2022 Sales and Use Tax Law Changes

The 2022 General Assembly added new defined terms, amended a definition for an existing defined term, and repealed a definition for a defined term. The changes and their effective dates are as follows:

(108) - Interstate Air and Ground Carrier: The definition of this term was added in conjunction with a new exemption. The term is defined as “[a] person whose primary business is the furnishing of air and ground delivery of individually addressed letters and packages for compensation, in interstate commerce, except by the United States Postal Service.”

(Effective July 1, 2022, and applies to purchases made on or after that date; HB 103, s. 42.2.(a), S.L. 2022-74.)

(161) - Operator: The definition of the term was repealed.

(Effective June 29, 2022; HB 83, s. 3.1., S.L. 2022-13.)

(166) - Package Sorting Facility: The definition of this term was added in conjunction with a new exemption. The term is defined as “[a] facility that satisfies both of the following conditions:
a. The facility is used primarily for sorting and distributing letters and packages for an interstate air and ground courier. 
b. The Secretary of Commerce has certified that an investment of private funds of at least one hundred million dollars ($100,000,000) has been or will be made in real and tangible personal property for the facility within five years after the date on which the first property investment is made and that the facility will achieve an employment level of at least 400 within five years after the date the facility is placed into service and maintain that minimum level of employment throughout its operation.”

(Effective July 1, 2022, and applies to purchases made on or after that date; HB 103, s. 42.2.(a), S.L. 2022-74.)

(259) - Streamlined Agreement: The definition of the term was amended to update the date the Streamlined Agreement was updated. The term is defined as “[t]he Streamlined Sales and Use Tax Agreement as amended as of December 21, 2021.” [Emphasis added.]

(Effective June 29, 2022; HB 83, s. 3.2., S.L. 2022-13.)

The 2022 General Assembly repealed the requirement that accommodation facilitators file an annual report with the Secretary of Revenue. G.S. 105-164.4F(c1) was repealed.

(Effective June 29, 2022; HB 83, s. 3.4., S.L. 2022-13.)

The 2022 General Assembly added and enacted clarifying changes to the exemptions from sales and use tax. The changes and their effective dates are as follows:

(11)a - Exemption for Certain Sales of Motor Fuel Taxed in Article 36C: This 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 36C on motor fuel. The amendment updates the references to motor fuel refunds that are excluded from the sales and use tax exemption to reflect the changes to Article 36C. The subdivision as amended provides an exemption for “[m]otor fuel, as taxed in Article 36C of this Chapter, except motor fuel for which a refund of the per gallon excise tax is allowed under G.S. 105-449.105A, G.S. 105-449.106(c), G.S. 105-449.106(d), or G.S. 105- 449.107." [Emphasis added.]

(Effective January 1, 2023, and applies to purchases of motor fuel on or after that date; HB 103, s. 42.4.(e), S.L. 2022-74.)

(13d) - Exemption for Certain Sales of Diapers or Incontinence Pads: This subdivision was amended in conjunction with the merger of the NC Health Choice program into the North Carolina Medicaid program. The amendment removed a reference to an enrolled health choice provider. The subdivision as amended provides an exemption for “[s]ales of diapers or incontinence under pads on prescription by an enrolled state Medicaid provider for use by beneficiaries of the state Medicaid program when the provider is reimbursed by the state Medicaid program or a Medicaid managed care organization, as defined in 42 U.S.C. § 1396b(m)." [Emphasis added.]

(Effective July 1, 2022; HB 103, s. 9D.15.(e), S.L. 2022-74.)

(45e) - Certain Sales to an Interstate Air and Ground Courier: This subdivision was added to provide a new exemption. The subdivision provides an exemption for “[s]ales to an interstate air and ground courier of materials handling equipment, automated conveyor systems, racking systems, and related parts and accessories for the storage or handling and movement of tangible personal property at its package sorting facility. A qualifying item listed in this subdivision purchased to fulfill a contract with an interstate air and ground courier is exempt to the same extent as if purchased directly by the interstate air and ground courier.

