What Is North Carolina Sales Tax and How Does It Work?

Sales tax in North Carolina is a consumption-based tax applied to most goods and some services. Businesses collect this tax at the point of sale and remit it to the state. The revenue supports public services such as education, infrastructure, and healthcare.

Taxable Transactions

North Carolina applies sales tax at a general state rate of 4.75% as of 2024. This tax covers tangible personal property, digital property, and certain services. Purchases of electronics, furniture, clothing, and household goods are all taxable. Digital products such as e-books, music downloads, and streaming services are also subject to sales tax when sold to an end user in the state.

While most services are not taxed, the state does impose sales tax on repair, maintenance, and installation services for tangible personal property. If a technician repairs a home appliance, both the labor charge and any replacement parts are taxable. Similarly, car repair services, including labor and parts, are subject to sales tax.

Online and out-of-state sales are also taxable if the seller has a significant presence, or “nexus,” in North Carolina. Under economic nexus laws, remote sellers exceeding $100,000 in gross sales or 200 separate transactions in the state must collect and remit sales tax.

Exemptions and Exclusions

Certain transactions are exempt from sales tax. Prescription medications and some medical supplies are not taxed. Pharmacies do not collect sales tax on prescription drugs, insulin, or prosthetic devices. Durable medical equipment, such as wheelchairs and oxygen tanks, is also exempt when sold with a prescription.

Groceries receive partial tax relief. While food is not fully exempt, only the local portion of the sales tax is charged. This applies to staple groceries like bread, milk, and vegetables. However, prepared meals and restaurant food are fully taxable.

Nonprofit organizations can apply for a refund of sales tax paid on qualifying purchases. Charitable, religious, and educational institutions may recover sales tax on items used for their operations. These organizations must maintain proper documentation and meet filing requirements to claim the exemption.

Manufacturers benefit from exclusions on machinery and equipment used directly in production. Businesses engaged in manufacturing can purchase qualifying equipment without paying sales tax if the machinery is essential to production. This includes conveyor belts, industrial ovens, and robotic assembly arms.

County or City Add-On Rates

North Carolina’s statewide sales tax rate is 4.75%, but local governments impose additional taxes that vary by county. Most counties levy a local sales tax of 2%, bringing the total rate in many areas to 6.75%. Some counties, such as Mecklenburg and Wake, have additional levies, raising the combined rate to as high as 7.5%.

Local governments use these taxes to fund public transportation, school construction, and emergency services. Mecklenburg County, for example, allocates a portion of its additional sales tax revenue to Charlotte’s transit system.

Businesses operating in multiple counties must apply the correct rate based on the point of sale. A retailer with locations in Durham County (7.5%) and Alamance County (6.75%) must collect the appropriate tax for each store’s transactions. Online sellers shipping goods within North Carolina must calculate tax based on the recipient’s location, a process known as destination-based sourcing.

Registration and Return Filing

Businesses making taxable sales in North Carolina must register with the Department of Revenue before collecting sales tax. Registration is completed through the state’s online system, where applicants provide details such as business structure, federal employer identification number (FEIN), and anticipated sales volume. Once approved, businesses receive a Sales and Use Tax Account ID, which must be included on all tax filings.

Once registered, businesses must file periodic sales tax returns based on their tax liability. Most businesses file monthly, while those with lower sales tax collections may qualify for quarterly or semi-annual filing. Returns must detail total sales, taxable sales, and the amount of tax collected, with separate reporting for local add-on rates.

Payment Deadlines and Penalties

Sales tax payments must be submitted on time. Due dates align with the assigned filing frequency. Monthly filers must submit payments by the 20th of the following month. Quarterly filers follow the same pattern, with payments due on the 20th of the month following the end of each quarter. Semi-annual filers must remit taxes by January 20 and July 20. If a due date falls on a weekend or holiday, the deadline is extended to the next business day.

Late payments result in penalties. North Carolina imposes a 10% late payment penalty, with a maximum charge of $5,000. Interest accrues daily on overdue amounts based on the state’s annually adjusted interest rate. As of 2024, this rate is 7%, meaning a business owing $10,000 in unpaid sales tax would incur approximately $1.92 in daily interest. Repeated noncompliance can lead to liens, collection actions, and potential revocation of a business’s sales tax permit.

Appeal Process

Businesses or individuals who believe they have been incorrectly assessed sales tax can challenge the determination through North Carolina’s appeal process. The first step is filing a written request for reconsideration with the Department of Revenue within 45 days of receiving a notice of assessment. This request should include supporting documentation, such as invoices, exemption certificates, or accounting records.

If the taxpayer disagrees with the department’s findings, they can escalate the appeal to the Office of Administrative Hearings. This involves a formal hearing before an administrative law judge, where both parties present evidence and legal arguments. If the ruling remains unfavorable, the taxpayer can file a lawsuit in North Carolina Superior Court. Businesses may benefit from consulting a tax attorney or accountant to navigate procedural requirements.