2023 Sales and Use Tax Law Changes

The 2023 General Assembly added new defined terms and amended definitions for existing defined terms. The changes and their effective dates are as follows:

Breast Pump: The definition of the term was added to be used in a new exemption and is defined as “[a]n electrically or manually controlled pump device designed or marketed to be used to express milk from a human breast during lactation. The term includes the electrically or manually controlled pump device and any battery, AC adapter, or other power supply unit packaged and sold with the pump device at the time of sale to power the pump device.”

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.16.(a), S.L. 2023-134.)

Breast Pump Collection and Storage Supplies: The definition of the term was added to be used in a new exemption and is defined as “[i]tems of tangible personal property designed or marketed to be used in conjunction with a breast pump to collect milk expressed from a human breast and to store collected milk until it is ready for consumption. The term includes breast shields and breast shield connectors, breast pump tubes and tubing adapters, breast pump valves and membranes, backflow protectors and backflow protector adaptors, bottles and bottle caps specific to the operation of the breast pump, breast milk storage bags, and other items that may be useful to initiate, support, or sustain breast-feeding using a breast pump during lactation that may be sold separately, but are generally sold as part of a breast pump kit. The term does not include (i) bottles and bottle caps not specific to the operation of the breast pump, (ii) breast pump travel bags and other similar carrying accessories, including ice packs, labels, and other similar products, (iii) breast pump cleaning supplies, (iv) nursing bras, bra pads, breast shells, and other similar products, and (v) creams, ointments, and other similar products that relieve breastfeeding-related symptoms or conditions of the breasts or nipples, unless sold as part of a breast pump kit pre-packaged by the breast pump manufacturer or distributor.”

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.16.(a), S.L. 2023-134.)

Breast Pump Kit: The definition of the term was added to be used in a new exemption and is defined as ”[a] kit that contains a breast pump and one or more of the following items: breast pump collection and storage supplies and other taxable items of tangible personal property that may be useful to initiate, support, or sustain breast-feeding using a breast pump during lactation, so long as the other taxable items of tangible personal property sold with the breast pump kit at the time of sale are less than ten percent (10%) of the total sales price of the breast pump kit.”

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.16.(a), S.L. 2023-134.)

Prepared Food: The definition of the term was amended and recodified in N.C. Gen. Stat. § 105-164.4L.

(Effective April 3, 2023; SB 174, s. 2.1.(a), S.L. 2023-12.)

Qualified Aircraft: The definition of the term was amended to expand qualifying aircraft and is now defined as “[a]n aircraft with a maximum take-off weight of 2,000 pounds and above.” [Emphasis added.]

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.12.(a), S.L. 2023-134.)

Streamlined Agreement: The definition of the term was amended to update the date and is now defined as “[t]he Streamlined Sales and Use Tax Agreement as amended as of December 22, 2022."

(Effective April 3, 2023; SB 174, s. 2.5., S.L. 2023-12.)

Note: The Revisor of Statutes is authorized to renumber the subdivisions of G.S. 105-164.3 to ensure that the subdivisions are listed in alphabetical order and in a manner that reduces the current use of alphanumeric designations, to make conforming changes, and to reserve sufficient space to accommodate future additions to the statutory section.

This subsection was added to provide the following: “[w]hen the Secretary finds it necessary for the efficient administration of [Article 5 of Chapter 105 of the North Carolina General Statutes] to regard any sales representatives, solicitors, representatives, consignees, peddlers, or truckers as agents of the dealers, distributors, consignors, supervisors, employers, or persons under whom they operate or from whom they obtain the items sold by them regardless of whether they are making sales on their own behalf or on behalf of these dealers, distributors, consignors, supervisors, employers, or persons, the Secretary may so regard them and may regard the dealers, distributors, consignors, supervisors, employers, or persons as ‘marketplace facilitators’ for the purpose of [Article 5 of Chapter 105 of the North Carolina General Statutes] and may treat the sales they make as ‘marketplace- facilitated sales’ and the sellers as ‘marketplace sellers.’”

(Effective April 3, 2023; SB 174, s. 2.2., S.L. 2023-12.)