If the level of investment or employment required by G.S. 105-164.3(166) b. is not timely made, achieved, or maintained, then the exemption provided under this subdivision is forfeited. If the exemption is forfeited due to a failure to timely make the required investment or to timely achieve the minimum required employment level, then the exemption provided under this subdivision is forfeited on all purchases. If the exemption is forfeited due to a failure to maintain the minimum required employment level once that level has been achieved, then the exemption provided under this subdivision is forfeited for those purchases occurring on or after the date the taxpayer fails to maintain the minimum required employment level. A taxpayer that forfeits an exemption under this subdivision is liable for all past sales and use taxes avoided as a result of the forfeiture, computed at the applicable state and local rates from the date the taxes would otherwise have been due, plus interest at the rate established under G.S. 105-241.21. Interest is computed from the date the sales or use tax would otherwise have been due. The past taxes and interest are due 30 days after the date of forfeiture. A taxpayer that fails to pay the past taxes and interest by the due date is subject to the provisions of G.S. 105-236.”

(Effective July 1, 2022, and applies to purchases made on or after that date; HB 103, s. 42.2.(b), S.L. 2022-74.)

The 2022 General Assembly amended G.S. 105-164.13E. The change and its effective date are as follows:

(a1) - Exemption for Qualifying or Conditional Farmers Also Operating a Zoo: This subsection was added and provides an exemption for certain sales to a qualifying or conditional farmer who operates a zoo in addition to the farmer’s farming operations. The subdivision provides an exemption for “[a] qualifying farmer or conditional farmer who operates a zoo in addition to the farmer's farming operations is allowed a sales and use tax exemption under this subsection for the items used in the farmer's zoo operations. The income derived from the farmer's zoo operations is not included for purposes of determining if the farmer meets the qualifications for a qualifying farmer under [G.S. 105-164.13E(a)] or the qualifications for a conditional farmer under [G.S. 105-164.13E(b)] of this section. The items that may be exempt from sales and use tax are the items listed under [G.S. 105-164.13E(a)] that are purchased by a qualifying farmer or conditional farmer and used by the farmer primarily in zoo operations. The provisions of [G.S. 105-164.13E(c) and G.S. 105-164.13E(c1)] apply to the exemption provided in this subsection. For purposes of this subsection, an item is used in a farmer's zoo operations if it is used for the housing, raising, or feeding of animals for public display."

(Effective January 1, 2023, and applies to sales made on or after that date; SB 388, s. 1.(a), S.L. 2022-45.)

The 2022 General Assembly amended Article 5 of Chapter 105 by adding a new section. The new section provides an exemption from sales and use tax for certain sales to a wildlife manager who holds a valid exemption certificate issued by the Secretary of Revenue. The new section provides the following:

“(a) Definitions. – The following definitions apply in this section: 
(1) Wildlife management activities. – One or more of the activities for which wildlife conservation land must be used to qualify for the wildlife conservation land classification under G.S. 105-277.15. 
(2) Wildlife manager. – A person who owns land classified and taxed as wildlife conservation land under G.S. 105-277.15.

(b) Exemption. – Certain items purchased by a wildlife manager and used primarily for wildlife management activities may be exempt from sales and use tax under this section. The items that may be exempt under this section are: 
(1) Feed and feeders. 
(2) Rodenticides, insecticides, herbicides, fungicides, and pesticides when their application is prescribed in and compatible with the objectives of the Wildlife Habitat Conservation Agreement. 
(3) Commercial fertilizer, lime, land plaster, mulch, plant plugs, seedlings, saplings, seeds, and seed inoculants. 
(4) Machinery used for one or more of the purposes listed in this subdivision. The term ‘machinery’ includes implements that have moving parts or are operated by an animal. The term does not include implements operated solely by hand or motor vehicles required to be registered under Chapter 20 of the General Statutes. The purposes for which the machinery must be used are: 
a. To establish, restore, enhance, or maintain wildlife habitats. 
b. To access or develop access to wildlife habitats. 
c. To implement other wildlife management practices, including land and forest conservation and management. 
(5) Fuel that is measured by a separate meter or another separate device and used only to operate machinery exempt under subdivision (4) of this subsection and used for one or more of the purposes listed in subdivision (4) of this subsection. Examples of a separate device include a tank, a container, and a transfer tank. 
(6) Fuel storage tanks, containers, transfer tanks, and pumps when used only to provide fuel to operate machinery exempt under subdivision (4) of this subsection and used for one or more of the purposes listed in subdivision (4) of this subsection. 
(7) Materials, supplies, fixtures, and equipment that become part of or are used for one or more of the following: 
a. The construction, repair, or improvement of an impoundment, wetland, or ephemeral pool specifically designed, constructed, and used for the benefit of one or more wildlife species. 
b. Erosion control.
c. The installation and maintenance of infrastructure used to access land areas for wildlife management activities. Examples of this type of infrastructure include bridges, culverts, and gravel. 
d. The construction and maintenance of structures used by wildlife for reproduction, travel, or cover. Examples of this type of structure include nest boxes, road crossing development, and structures providing cover or other valuable functions for life processes. 
e. The construction and maintenance of fencing, signage, and other exclusion methods to protect wildlife from access by people or other species or to manipulate livestock access as a method of habitat management.
(8) Repair, maintenance, and installation services for items exempt under this subsection.

