General Guidance for a Local Sales and Use Tax Rate Increase
This page provides guidance about when a local sales and use tax rate increase applies to transactions. For purposes of this guidance, the rate prior to the increase is the “Lower Tax Rate.” The rate after the increase is the “Higher Tax Rate.”
Statutory Authority
Generally, G.S. § 105-164.15A(a) controls the effective date of a local rate increase.
Items Not Billed on a Monthly or Periodic Basis
Except as otherwise provided, the Higher Tax Rate applies to amounts received for items provided on or after the effective date.
Items Billed on a Monthly or Periodic Basis
The Higher Tax Rate applies to the first billing period that starts on or after the effective date.
Note: The law provides the billing period must also start at least 30 days after enactment of the Higher Tax Rate. However, State law requires local rate increases to be enacted and levied at least 90 days before the effective date. As a result, this provision does not impact local rate increases.
Leases or Rentals
The gross receipts derived from a taxable lease or rental agreement of tangible personal property are subject to the applicable rates of sales and use tax in effect on the day of the billing no matter when the lease or rental agreement was entered into.
Real Property Contracts
North Carolina law provides specific rules for items purchased to fulfill a real property contract. The following limitations apply to this section:
Purchaser - means a real property contractor, retailer-contractor, or a subcontractor of a real property contractor or retailer-contractor.
Item - Item does not include a tool, equipment, supply, or similar tangible personal property that is not a component part used to fulfill the real property contract.
Rate of Tax
The rate of tax for items purchased to fulfill a real property contract depends on the date of the real property contract and the date of bid for the contract. The chart below provides the tax rate for such items:
| Bid Date | Contract Award Date | Tax Rate |
|---|---|---|
| None | Prior to Effective Date | Lower Tax Rate |
| None | After Effective Date | Higher Tax Rate |
| Prior to Effective Date | Prior to Effective Date | Lower Tax Rate |
| Prior to Effective Date | After Effective Date | Lower Tax Rate |
| After Effective Date | After Effective Date | Higher Tax Rate |
Note: The same tax rate applies to taxable items sold or purchased pursuant to a change order for a real property contract as other items purchased to fulfill the real property contract.
Purchasing Items Subject to the Lower Tax Rate
After the effective date of the Higher Tax Rate, a purchaser purchasing items subject to the Lower Tax Rate to fulfill a real property contract for a capital improvement must provide the retailer the applicable Form E-589 affidavit. The form must be completed and signed by the purchaser. The retailer must keep a copy in its records. The purchaser must keep a copy in its records along with supporting documentation that demonstrates the transaction qualifies for the Lower Tax Rate.
Layaway Sales
A taxable item placed in a layaway or similar deferred purchase plan prior to the effective date of the tax rate increase and delivered by the retailer or on behalf of the retailer to the purchaser on or after the effective date of the tax rate increase is subject to the Higher Tax Rate.
Accommodation Rentals
Reservation Prior to Rate Increase
The gross receipts derived from a reservation for a taxable rental of an accommodation made prior to the effective date of the tax rate increase for the rental of an accommodation occurring on or after the effective date of the tax rate increase are subject to the Higher Tax Rate. The Higher Tax Rate applies no matter that the reservation is secured with an advance deposit, guaranteed by credit card, or paid in full.
Rental During Rate Increase
If a taxable rental of an accommodation begins prior to the effective date of the tax rate increase and extends beyond the effective date of the increase, the gross receipts derived from the rental of the accommodation occupied prior to the effective date of the tax rate increase are subject to the Lower Tax Rate. The gross receipts derived from the taxable rental of an accommodation occupied on or after the effective date of the tax rate increase are subject to the Higher Tax Rate.
The retailer should separately document and account for the gross receipts applicable to a rental of an accommodation occupied prior to and on or after the effective date of the tax rate increase in its books and records and on the invoice or other documentation provided to the customer.
Taxable Service Contracts
The sales price of or the gross receipts derived from a taxable service contract are subject to the applicable rates of tax in effect when the service contract is sold (e.g., a month-to-month service contract is subject to the Higher Tax Rate if sold after the effective date of the tax rate increase).
Admission Charges to a Taxable Entertainment Activity
The Higher Tax Rate applies to the gross receipts derived from taxable admission charges sold on or after the effective date.
Note: The date of an event and the date tickets went on sale for an event do not impact the tax rate that applies to a sale.
Cash Basis
Generally, a retailer who reports and pays sales and use tax on the cash basis of accounting is liable for remitting the Lower Tax Rate on collections received on or after the effective date of the tax rate increase for sales where the item was provided prior to the effective date of the tax rate increase. If a retailer who generally reports on the cash basis of accounting for sales and use tax is unable to separately account for collections received on or after the effective date of the tax rate increase for items provided prior to the effective date of the tax rate increase, the retailer is liable for remitting the Higher Tax Rate on such collections.