This section was added to codify administrative interpretations related to the taxation of prepared food and to consolidate the definitions and imposition statutes. The section provides the following:

“(a) Prepared Food Definition. – The term ‘prepared food’ means food that meets at least 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. This does not include: 
a. Food containing raw eggs, fish, meat, or poultry that requires cooking by the consumer as recommended by the Food and Drug Administration in chapter 3, part 401.11 of its Food Code so as to prevent foodborne illnesses. 
b. Food that is only sliced, repackaged, or pasteurized by the retailer. 
(3) It is sold with eating utensils provided by the retailer, such as plates, knives, forks, spoons, glasses, cups, napkins, and straws. A plate does not include a container or packaging used to transport the food. An eating utensil placed in a package with the food items by a person other than the retailer, if that other person’s NAICS classification code is that of a manufacturer, sector 311, is not treated as an eating utensil provided by the retailer. For a packager with any other NAICS classification code, the retailer is considered to have provided the eating utensil. 

(b) Utensils Provided by the Retailer. – Based on a retailer’s prepared food sales percentage, determined in accordance with subsection (c) of this section, the phrase ‘provided by the retailer,’ as described in subdivision (3) of subsection (a) of this section, has the following meanings: 
(1) Sales percentage of greater than seventy-five percent (75%). – If a retailer has a prepared food sales percentage of greater than seventy-five percent (75%),‘provided by the retailer’ means the retailer makes eating utensils available to purchasers, except that an item sold by the retailer containing four or more servings packaged as one item and sold for a single price does not become prepared food because the retailer makes utensils available to the purchaser of the item, but is prepared food if the retailer physically gives or hands utensils to the purchaser of the item. Serving sizes are determined based on the label of an item sold. If no label is available, a retailer must reasonably determine the number of servings in an item. 
(2) Sales percentage of seventy-five percent (75%) or less. – If a retailer has a prepared food sales percentage of seventy-five percent (75%) or less, ‘provided by the retailer’ means the retailer’s business practice is to physically give or hand eating utensils to purchasers, except that plates, bowls, glasses, and cups necessary for the purchaser to receive the food need only be made available to purchasers.

(c) Prepared Food Sales Percentage. – 
(1) Definition. – A percentage determined by dividing the following described numerator by the following described denominator: 
a. The numerator is the retailer’s annual sales of prepared food described in subdivisions (1) and (2) of subsection (a) of this section and food sold when plates, bowls, glasses, or cups are necessary to receive the food. The numerator shall not include alcoholic beverages or food excluded from prepared food. 
b. The denominator is the retailer’s total annual sales of all food and prepared food, excluding alcoholic beverages. 
(2) Administration of definition. – 
a. A retailer must calculate the prepared food sales percentage for each tax year or business fiscal year based on the retailer’s data from the prior tax year or business fiscal year, as soon as possible after accounting records are available, but not later than 90 days after the beginning of the retailer’s tax year or business fiscal year. 
b. A single prepared food sales percentage shall be determined annually for all of the retailer's establishments in this state. 
c. A new retailer shall make a good-faith estimate of its prepared food sales percentage for its first year in business. The new retailer must adjust its good faith estimate prospectively after the first three months of its business operation if actual prepared food sales percentages materially affect the seventy-five percent (75%) threshold described in subsection (b) of this section.”

(Effective April 3, 2023; SB 174, s. 2.1.(b), S.L. 2023-12.)

This section was amended to provide sales tax recovery to marketplace facilitators and provides:

“(a) Retailers. – A retailer who pays sales and use tax on an item that is separately stated on an invoice or similar billing document given to the retailer at the time of sale and subsequently resells the item at retail, without the item being used by the retailer, may recover the sales or use tax originally paid to a seller as provided in this subsection. A retailer entitled to recover tax under this subsection may reduce taxable receipts by the taxable amount of the purchase price of the item resold for the period in which the retail sale occurs. A recovery of tax allowed under this subsection is not an overpayment of tax and, where the recovery is taken, a refund of the tax originally paid may not be requested from the seller pursuant to the authority under [N.C. Gen. Stat. §] 105-164.11. Any amount for tax recovered under this subsection in excess of tax due for a reporting period under [Article 5 of Chapter 105 of the North Carolina General Statutes] is not subject to refund. Any tax recovered under this subsection may be carried forward to a subsequent reporting period and taken as an adjustment to taxable receipts. The records of the retailer must clearly reflect and support the adjustment to taxable receipts for the period in which the adjustment is made.

