North Carolina Department of Revenue (NCDOR) Website:

• Go to the official NCDOR website at ncdor.gov.
• Find and click on the Taxes & Forms, then select “Sales and Use Tax” then scroll down and you will see an option called “Registeration”
• Then click on “Register Online” and on the next page click on “Electronically”.

2. Create an Account:

• If you are a new user, you will need to create an account by selecting “New Users Register Here.”
• Provide basic information such as your name, email address, and contact number to set up your user ID and password.

3. Complete the Business Registration Application (NC-BR):

Once logged in, select the “Register for a Sales and Use Tax Permit” option.

Fill out the NC-BR form with the following required information:

• Business Identification: Legal business name, physical and mailing addresses.
• Business Entity Structure: Specify whether your business is a sole proprietorship, LLC, corporation, etc.
• Federal Employer Identification Number (FEIN): Required for tax purposes (if applicable).
• Owner/Partner Information: Names, addresses, and Social Security Numbers (SSNs) of owners or partners.
• Business Activity Details: Date of incorporation, start date of taxable activity in North Carolina, and fiscal year-end month.

4. Review and Submit Your Application:

• Review the information you’ve entered carefully to ensure everything is accurate.
• Submit the completed application through the online portal.

5. Receive Confirmation:

After submission, you will receive a confirmation email with your sales tax account number. This usually happens immediately for online submissions, but can take up to 4 weeks for mailed applications.

6. Receive Your Seller’s Permit:

Once your application is processed, you will receive your physical seller’s permit in about 8-10 business days.

Important Notes:

• There is no fee for applying for a seller’s permit in North Carolina.
• Permits do not need to be renewed unless business details change.
• Be sure to keep a copy of your application and confirmation for your records.

How to Collect Sales Tax in North Carolina

Once businesses have obtained their seller’s permit, businesses must implement a system that ensures accurate tax collection and compliance with state laws. Here’s how businesses can set up an effective sales tax system:

1. Set up Sales Tax Collection in Your Point-of-Sale (POS) System

• Configure your POS system to calculate the correct North Carolina sales tax by inputting the North Carolina statewide sales tax rate of 4.75%.​
• Add applicable local taxes based on the sale location, as local surtaxes vary from 2% to 2.75%, depending on the city.

2. Track Nexus Requirements

• Assess if your business has “nexus” in North Carolina, meaning a significant connection such as a physical presence or meeting certain sales thresholds.​

3. Identify Taxable and Exempt Items

• Familiarize yourself with items exempt from sales tax in North Carolina.​
• Generally, tangible personal property is taxable, but certain items such as non-prepared food, prescription medications, and specific medical devices may be exempt.

4. Regularly Update Sales Tax Rates

• Stay informed about changes in local tax rates, as they can vary.​
• Ensure your systems are updated to reflect any rate changes at the state level.

5. Document and Record Transactions

• Maintain detailed records of all transactions, including sales, sales tax collected, and customer information.​

6. File Sales Tax Returns and Remit Payments

• File sales tax returns with the NCDOR at the appropriate frequency, either monthly, quarterly, or annually, depending on the amount of tax collected.

Tax-Exempt Customers

Businesses must collect North Carolina sales tax on taxable sales unless the customer provides a valid sales tax exemption certificate. Tax-exempt customers include​

1. Government Entities: Federal, state, and local government agencies are exempt from sales tax on purchases made for official use. This exemption facilitates the efficient use of public funds in delivering governmental services.

2. Nonprofit Organizations: Qualifying nonprofit entities, such as charitable, educational, and religious organizations, are exempt from North Carolina sales tax on purchases related to their exempt purposes. This encourages the support and growth of nonprofit activities that benefit the public.

3. Resale Merchants: Businesses purchasing goods for resale are exempt from sales tax at the time of purchase, provided they present a valid resale certificate. This ensures that sales tax is applied only to the final consumer, avoiding tax pyramiding.

4. Direct Pay Permit Holders: Certain businesses authorized with a Direct Pay Permit can self-assess and remit sales tax directly to the North Carolina Department of Revenue, rather than paying tax at the point of sale. This streamlines tax compliance for qualifying businesses.

5. Out-of-State Purchasers for Out-of-State Use: Purchases made by out-of-state buyers for use outside North Carolina are exempt from sales tax, promoting interstate commerce and preventing tax barriers for interstate transactions.

Filing Sales Tax Returns in North Carolina

Businesses must file North Carolina sales tax returns to report and remit the sales and use taxes they collect. The North Carolina Department of Revenue (NCDOR) oversees this process.​

Filing Frequency and Deadline

Filing Steps

The filing process is mainly a 5-step process since we have already covered getting a sales permit.

