Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for North Carolina.
July 23, 2024
North Carolina Eliminates 200 Transaction Threshold From Economic Nexus Statute
Authored by: Courtney Easterday, MSA and Jessie Racioppi
On July 1, 2024, North Carolina Governor Cooper signed HB 222 eliminating the 200-transaction sales tax nexus threshold effective July 1, 2024. North Carolina requires remote retailers and marketplace facilitators to collect and remit sales and use tax if the annual North Carolina sourced gross receipts exceed $100,000, regardless of the number of transactions. Retailers and marketplace facilitators with less than $100,000 of North Carolina sales were required to register because they had more than 200 North Carolina transactions and were no longer required to collect and remit North Carolina sales tax. North Carolina Department of Revenue advises that remote sellers that meet the following criteria should consider closing their North Carolina sales and use tax account:
- Less than $100,000 of gross sales sourced to North Carolina in 2023;
- Less than $100,000 of gross sales source to North Carolina in 2024 from January 1 through the registration cancellation date; and
- Is not engaged in any other business activity in North Carolina.
For more information, on HB 228, please refer to the Department’s July 1, 2024 Directive: SD-24-1 – Remote Sales – Repeal of Transaction Thresholds.
If you have questions about the sales tax nexus, please reach out to a member of the Withum SALT Team.
June 7, 2024
North Carolina Extends Date to Make Retroactive PTET Election Until July 1, 2024
Authored by: Katie Nguyen, CPA and Kiana McGowan, CPA, MBA
The North Carolina Department of Revenue updated directive TA-23-1 regarding to the Pass-Through Entity Tax (PTET). Previously, the directive required partnerships to file an amended return by October 15, 2023, if they wished to make a retroactive PTET election for the tax year 2022. However, the revised directive has extended this deadline. Taxpayers now have until July 1, 2024, to file an amended return and make the election.
It is also noteworthy of the broadening of PTET eligibility in the State’s Directive. Corporations and specific trusts have been included in the roster of entities that can choose the Taxed Partnership Election. These newly eligible entities join the existing list that includes individuals, estates, trusts, and organizations described in section 1361(c)(2) of the code, partnerships classified as partnerships for federal purposes, and certain S corporations.
For more information on North Carolina PTET requirements, please review TA-23-1 from the Department of Revenue.
If you have questions about State PTET elections, please reach out to a member of the Withum SALT Team.
December 23, 2022
North Carolina Supreme Court Confirms Sales and Use Tax Assessment
Authored by: Brandon Vance and Katie Szymanski, CPA
On December 16, 2022, the North Carolina Supreme Court upheld the Department of Revenue’s (“DOR”) assessment of sales tax against a Wisconsin based printing company. The DOR had previously assessed sales tax on years’ of sales of printed materials shipped into North Carolina via common carrier. In upholding the assessment, the North Carolina Supreme Court cited four reasons:
- The transactions at issue satisfied the Complete Auto standard for imposition of a tax on interstate commerce;
- The tax was fairly apportioned;
- The tax was non-discriminatory; and,
- The tax was connected to public services that assisted the company’s business.
If you have questions about whether your business is obligated to collect and remit sales and use tax, please contact a member of the Withum SALT Team.
December 16, 2022
North Carolina Passthrough Entity Tax – Updated Guidance
Authored by: Zhoudi Tang, MST, CPA and Jessie Racioppi
On December 2, 2022, the North Carolina Department of Revenue issued guidance on how S corporations and partnerships should make the Passthrough Entity Tax election and estimated payments for tax years beginning on or after January 1, 2023. S corporations should use form CD-429 PTE to make the PTE election and partnerships must use form NC-40 PTE. North Carolina does not require electing passthrough entity nonresident owners to file an individual North Carolina return when their only income from North Carolina sources is their respective share of pass-through entity income. If a nonresident owner has other North Carolina source income that is not covered by a pass-through entity tax election, they are required to file a North Carolina income tax return, and they will claim a credit for the PTE tax paid on their behalf. PTE estimated payments are due on April, June, September, and December 15th. Unlike many states, overpayments of estimated PTE tax by the PTE will be refunded to the entity, not the individual owners.
If you have questions about state PTE taxes, please reach out to a member of the Withum SALT Team.
November 23, 2021
North Carolina Signs Budget That Phases Out Corporate Income Tax, Lowers Individual Income Tax, and More…
The governor of North Carolina signed a two-year $52.9 billion budget that makes extensive changes to the state’s tax laws. The signed budget phases out the state’s corporate income tax by 2030, and in doing so, will become the seventh state without a corporate income tax. The state will also reduce the personal income tax rate from 5.25% to 3.99% over a period of six years.
