North Carolina to tax out-of-state sales starting November 2018

North Carolina to tax out-of-state sales starting November 2018

Update 3.22.2019: The North Carolina Legislature has codified the Department of Revenue directive detailed below. Senate Bill 56 stipulates that a remote retailer is "engaged in business" in the state if, in the current or previous calendar year, it has more than $100,000 in gross sales or 200 or more separate transactions in the state. Since the Department of Revenue has been enforcing this since November 1, 2018, the legislative change is merely a technicality.

Certain out-of-state sellers will have to start collecting and remitting North Carolina sales tax as of November 1, 2018.

According to a North Carolina Department of Revenue directive, the state can now enforce N.C. Gen. Stat. Section 105-164.8(b) because of a recent decision by the Supreme Court of the United States. In South Dakota v. Wayfair, Inc. (June 21, 2018), the court ruled physical presence is no longer the sole prerequisite for taxation: States can now require out-of-state sellers to collect and remit tax just as they require in-state sellers to.

The Wayfair ruling doesn’t provide much of a framework for states to follow. However, the opinion did highlight three positive aspects of the South Dakota law:

  • It allows an exception for small sellers (remote sellers must have annual gross revenue of more than $100,000, or have 200 or more sales in the state in a year)
  • It can’t be applied retroactively
  • South Dakota is a member of the Streamlined Sales and Use Tax Agreement, meaning it has taken steps to simplify sales tax compliance for sellers

Learn more about South Dakota’s economic nexus law here.

North Carolina limits enforcement of its own law

North Carolina’s statute is broader than South Dakota’s. It holds that a retailer who makes a remote sale is engaged in business in North Carolina if at least one of several conditions is met, including but not limited to:

  • The retailer establishes nexus (a connection substantial enough to merit a tax collection obligation) by purposefully or systematically exploiting the North Carolina market by any media-assisted, media-facilitated, or media-solicited means, including direct mail advertising, distribution of catalogs, computer-assisted shopping, television, radio, or other electronic media, telephone solicitation, magazine or newspaper advertisements, or other media
  • The retailer consents, expressly or by implication, to the imposition of the tax by engaging in one of the activities listed above

To make its law more in line with the South Dakota law that triggered the repeal of the physical presence rule, North Carolina is limiting the enforcement of its law.

To start, it will not hold remote sellers liable for tax on sales made prior to the November 1, 2018, effective date.

Additionally, North Carolina is adopting the same small-seller exception as South Dakota. The collection requirement applies to remote sellers that, in the current or previous calendar year, have:    

  • Gross sales sourced to North Carolina of more than $100,000; or
  •  200 or more separate transactions sourced to North Carolina.

Sellers meeting one of the above thresholds after November 1, 2018, must register with the state and comply with North Carolina sales and use tax laws within 60 days of meeting the threshold. Sellers that don’t meet the economic nexus threshold may voluntarily register to collect and remit North Carolina sales and use tax.

Streamlined Sales Tax

Like South Dakota, North Carolina is a Streamlined Sales Tax (SST) state. As such, it has taken steps to simplify the collection and administration of sales and use tax.

Remote sellers meeting the threshold can register directly with the North Carolina Department of Revenue. Alternatively, they can register for all 24 SST member states through the Streamlined Sales Tax Registration System. The 24 states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

Additional information about North Carolina’s new collection requirement for remote sellers is available from the North Carolina Department of Revenue.

The Supreme Court decision in South Dakota v. Wayfair, Inc. is having a ripple effect on state sales tax laws. In the weeks since the decision, several states have adopted South Dakota–style economic nexus or announced plans to enforce existing, previously unenforced, laws.

Learn more about South Dakota v. Wayfair and its potential impact on retailers.

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