(c) Exemption Certificate. – A wildlife manager may apply to the Secretary for an exemption certificate under G.S. 105-164.28A. The exemption certificate is valid for three years and may be renewed. The exemption certificate expires when the wildlife manager ceases to engage in wildlife management activities or when the land no longer qualifies for classification and taxation under G.S. 105-277.15. A person who no longer qualifies for an exemption certificate under this section must notify the Secretary within 30 days to cancel the exemption number.

(d) Contract with a Wildlife Manager. – A qualifying item listed in subdivision (7) of subsection (b) of this section purchased to fulfill a contract with a person who holds a wildlife manager exemption certificate issued under G.S. 105-164.28A is exempt from sales and use tax to the same extent as if purchased directly by the person who holds the exemption certificate. A contractor that purchases one of the items allowed an exemption under this section must provide an exemption certificate to the retailer that includes the name of the wildlife manager certificate holder and the exemption number issued to the wildlife manager by the Department pursuant to G.S. 105-164.28A. A contractor that purchases an item exempt from tax under this subsection must maintain records to substantiate that it is used to fulfill a contract with a person who holds a wildlife manager exemption certificate. The records must be maintained for at least three years.

(e) Services for Wildlife Manager. – An item exempt under subsection (b) of this section purchased to perform a service for a person who holds a wildlife manager exemption certificate issued under G.S. 105-164.28A is exempt from sales and use tax to the same extent as if purchased directly by the person who holds the exemption certificate. A person that purchases one of the items allowed an exemption under this subsection must provide an exemption certificate to the retailer that includes the name of the wildlife manager certificate holder and the exemption number issued to the wildlife manager by the Department pursuant to G.S. 105-164.28A. A person that purchases an item exempt from tax under this subsection must maintain records to substantiate that it is used to provide a service for a person who holds a wildlife manager exemption certificate. The records must be maintained for at least three years."

(Effective October 1, 2022, and applies to sales made on or after that date; SB 388, s. 2. (a), S.L. 2022-45.)

The 2022 General Assembly amended subdivision (8) to broaden the definition of state. The broader definition is consistent with the Streamlined Sales and Use Tax Agreement. The definition applies in Part 7A of Chapter 105, which authorizes the Secretary of Revenue to enter into the Streamlined Sales and Use Tax Agreement. The term is defined as follows:

“(8) State. – The term ‘this State’ means the State of North Carolina. Otherwise, the term ‘state’ means any state of the United States, the District of Columbia, and any territory of the United States including American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands." [Emphasis added.]

(Effective June 29, 2022; HB 83, s. 3.3., S.L. 2022-13.)

The 2022 General Assembly amended this section to modify the amounts that are transferred to the highway fund and highway trust fund and to re-title the section. The section provides:

“(a) Aviation. – The net proceeds of the tax collected on aviation gasoline and jet fuel under G.S. 105-164.4 must be transferred within 75 days after the end of each fiscal year to the Highway Fund. This amount is annually appropriated from the Highway Fund to the Division of Aviation of the Department of Transportation for prioritized capital improvements to general aviation airports for time-sensitive aviation capital improvement projects for economic development purposes. 
(b) Transportation Needs. – At the end of each quarter, the Secretary must transfer to the Funds listed below a percentage of the net proceeds of the tax collected under this Article at the state's general rate of tax set in G.S. 105-164.4(a). The percentages that must be transferred are as follows:

(Effective July 1, 2022; HB 103, s. 42.3.(a), S.L. 2022-74.)