North Carolina Budget Creates a Pass Through Entity Tax
As a part of the signed North Carolina budget bill, a State and Local Tax (“SALT”) workaround for owners of pass-through entities. This workaround known as Pass-Through Entity Tax (“PTET”) has been enacted in New York and many other states. The PTET is available for tax years beginning on or after January 1, 2022 for all S Corporations and partnerships that have individuals, estates and trusts as partners. The election can be made on a timely filed annual tax return and is calculated at the same rate as the North Carolina’s personal income tax rate. To avoid duplicate taxation at the member level, North Carolina provides a deduction for their distributable share of the income subject to the tax. This election is irrevocable after the due date of the return (including extensions). As with all newly enacted PTET, the states will release further guidance and forms in the near future.
June 3, 2021
North Carolina Rules Certain Digital Property Taxable in North Carolina
The North Carolina Department of Revenue determined that the sale of a subscription to provide a right and license to access and use the taxpayer’s industry profile reports through the taxpayer’s web portal is subject to sales and use tax. Generally, North Carolina imposes sales tax on the sales price of certain digital property, which includes digital goods such as reports transferred electronically. In this case, the customer pays a subscription fee for a license to gain access to reports that are available to all subscribers through a web-based portal. The reports are not customized to a specific customer or user and customers can add their own content to specific sections of a report if they purchase a license to access all of the reports. The subscription allows a customer to gain access to web-based reports that are delivered or accessed electronically. Since certain digital property includes reports transferred electronically, the subscription fees were held to be subject to the general state and applicable local and transit rates of sales and use tax.
April 1, 2021
North Carolina Holds Taxpayer’s Nutritional Products Subject to Sales Tax as Prepared Food
The North Carolina Department of Revenue ruled that a taxpayer’s manufacture and sale of nutritional and dietary supplement products was subject to sales tax because each product at issue was a mixture or combination of two or more foods to be sold as a single product. Per State regulation, prepared food includes food that meets one of the following conditions: (1) It is sold in a heated state or it is heated by the retailer; (2) It consists of two or more foods mixed or combined by the retailer for sale as a single item (excluding foods containing raw eggs, fish, meat, or poultry that require cooking by the consumer as recommended by the Food and Drug Administration to prevent food borne illnesses); or (3) It is sold with eating utensils provided by the retailer, such as plates, knives, forks, spoons, glasses, cups, napkins, and straws. See N.C. Gen. Stat. § 105-164.3(179) for further information.
March 23, 2021
North Carolina Update on Extension of Filing Deadline
The North Carolina Department of Revenue has announced that it will extend the personal income tax filing and payment deadline from April 15, 2021 to May 17, 2021, to mirror the extension of the federal tax deadline. The Department will not charge penalties for those filing and paying their taxes after April 15, 2021, as long as they file and pay their tax on or before May 17, 2021. Unless state law is changed, tax payments received after April 15, 2021 will be charged interest, accruing from April 15, 2021 until the date of payment. The deadline extension only applies to personal income tax returns due April 15, 2021. The deadline extension does not apply to estimated tax payments or trust taxes such as sales and use taxes or withholding taxes due April 15, 2021. ( NCDOR Extends Individual Income Filing and Payment Deadline to May 17, 2021, N.C. Dept. of Rev., 03/18/2021 .)
March 2020
Governor Declares State of Emergency Allowing for Waiver of Penalties
Governor Roy Cooper signed Executive Order 116 which declared a state of emergency in response to COVID-19. Penalties for failing to obtain a license, to file a return, or to pay taxes between March 15, 2020, and March 31, 2020, has been officially waived. The Department’s Penalty Policy allows for a waiver of penalties for special circumstances.
Specifically, the Department will waive any Late Action Penalties assessed against taxpayers that have been affected by COVID-19 (“Affected Taxpayers”). The waiver for Affected Taxpayers will apply to Late Action Penalties for deadlines occurring between March 15, 2020, and March 31, 2020. To qualify for the waiver, an Affected Taxpayer must file the return, pay the tax, obtain the license, or receive an extension on or before April 15, 2020. While the waiver will be considered a waiver for special circumstances, the waiver will not be considered a waiver for good compliance that can only be granted once every three years per tax type.
North Carolina law prevents the Department from waiving any interest, including interest assessed for the underpayment of estimated tax, except in the specific case of interest on taxes imposed prior to or during a period that a taxpayer has declared bankruptcy. Affected Taxpayers, who cannot meet their filing or payment requirement as a result of COVID-19, should complete Form NC-5500, Request to Waive Penalties (“NC-5500”) and write “COVID-19” on the top of the NC-5500. Form NC-5500 is available on the Department’s website, www.ncdor.gov. Affected Taxpayers that do not have access to the NC-5500 can attach a letter requesting a penalty waiver. This letter should contain the taxpayer’s name, address, SSN or FEIN, Account ID, and the tax type and tax period for which the taxpayer seeks waiver of penalty. Form NC-5500 or a letter should be mailed to the North Carolina Department of Revenue, Customer Service, P.O. Box 1168, Raleigh, NC 27602.
More on Taxes and the Coronavirus Pandemic.
Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.
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The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.
