North Carolina ~ Sales and Use Tax: Guidance Provided Regarding Rate Decrease

The North Carolina Department of Revenue reminds taxpayers that, effective July 1, 2011, the general state sales and use tax rate applicable to sales and purchases of tangible personal property, certain digital property, and certain services is 4.75%. As a result, the general state and local tax rate is 6.75% in 82 counties; 7% in Alexander, Catawba, Cumberland, Duplin, Haywood, Hertford, Lee, Martin, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes Counties; and 7.25% in Mecklenburg County. To determine the applicable tax rate, a sale is generally considered to be consummated when the item is delivered to the purchaser. Consequently, the applicable tax rate is generally the rate in effect when delivery or occupancy occurs. The department provides categories, issues, and examples to assist in determining the proper tax rate applicable to transactions.

Leases

In regard to state sales and use tax, the gross receipts derived from the lease or rental of tangible personal property or certain digital property billed on or after July 1, 2011, are subject to the 4.75% state tax rate notwithstanding that the lease agreement may have been entered into prior to July 1, 2011, for a definite, stipulated period of time. In regard to local sales and use taxes, the gross receipts derived from the lease or rental of tangible personal property or certain digital property billed on or after July 1, 2011, are subject to the applicable local rate in effect as of October 1, 2009, if the lease agreement was entered into prior to October 1, 2009. Gross receipts derived from the lease or rental of tangible personal property or certain digital property billed in conjunction with lease agreements entered into on or after October 1, 2009, are subject to the applicable local rate in effect at the time the parties entered into the lease agreement.

Construction Contracts

All “construction materials” purchased by contractors and subcontractors on or after July 1, 2011, to fulfill a lump-sum or unit-price contract entered into or awarded prior to or after July 1, 2011, or entered into or awarded pursuant to a bid made prior to or after July 1, 2011, are subject to the 4.75% state rate. Form E-589E, Affidavit to Exempt Contractors From the Additional 1% State Sales and Use Tax, is no longer necessary in order for the purchaser to obtain the 4.75% state rate. If a vendor is not registered to collect North Carolina sales and use tax, the purchaser is responsible for reporting the 4.75% state rate and the applicable local rate on such purchases directly to the department.

The local rate of tax due on a lump-sum or unit-price contract is not affected by the decrease of the state rate. The local rate applicable to purchases of construction materials is the rate in effect at the time a lump-sum or unit-price contract was entered, awarded, or bid. To determine the local rate of tax in effect at the time, taxpayers are advised to review the department’s website at http://www.dornc.com/taxes/sales/taxrates.html. Contractors and subcontractors should continue to issue Form E-589D, Affidavit to Exempt Contractors From the 1/4% County Sales and Use Tax Rate, as applicable. Subcontractors should obtain written documentation from the general contractor and attach a copy of the documentation to Form E-589D that supports the position that purchases of such construction materials are not subject to the 1/4% county sales and use tax rate, as applicable.

Sales and Layaway Contracts

The department provides examples to illustrate the applicable rate.

— A person places an item on layaway prior to July 1, 2011, and pays the vendor a nonrefundable deposit to hold the item. The sale is completed on or after July 1, 2011, when the person takes delivery of the item and the vendor issues a receipt or invoice for the item. The 4.75% state rate and applicable local rate in effect at the time the person takes delivery of the item are due on the sale.

— A person purchases an item, pays for the item in full, and the vendor issues a sales invoice prior to July 1, 2011. If the vendor delivers the item on or after July 1, 2011, because the item is out of stock or on back order, the 4.75% state rate and applicable local rate in effect at the time the person takes delivery of the item are due on the sale.

— A person purchases an item, pays for the item in full, and the vendor issues a sales invoice prior to July 1, 2011. If the vendor cannot deliver the item due to the store’s delivery truck schedule until on or after July 1, 2011, the 5.75% state rate and applicable local rate in effect at the time the person pays for the item are due on the sale notwithstanding that the person did not take delivery of the item until on or after July 1, 2011.

— A person purchases an item on or after July 1, 2011, with a rain check received prior to July 1, 2011. The 4.75% state rate and applicable local rate are due on the sale.

Gross Receipts Derived From Rental of an Accommodation

An “accommodation” is defined as a hotel room, motel room, residence, cottage, or similar lodging facility for occupancy by an individual. A “facilitator” is a person who is not a rental agent and who contracts with a provider of an accommodation to market the accommodation and to accept payment from the consumer for the accommodation.

Cash Basis Taxpayers

Taxpayers who report and pay sales and use tax on the cash basis of accounting are liable for remitting the 5.75% state rate on collections received on or after July 1, 2011, for sales made prior to July 1, 2011. The taxpayer should separately account for collections on sales transactions made prior to and after July 1, 2011, in order to remit the proper tax to the department.

Important Notice: Additional State Sales and Use Tax Rate Decrease Issues, North Carolina Department of Revenue, June 30, 2011

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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