Sales and Use Tax Directive 26-3

North Carolina allows qualifying non-profits refunds of sales and use tax paid on eligible purchases (“Non-Profit Refunds”). However, the Non-Profit Refunds may not exceed amounts set by statute (“Refund Maximums”).

Effective July 7, 2026, generally, a nonprofit hospital system and all of its affiliates are treated as one entity for purposes of determining the Refund Maximums.

Component unit1 - Any of the following:

• The University of North Carolina Hospitals at Chapel Hill.
• The clinical patient care programs established or maintained by the School of Medicine of the University of North Carolina at Chapel Hill, including the UNC Faculty Physicians practice.
• Any entity that merges with the University of North Carolina Health Care System pursuant to G.S. § 116-350.60 and is designated by the Board of Directors as a component unit of the System.

Managed entity2 - A nonprofit corporation, and all of its affiliates, that is governed by a single board, that has entered into a management agreement with The University of North Carolina Health Care System, and in which The University of North Carolina Health Care System does not have an ownership interest.

Qualifying Hospitals3 - Hospitals not operated for profit, including hospitals and medical accommodations operated by an authority or other public hospital described in Article 2 of Chapter 131E of the General Statutes. This does not include an entity that is owned and controlled by the United States.

Related facilities4 - All facilities owned, maintained, or operated by a hospital authority or by a public hospital, as applicable.

System affiliate5 - Any corporation, partnership, limited liability company, joint venture, association business trust, or similar entity organized under the laws of the United States of America or any state thereof, whether for profit or nonprofit, if a majority of the members of the governing body or of its partnership or membership interests are one of the following:

• The same as the members of the Board of the University of North Carolina Health Care System.
• Subject, directly or indirectly, to election or appointment by the Board of the University of North Carolina Health Care System.

The University of North Carolina Health Care System or System6 - The entity created pursuant to G.S. § 116-350.5, the component units of which include the University of North Carolina Hospitals at Chapel Hill and the clinical patient care programs established or maintained by the School of Medicine of the University of North Carolina at Chapel Hill.

• 1

  G.S. § 116-350.

• 2

  G.S. § 105-164.14(b)(1)c.

• 3

  G.S. § 105-164.14(b)(1).

• 4

  G.S. § 105-164.14(b)(1)b.

• 5

  G.S. § 116-350.

• 6

  G.S. § 116-350.

Effective July 7, 2026, for purposes of applying the aggregate annual Refund Maximums to Qualifying Hospitals, the following conditions apply:

• Except as otherwise provided in this subdivision, a nonprofit hospital system and all of its affiliates are treated as one entity.
• A hospital authority, and all of its related facilities, or a public hospital, and all of its related facilities, are treated as one entity.
• The University of North Carolina Health Care System, each of its component units, each of its system affiliates, and each of its managed entities are treated as separate entities that are each allowed up to the aggregate Refund Maximums.

Total Refund Maximums

Currently, the aggregate annual Refund Maximums for each state fiscal year are as follows:

• State Sales and Use Tax - $31,700,000
• Local Sales and Use Tax1 - $13,300,0002

Pro-Rated Refund Maximums

For the current fiscal year, Session Law 2026-42 provides that the Refund Maximums shall be pro-rated on a daily basis for the current fiscal year. The amounts are pro-rated to account for the periods before and after the law change. As a result, the pro-rated amounts by period are as follows:

Application of Pro-Rated Refund Maximums

For refunds issued for purchases made on or after July 1, 2026, and before July 7, 2026, the portion of the aggregate annual refund amounts attributable to this period shall be administered as the law existed prior to July 7, 2026. As a result, each Qualifying Hospital entity has Refund Maximums of $521,095.89 of state sales and use tax, and $218,630.14 of local sales and use tax for this six-day period.

For refunds issued for purchases made on or after July 7, 2026, the remainder of the prorated Refund Maximums shall be administered according to G.S. § 105-164.14(b)(1), as amended. As a result, Qualifying Hospitals must apply the conditions to treat affiliates as one entity for purchases made on or after July 7, 2026. The Refund Maximums for this period are $31,178,904.11 in state sales and use tax and $13,081,369.86 in local sales and use tax.

• 1

  For purposes of this directive local sales and use tax includes food, county, transit, and the additional 1% Mecklenburg County sales and use tax rates.

• 2

  If a refund exceeds the local sales and use tax maximum, the refund must be reduced proportionally across the local jurisdictions and rates.

Example 1

North Carolina Public Hospital is a public hospital located in Henderson. In addition to the main hospital, they operate four affiliated clinics across North Carolina. Purchases were made by North Carolina Public Hospital between 7/1/2026 – 7/6/2026; however, no purchases were made by any of the affiliated clinics during this six-day period. All entities made purchases during the remainder of the fiscal year.

For the Period 7/1/2026 – 7/6/2026

• North Carolina Public Hospital’s refund for the period cannot exceed $521,095.89 in state sales and use tax and $218,630.14 in local sales and use tax.

For the Period 7/7/2026 – 6/30/2027

• North Carolina Public Hospital and their four affiliated clinics are to be treated as one entity for purposes of calculating the Refund Maximums. The entities’ combined refunds cannot exceed $31,178,904.11 in state sales and use tax and $13,081,369.86 in local sales and use tax.

Example 2

Main Hospital is a nonprofit hospital that also operates an Orthopedic Clinic in the western part of the state and a Heart Center in eastern North Carolina. The main hospital and each clinic are separate legal entities. However, all three entities are affiliates. Each entity made purchases between 7/1/2026 – 6/30/2027.

For the Period 7/1/2026 – 7/6/2026

• As separate legal entities, Main Hospital, the Orthopedic Clinic, and the Heart Center will be treated independently for the purpose of calculating the aggregate annual refund amount allowable for this period.
• Each entity’s refund for the period cannot exceed $521,095.89 in state sales and use tax and $218,630.14 in local sales and use tax.

For the Period 7/7/2026 – 6/30/2027

• Main Hospital, the Orthopedic Clinic, and the Heart Center will be treated as a single entity for purposes of calculating the Refund Maximums for this period.
• The entities’ combined refunds cannot exceed $31,178,904.11 in state sales and use tax and $13,081,369.86 in local sales and use tax.

NCDOR will update refund forms and instructions for this law change by January 1, 2027.