NC States

When Online Sellers Should Collect Sales Tax in North Carolina

by Mark Faggiano

NC sales tax

This blog post may now be out of date. For our most up-to-date info on North Carolina sales tax, check out our “North Carolina Sales Tax Guide for Businesses.”

This post covers what you need to know if you’re an online seller whose wondering when and how to collect sales tax in North Carolina. The included examples go through the most common types of businesses that use TaxJar. If your particular case is more unique than what I’ve outlined, be sure to contact a tax professional.

You’re an online seller living in a state other than North Carolina
This example is easy. If you live and/or operate your business in any other state other than North Carolina then you’re not required to collect sales tax on transactions that are shipped to an address in North Carolina. Simple stuff, right?

You live/operate your business in North Carolina
If you live in North Carolina and run your online business out of your house (which a lot of us do) then you’re business is considered to have nexus in North Carolina. Nexus means that your presence in the state is significant enough that the state wants you to collect sales tax and remit it to them. I wrote a whole post on sales tax and nexus if you’re interested in learning more. How much sales tax you should collect on a transaction is a separate, but very important, issue I’ll cover towards the end of the post.

Before you collect sales tax from your customers, be sure to register with North Carolina Department of Revenue. It’s free to file and you can file online and get a sales tax number instantly.

You live out-of-state but use a fulfillment service
Another way to gain nexus with North Carolina is by having your inventory warehoused or stored (most likely by a fulfillment service) within state borders. You could be living in Arizona, for example, and never even been to North Carolina, but your inventory is being warehoused there. That inventory is enough of a presence to where you need to collect sales tax on transactions shipped to addresses in North Carolina.

Here’s the exact text from NC’s sales tax laws that shows inventory means you are “engaged in business” in the state (in other words you have nexus):

Maintaining, occupying, or using permanently or temporarily, directly or indirectly, or through a subsidiary or agent, by whatever name called, any office, place of distribution, sales or sample room, warehouse or storage place, or other place of business for selling or delivering tangible personal property, digital property, or a service for storage, use, or consumption in this State, or permanently or temporarily, directly or through a subsidiary, having any representative, agent, sales representative, or solicitor operating in this State in the selling or delivering. The fact that any corporate retailer, agent, or subsidiary engaged in business in this State may not be legally domesticated or qualified to do business in this State is immaterial.

Collecting at the correct sales tax rate
North Carolina’s state sales tax rate as I write this is 4.75%. An additional local sales tax rate of 2% is almost always added to the state rate. There are instances where the local rate is more than 2%. North Carolina is a destination-based sales tax state. That means the sales tax rate you’re supposed to charge your customers is based on the ship-to address (as opposed to collecting based on where you the seller is located).

For example, let’s say you’re an online seller living Cumberland County, NC. You sell a taxable item to a customer with a shipping address in Pitt county. The sales tax rate collected is whatever the rate is in Pitt County. According to current rates as I write this, the sales tax you should collect is 7.00% (4.75% to the state and 2.25% local).

Second example: you’re an online seller living in Orlando, Florida. You use a fulfillment service that stores your inventory in Burke County, NC. You sell a taxable item to a customer with a shipping address in Washington County. The sales tax rate you should use in this transaction is 6.75% – the effective rate in Washington County.

Filing sales tax returns in North Carolina is painful
The biggest pain we hear from our customers when it comes to states like North Carolina is the work that comes with filing sales tax returns. That’s because North Carolina requires you to break down your gross sales per local jurisdiction (as opposed to asking for one simple gross sales figure for all customers in the state). The good news for you is that TaxJar does that work for you in our local sales tax reports. These give online sellers the jurisdictional breakdown they need to make filing a heck of a lot easier.

Summary: if your business has nexus, collect based on shipping address
The two most common ways that your online business would be required to collect sales tax in North Carolina are by either living and operating your business in the state or by having inventory stored or warehoused there. If your business is required to collect sales tax, be sure to register with the state and collect sales tax based on the ship-to address not based on your address.

Have any questions? Feedback? Tell me about your experience selling in North Carolina in the discussion section below.