(b) Marketplace Facilitators. – A marketplace facilitator may recover the sales or use tax originally paid to a marketplace seller as provided in this subsection when the marketplace facilitator pays sales and use tax to a marketplace seller on a marketplace-facilitated sale for which the marketplace facilitator is considered the retailer pursuant to [N.C. Gen. Stat. §] 105-164.4J(b), and the tax is separately stated on an invoice or similar billing document given to the marketplace facilitator at the time of sale. A marketplace facilitator entitled to recover tax under this subsection may reduce taxable receipts by the taxable amount of the marketplace-facilitated sale that is taxed by the marketplace seller for the period in which the retail sale occurs. A recovery of tax allowed under this subsection is not an overpayment of tax and, where the recovery is taken, a refund of the tax originally paid may not be requested from the seller pursuant to the authority under [N.C. Gen. Stat. §] 105-164.11. Any amount for tax recovered under this subsection in excess of tax due for a reporting period under [Article 5 of Chapter 105 of the North Carolina General Statutes] is not subject to refund. Any tax recovered under this subsection may be carried forward to a subsequent reporting period and taken as an adjustment to taxable receipts. The records of the retailer must clearly reflect and support the adjustment to taxable receipts for the period in which the adjustment is made.” [Emphasis added.]

(Effective April 3, 2023; SB 174, s. 2.3., S.L. 2023-12.)

The 2023 General Assembly added and enacted clarifying and substantive changes to the exemptions from sales and use tax. The changes and their effective dates are as follows:

(11)b. – Exemption for Sales of Alternative Fuel Tax in Article 36D: This sub-subdivision was amended in conjunction with changes to the frequency that a taxpayer may file a claim for refund of the tax imposed in Article 36D on alternative fuel. The subdivision as amended provides an exemption for “[a]lternative fuel taxed under Article 36D of this Chapter, unless a refund of that tax is allowed under [N.C. Gen. Stat. §] 105- 449.106(d) or [N.C. Gen. Stat. §] 105-449.107.” [Emphasis added.]

(Effective retroactively to January 1, 2023, and applies to applications of refunds submitted on or after that date; SB 174, s. 2.4.(a), S.L. 2023-12.)

(11b) – Exemption on Certain Sales of Aviation Gasoline and Jet Fuel for Use in Commercial Aircraft: This subdivision was amended to extend the expiration date of the exemption to January 1, 2029.

(Effective October 3, 2023; HB 259, s. 42.13.(a), S.L. 2023-134.)

(24) – Exemption for Fuel and Consumables Used by Boats Transporting Freight on Inland and Intracoastal Waterways: This subdivision was amended to broaden the exemption to include boats transporting freight on inland and intracoastal waterways in intrastate commerce. The exemption now provides an exemption from sales and use tax on “[s]ales of fuel and other tangible personal property for use or consumption by or on a watergoing vessel when delivered to an officer or agent of the vessel for the use of the vessel engaged in either of the activities listed in this subdivision. Sales of fuel and other tangible personal property made to officers, agents, members of the crew, or passengers of these vessels for their personal use are not exempt from payment of the sales tax. The activities are:

a. The transport of freight in intrastate, interstate, or foreign commerce, whether on the high seas, intracoastal waterways, sounds, or rivers. 
b. The transport of passengers for hire exclusively on the high seas."

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.14.(a), S.L. 2023-134.)

