Sales Tax Guidance for Newly Registered Taxpayers

General Information

• File On Time - File your tax returns on or before the due date of the return. You must file a return even if you do not owe tax unless you have registered solely as a wholesale merchant.
• File Form E-500 Online - The online file and pay system is FREE, convenient, easy to use, and secure. If you registered to file monthly with prepayment, you must file Form E-500, Sales and Use Tax Return and make payments electronically.
• Request Forms - If you file monthly or quarterly sales and use tax returns, you have the option to file Form E-500, Sales and Use Tax Return by mail. Call the Department at 1-877-252-3052 to request a coupon booklet.
• File Other Forms by Mail - If you registered to file Form E-500E, Combined General Rate Sales and Use Tax Return (Utility, Liquor, Gas, and Other) or other tax types listed in Section G, we will send you a coupon booklet with preprinted returns. We have also enclosed a blank form to use until you receive the coupon booklet.
• Stay Informed - Sign up for e-alerts to receive emails when the Department publishes notices about law changes and important tax matters.
• Attend a Webinar - Sign up to attend FREE informative webinars to help you understand your tax obligations.
• Find Additional Information - The Sales and Use Tax Bulletins and other tax bulletins provide detailed information about the tax law. If you have additional questions, you may call the Department at 1-877-252-3052.

Common Items Subject to Sales and Use Tax

Generally, the sales price of or the gross receipts derived from the following items sold at retail are subject to the 4.75% general State rate and applicable local and transit rates of sales and use tax:

• Tangible personal property
• Rental of an accommodation
• Certain digital property
• Prepaid telephone calling service
• Lease or rental of tangible personal property
• Satellite digital audio radio service
• Service contract or renewal of a service contract
• Food, non-qualifying food, and prepaid meal plans
• Repair, maintenance, and installation services
• Admission charges to an entertainment activity
• Laundries, dry cleaning plants, and similar businesses
• Prepared food, candy, dietary supplements, soft drinks, and food sold through vending machines
• Alcoholic beverages & tobacco products

Sales and Use Tax Rates

General State, Local, and Transit Rate Items

The items above that are subject to the general state rate are also subject to either a 2.00% or 2.25% local rate of tax. In addition, four counties impose an additional .50% transit rate of tax. The following chart lists the rates that apply by county. 

Items Subject to a Specific Rate and Reported on Form E-500

The following chart shows items that are subject to a specific rate of tax and reported on Form E-500, Sales and Use Tax Return.

Items Subject to the 7% Combined General Rate

The following items are subject to the 7% combined general rate of tax. You must report the tax due from the sale or purchase of these items on Form E-500E, Combined General Rate Sales and Use Tax Return (Utility, Liquor, Gas, and Other). 

• Piped Natural Gas
• Direct-To-Home Satellite Service
• Electricity
• Video Programming
• Telecommunications Service and Ancillary Service
• Aviation Gasoline and Jet Fuel
• Spirituous Liquor and Antique Spirituous Liquor (other than mixed beverages)

Due Dates

You must file your returns and pay the tax according to your filing frequency. A return and payment due on a Saturday, Sunday, or legal holiday is timely if you file and pay on or before the next business day after the Saturday, Sunday, or legal holiday.

Wholesale Sales and Exemption Certificates

Filing Returns - If you only make wholesale sales, you are not required to file sales and use tax returns reflecting such sales. 

Purchasing Items for Resale - To purchase items for resale exempt from tax, you must provide the seller (1) a completed Form E-595E, Streamlined Sales and Use Tax Certificate of Exemption, or (2) electronically provide your name, address, certificate of registration number, reason for exemption, and type of business. If you do not resell an item, you are liable for any use tax due on the purchase.

Recordkeeping Requirements

You must keep adequate and complete records to determine your sales and use tax liability. The Secretary of Revenue, or agents duly authorized by the Secretary, may inspect these records at all reasonable hours of the day. 

If you do not keep records that establish a sale is exempt from tax, you are liable for tax on the sale. If you purchase taxable items not for resale, you must keep records that show you paid the correct tax on the purchase or you will be liable for use tax on the purchase.

Penalties and Interest

You will owe interest and penalties if you do not follow the sales and use tax laws. This section lists common penalties and interest. Additional penalties may apply. 

• Interest – Interest accrues from the due date. The rate is set every six months.
• Late Filing - If you file a return late, a penalty of 5% per month, or fraction thereof, with a maximum of 25% is due.
• Late Payment - If you do not pay tax by the due date, a penalty of 5% is due and you will owe interest until it is paid.
• Misuse of Exemption Certificate - If you misuse an exemption certificate, you will be subject to a $250 penalty for each misuse.
• Unintentional Errors – You may be subject to a penalty of 10% or 25% of the deficiency.
• Fraud - You will be subject to a penalty equal to 50% of the total deficiency.
• Attempt to Evade or Defeat Tax - If you willfully attempt, or aid or abet a person to attempt in any manner to evade or defeat a tax imposed by the Sales and Use Tax Laws, or the payment thereof, you may be found guilty of a Class H felony.

Other Taxes and Charges Administered by the Sales and Use Tax Division

The Sales and Use Tax Division administers some additional taxes and charges. You may owe these taxes or charges if you sell tires, white goods, prepaid wireless telecommunications service or limited possession commitments for motor vehicles.

Scrap Tire Disposal Tax

If you sell new tires for placement on a vehicle, you are required to collect the scrap tire disposal tax.

• The tax rate is 2% on tires with a bead diameter of less than 20 inches.
• The tax rate is 1% on tires with a bead diameter of 20 inches or more.
• The tax is in addition to all other taxes.

Motor Vehicle Lease and Subscription Tax (Alternate Highway Use Tax)

If you offer a limited possession commitment of a motor vehicle and you elected to pay tax on the gross receipts derived from the limited possession commitment when you applied for a certificate of title for the vehicle, you must pay the motor vehicle lease and subscription tax on the gross receipts. A limited possession commitment includes a long-term lease or rental, short-term lease or rental, and vehicle subscriptions.

• The tax rate on a long-term lease or rental of a motor vehicle is 3%.
• The tax rate on a short-term lease or rental of a motor vehicle is 8%.
• The tax rate on a vehicle subscription is 5%.
• A maximum tax may apply to a continuous limited possession commitment of a motor vehicle to the same person.

White Goods Disposal Tax

If you sell white goods in North Carolina, you must collect the white goods disposal tax. White goods include refrigerators, ranges, water heaters, freezers, unit air conditioners, washing machines, dishwashers, clothes dryers, and other similar domestic and commercial large appliances.

• The tax rate is $3.00 for each new white good.
• The tax is in addition to all other taxes.

911 Service Charge for Prepaid Wireless Telecommunications Service

If you sell prepaid wireless telecommunications service, you must collect the 911 service charge for prepaid wireless telecommunications service at the rate of fifty-five cents (0.55¢) on each retail transaction occurring in this state. The service charge is in addition to the sales and use tax.