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  • Erika

    I just opened a shop in Etsy. I live currently in North Carolina, but don’t own a home or any property. Other websites have said that means I don’t need to charge sales tax. Would you agree with that?

  • Hi Erika,
    No, we definitely don’t agree with that. Just because you don’t own your home or property doesn’t mean that that isn’t your business location. Here’s more about sales tax nexus: http://taxjar.wpengine.com/sales-tax-nexus-definition/

    I also recommend our Sales Tax 101 Guide to get you started. http://offers.taxjar.com/sales-tax-101-whitepaper

    Good luck on your Etsy venture!

  • barryfallsjr

    How do you know how frequently you are supposed to file taxes in North Carolina? Thank you.

  • Hi There,

    When you register for your sales tax permit, they will assign you a filing frequency.

  • Teresa Tribolet

    If the business is in NC, what are the laws/rules for taxing customers who purchase/live out of the state? From everything I’ve read it seems like the biz owner isn’t required to tax out of state customers? Is that correct?

    • Hi Teresa,

      Sales tax is administered by each state, so you only have to charge sales tax to customers when their ship-to address is in a state where you have sales tax nexus. Here’s more about nexus: http://taxjar.wpengine.com/sales-tax-nexus-definition/

      Basically, nexus is a “significant connection” to a state, such as your office or warehouse, an employee, a contractor, or products stored in a warehouse. If you only have nexus in North Carolina, then you don’t have to worry about collecting sales tax from customers in any other state. You only collect sales tax from customers in states where you have nexus. I hope this helps!

  • Marc3377

    Would I have to pay NC sales tax if I sell a digital product to someone online in or out of NC?

  • It looks like NC does indeed consider digital products taxable. You can find more here by searching “digital” http://www.ncga.state.nc.us/gascripts/statutes/statutelookup.pl?statute=105-164.4

    • Marc3377

      Thanks for the reply.

  • Pingback: A Guide to Sales Tax Nexus in All U.S. States()

  • Matt Kornegay

    I am rather confused with NC taxes as I’m sure that is their intention. If you finally speak with someone they don’t know anymore than you do and it all comes down to the understanding of whoever is reading it. Mark, in this post http://www.taxjar.com/states/north-carolina-sales-tax-online/ it was mentioned that Graphic Designers do not need to collect sales tax. However, I’m a graphic designer that sells tangible products that my designs are implemented in (brochures, cards, etc), so do I charge tax on all items or just the tangible product? I was told some time back by DORNC that if my design is implemented into the product (or any intentions of) then I charge on the total, even though I itemize my design fee and product charge on the invoice. Is this correct?

    Secondly, I sell website customization (not code) and hosting. I use a free CMS in which I purchase a membership to templates to customize (I itemize these charges on invoice). I do not resale the templates, but just their customization. If the client needs hosting then I sell them a plan. The data servers are not in NC. Do I charge tax on both of these “services” or on none or on just one. I keep seeing digital property, but my client receives nothing tangible (no disk or backup). I also see that tangible is anything they can be perceived by the senses. Would that include seeing the website on the screen?

    Also for the hosting, isn’t that considered an “information service”? I also provide site maintenance/management. I charge hourly labor rates for this. I updates pictures, content, plugins, etc. Is this taxable? I just need some kind of clarification. The cut and dry stuff is simple, but the more you read into tax law the more questions are posed with all the bulletins, amendments and appeals. Most of the questions people are asking in forums are basic. I have already billed clients and now I have to figure out how to make it right. Thanks!

  • Hi Matt,

    Thanks for your questions! Unfortunately we can’t give you specific advice, but we can direct you to CPAs who absolutely can. This is our list of vetted and trusted sales tax experts: http://www.taxjar.com/sales-tax-accountant-directory/

    I know one can help you! Also, there are CPAs in this Facebook group who will give you some general advice: https://www.facebook.com/groups/SalesTax4EcommerceSellers/

    I know it’s confusing and I hope this can help!

  • Pingback: How to File a Sales Tax Return in North Carolina()

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