1. Determine Your Filing Frequency: The NCDOR assigns a filing frequency based on your business’s tax liability. Common frequencies include monthly, quarterly, or annually. Ensure you know your assigned schedule to avoid penalties. ​

2. Collect and Report Sales Data: For each reporting period, gather data on total sales, taxable sales, and tax collected. Accurate record-keeping simplifies this process.​

3. File the E-500 Sales and Use Tax Return: Use the E-500 form to report your sales and remit taxes. File online through the NCDOR’s eFile and Pay system. This platform allows for efficient submission and payment. ​

4. Submit Payment: Along with your return, submit the taxes owed. The NCDOR accepts payments via electronic funds transfer, credit card, or electronic check. Ensure payments align with your filing frequency. ​

5. Maintain Records: Keep thorough records of all sales, tax collected, and filings. This practice supports accurate reporting and is essential in case of audits.​

Using Sales Tax Automation Tools

Businesses can streamline sales tax compliance in North Carolina by using sales tax automation tools. These tools can efficiently manage tax calculations, filings, and reporting. Automating these processes ensures accuracy and adherence to state regulations.​

Managing these varying rates manually can be complex and prone to errors. Sales tax automation tools simplify this process by accurately calculating taxes based on customer locations and transaction details. They also facilitate timely tax filings and provide detailed reports for transparency and audit readiness.​

Commenda is one such tool that offers a comprehensive solution for businesses operating in North Carolina and beyond. The platform automates sales tax calculations and filings across all 50 U.S. states, ensuring compliance with both state and local tax laws. With real-time updates and expert support, Commenda helps businesses navigate the complexities of sales tax regulations effortlessly.

North Carolina Sales Tax Compliance Checklist

To ensure your business stays compliant with North Carolina’s sales tax requirements, follow this comprehensive checklist. Completing each step will help you meet your tax obligations and avoid penalties.

1. ​Get a Sales Tax Permit: All businesses selling taxable goods or services in North Carolina must obtain a permit with the North Carolina Department of Revenue (NCDOR).

2. Understand Your Sales Tax Nexus: Determine if your business has a physical presence or significant economic activity in North Carolina, which obligates you to collect sales tax.

3. Implement Accurate Sales Tax Collection Systems: Utilize point-of-sale systems, e-commerce platforms, or mobile payment solutions that correctly calculate and apply the appropriate sales tax rate for each transaction.

4. File Sales Tax Returns on Time: North Carolina sales tax returns are due monthly or quarterly, depending on your assigned filing frequency. Monthly returns are due on or before the 20th of the following month; quarterly returns are due on or before the last day of the month following the quarter’s end.

5. Remit Sales Tax Payments Promptly: Ensure that all collected sales tax payments are remitted to the NCDOR by the due dates to avoid penalties and interest.

6. Maintain Proper Sales Tax Records: Keep detailed records of all sales, tax collected, exemptions claimed, and supporting documentation for at least three years, as required by North Carolina law.

7. Stay Updated on Sales Tax Law Changes: Regularly review updates from the NCDOR regarding changes in tax rates, exemptions, and filing requirements to ensure ongoing compliance.

How Should I Prepare for North Carolina Sales Tax Audits and Appeals?

To prepare for North Carolina sales tax audits and appeals, understand the audit process, maintain thorough records, and be aware of your rights to dispute assessments.

1. Audit Process: NCDOR conducts audits to verify accurate sales tax reporting. Auditors review financial records to spot discrepancies, triggered by inconsistencies in reported sales or taxes.
2. Maintain Records: Keep organized records of sales, exemptions, purchases, and tax returns. This supports accurate filings and eases the audit process.
3. Respond to Notices: Review the audit notice, gather documents, and consult a tax professional. Clear communication with auditors helps ensure a smoother outcome
4. Navigating the Appeals Process: If you disagree with the audit findings, North Carolina provides an appeals process-

• Departmental Review: Submit Form NC-242, “Objection and Request for Departmental Review,” within 45 days of the audit notice. This form allows you to contest the assessment and request a review.​
• Formal Hearing: If the departmental review doesn’t resolve the issue, you can appeal to the North Carolina Property Tax Commission. This step involves a formal hearing where both parties present their cases.

North Carolina Sales Tax Rates by City

​North Carolina sales tax rates vary by city, combining state, and local taxes. Here’s a table outlining the sales tax rates for select cities:

Managing sales tax regulations comes with a lot of complexities, businesses must stay updated on these rates to remain compliant when collecting sales tax. To avoid sales tax issues from slowing your business down, partner with Commenda! Schedule a free demo with our sales tax experts today!

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FAQs

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