North Carolina sales tax state guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. North Carolina first adopted a general state sales tax in 1933, and since that time, the rate has risen to 4.75 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 2.75 percent. Currently, combined sales tax rates in North Carolina range from 4.75 percent to 7.5 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of North Carolina by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in North Carolina is administered by the North Carolina Department of Revenue (NCDOR).

Any sales tax collected from customers belongs to the state of North Carolina, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

In North Carolina, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in North Carolina, start by answering these three questions:

1. Do you have nexus in North Carolina?
2. Are you selling taxable goods or services to North Carolina residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in North Carolina is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in North Carolina, it’s now possible for out-of-state sellers to have sales tax nexus with North Carolina.

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and the total cumulative gross receipts from such referrals is more than $10,000 during the preceding four quarters.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after November 1, 2018, a remote seller must register with the state, then collect and remit North Carolina sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• The remote seller's gross sales sourced to North Carolina during the current or previous calendar year exceed $100,000; or

• The remote seller made sales sourced to North Carolina in 200 or more separate transactions during the current or previous calendar year.

Marketplace sales: Making sales through a marketplace. Effective February 1, 2020, a marketplace facilitator that made or facilitated more than $100,000 in gross sales or 200 transactions in North Carolina in the current or previous calendar year is required to collect and remit sales tax on behalf of marketplace sellers in the state.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in North Carolina in a warehouse owned or operated by Amazon.

If you have sales tax nexus in North Carolina, you’re required to register with the NCDOR and to charge, collect, and remit the appropriate tax to the state.

For more information, see the North Carolina Department of Revenue’s Remote Sales page and 2009 Law Changes.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of March 2019, North Carolina does not have an explicitly defined trailing nexus policy.

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in North Carolina.

If you sell taxable goods to North Carolina residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

North Carolina is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

For additional information, see the North Carolina Department of Revenue’s Sales and Use Tax Rates & Other Information.

After determining you have sales tax nexus in North Carolina, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your North Carolina business license and sales tax registration.

You can register for a North Carolina seller’s permit online through the NCDOR. To apply, you’ll need to provide the NCDOR with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

There is currently no cost to register for a certificate of registration in North Carolina.

You must register with the North Carolina Department of Revenue if you acquire an existing business in North Carolina. The state requires all registered businesses to have the current business owner’s name and contact information on file.

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

North Carolina became a full member of the SST on October 1, 2005.

Once you've successfully registered to collect North Carolina sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the NCDOR, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect North Carolina sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where North Carolina sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

North Carolina sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under North Carolina law. Examples include most non-prepared food items, food stamps, and medical supplies.

We recommend businesses review the laws and rules put forth by the NCDOR to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under North Carolina law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

North Carolina sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the NCDOR may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of March 2019, however, there are no sales tax holidays in North Carolina.

You're registered with the North Carolina Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of North Carolina, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the NCDOR by a certain date. The NCDOR will then distribute it appropriately.

Filing a North Carolina sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the NCDOR. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Taxpayers can access, prepare and print form E-500 online or file online with the North Carolina DOR payment and filing portal. 

The NCDOR will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

North Carolina sales tax returns and payments must be remitted at the same time; both have the same due date.

You may file directly with the NCDOR by visiting their site and entering your transaction data manually. This is a free service, but preparing North Carolina sales tax returns can be time-consuming — especially for larger sellers.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about North Carolina sales tax code.

Once you have a North Carolina seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

The NCDOR requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of March 2019, the NCDOR does not offer sales tax filers a discount.

It's important to know the due dates associated with the filing frequency assigned to your business by the North Carolina Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The NCDOR requires all monthly sales tax filing to be completed by the 20th of the following month, and all quarterly filing to be completed by the last day of the month following the tax period. Below, we've grouped North Carolina sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

If your business is consistently liable for more than $20,000 a month in state and local sales and use taxes, you are required to make a monthly prepayment on or before the 20th day of each month. The prepayment must equal at least 65% of any of the following:

1. the amount of tax due for the current month,
2. the amount of tax due for the same month in the preceding year, or
3. the average monthly amount of tax due in the preceding calendar year.

Source: North Carolina Department of Revenue

Filing a North Carolina sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a North Carolina sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the NCDOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting North Carolina sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the NCDOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding North Carolina sales and use tax liability.

If you’re collecting sales tax from North Carolina residents, you’ll need to consider how to handle taxes on shipping and handling charges.

North Carolina sales tax may apply to charges for shipping, handling, delivery, freight, and postage.

The general rule of thumb in North Carolina is that if the sale is exempt, related delivery charges are exempt. However, if the sale is taxable, delivery-related charges may be fully taxable, partially taxable, or non-taxable.

If both taxable and exempt sales are listed on an invoice, shipping and handling charges should be allocated proportionally to each item. However, if shipping and handling charges are based on a flat rate per package, the retailer can allocate the charges to any of the items in the package rather than apportion the charges.

If your records don’t show the actual cost of an individual delivery, tax generally applies to the entire charge for delivery of a taxable sale.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in North Carolina and sales tax should be taken directly to a tax professional familiar with North Carolina tax laws.

For additional information, see the North Carolina Department of Revenue Sales and Use Tax Technical Bulletins.