(35) – Exemption on Sales by a Nonprofit Civic, Charitable, Educational, Scientific, Literary, or Fraternal Organization: This subdivision was amended to clarify that a qualifying nonprofit may have more than one annual sales period as long as all of the conditions in the statute are met. The subsection provides an exemption from sales and use tax on “[s]ales by a nonprofit civic, charitable, educational, scientific, literary, or fraternal organization when all of the conditions listed in this subdivision are met. This exemption does not apply to gross receipts derived from an admission charge to an entertainment activity. The conditions are:

a. The sales are conducted only upon an annual basis for the purpose of raising funds for the organization's activities. 
b. The proceeds of the sale are actually used for the organization's activities. 
c. The products sold are delivered to the purchaser within 60 days after the first solicitation of any sale made during the organization's annual sales period. 
d. Each annual sales period occurs at least 60 days after the beginning of the prior annual sales period. 
e. Each annual sales period funds a distinct and different program from the other annual sales periods occurring during the year. 
f. Each annual sales period sells products that are distinct and different from the products sold during the other annual sales periods occurring during the year.” 
[Emphasis added.]

(Effective April 3, 2023; SB 174, s. 2.4.(b), S.L. 2023-12.)

(61a)m. – Exemption for Repair, Maintenance, and Installation Services on a Qualified Aircraft or a Qualified Jet Engine: This sub-subdivision was amended in conjunction with the expanded definition of a qualified aircraft. The exemption now provides an exemption from sales and use tax on the sales price of or the gross receipts derived from the repair, maintenance, and installation services on “[a]ny of the following: 
1. A qualified aircraft. 
2. A qualified jet engine.” 

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.12.(b), S.L. 2023-134.)

(65) & (65a) – Exemption for Certain Purchases by a Professional Motorsports Racing Team: These subdivisions were amended to extend the expiration date on the exemptions until January 1, 2028. 

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.11.(a), S.L. 2023-134.)

(74) – Exemption for Continuing Care Retirement Communities: This subdivision was added and provides an exemption from sales and use tax on “[s]ales of items by a provider of continuing care to its residents, other than sales of alcoholic beverages. A provider of continuing care must pay sales and use tax on the purchase price of an item that is exempt from tax under this subdivision as if the provider is the user of the item. As a result, the provider of continuing care is not required to pay sales or use tax if the purchase would be exempt if purchased for use, not resale, by the provider. The terms ‘provider,’ ‘continuing care,’ and ‘resident’ have the same meanings as defined in [N.C. Gen. Stat. §] 58-64-1. The term ‘alcoholic beverage’ has the same meaning as defined in [N.C. Gen. Stat. §] 18B-101.”

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.10.(a), S.L. 2023-134.)

(74) – Exemption on Sales of Breast Pumps: This subdivision was added and provides an exemption from sales and use tax on “[s]ales of breast pumps, including repair and replacement parts, breast pump kits, and breast pump collection and storage supplies.” 

(Effective November 1, 2023, and applies to sales occurring on or after that date; HB 259, s. 42.16.(b), S.L. 2023-134.)

The 2023 General Assembly amended G.S. 105-164.13E. The change and its effective date are as follows:

(a)(2) – Exemption for Compost: This sub-subdivision was amended to expand the items a qualifying or conditional farmer may purchase for use in farming operations. The sub-subdivision now provides an exemption from sales and use tax on the following purchases by a qualified farmer or conditional farmer if used primarily in farming operations:
… 
“(2) Commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, potting soil, baler twine, compost, and seeds.” [Emphasis added.] 

(Effective October 1, 2023; SB 582, s. 1.4.(a), S.L. 2023-63.)

The 2023 General Assembly extended the expiration date for certain refunds. The changes and their effective date are as follows:

(a)(4) – Refund for Certain Purchases of Aviation Gasoline or Jet Fuel by a Professional Motorsports Team or Sanctioning Body: This sub-subdivision was amended to extend the expiration date of the refund until January 1, 2029. The refund now applies to purchases made on or before January 1, 2029.

(Effective October 3, 2023; HB 259, s. 42.11.(b), S.L. 2023-134.)

(a)(5) – Refund for Certain Purchases by a Professional Motorsports Team: This sub-subdivision was amended to extend the expiration date of the refund until January 1, 2028. The refund now applies to purchases made on or before January 1, 2028. 

(Effective October 3, 2023; HB 259, s. 42.11.(b), S.L. 2023-134.)