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North Carolina Sales Tax Exemptions

  • May 23, 2016 | Stephanie Faris

Whether your business is physically located in North Carolina or you have nexus in the state, you’ll need to study the state’s sales tax laws before you sell your first item. While you’ll be expected to collect and pay 4.75 percent in state tax and up to 2.75 percent in additional local taxes, there are a few exemptions that can save money. Here are a few of the most notable exemptions to North Carolina’s sales tax laws.

Motor Vehicles. Motor vehicles can be purchased in North Carolina tax-free, but the state collects a Highway Use Tax (HUT) when the title is transferred. The rate is 3 percent, with a $2,000 maximum, and doesn’t apply to title transfers from manufacturers to retailers or to handicap-equipped vehicles, among other exemptions.

Manufacturing and Industrial Equipment. Businesses, manufacturers, and farmers that use equipment in the state of North Carolina won’t pay sales or use tax on the equipment. However, there is an excise tax of 1 percent on each piece of equipment, with a maximum of $80 in tax. This includes machinery for use in mills, recycling, and in ports for waterborne commerce. The parts and accessories used to manufacture this equipment are also exempt, as well as the sale of electricity to manufacturers and farmers.

Data Centers and Software Developers. Sales of electricity to computer data centers and software publishing facilities are exempt, as is the sale of any software component that becomes part of a for-sale piece of computer software or digital property.

Food. While food is not tax-exempt in North Carolina, the state does have a reduced rate for food items sold in the state. Residents pay the 2-percent local rate on most groceries, with the full sales tax kicking in for prepared items.

Many of North Carolina’s exemptions are geared toward encouraging industry and manufacturing in the state, bolstering local economies. For more information about North Carolina’s sales tax, read our state guide.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Stephanie Faris
Avalara Author Stephanie Faris