Sales tax is something citizens are faced with every day, and the list of items that are exempt from the tax has changed. The sales tax portion of the tax reform package has been a bit harder to follow than the other changes, since these modifications come into effect at different times. Some of these changes won’t occur until almost a year after the law was passed.
The total financial impact of the new law for the current fiscal year will be a $58.5 million increase in sales tax revenue for North Carolina. All of the sales tax changes will be fully implemented in the beginning of FY2014-15 and the state will see an estimated increase of $562.6 million in revenue. Five years after the passage of the tax reform legislation, sales tax collections are estimated to increase of more than a billion dollars due to the new items subject to the tax.
This newsletter will outline the sales tax changes and the time frames for which they will take effect.
These changes were effective January 1st, 2014:
- Modular/Manufactured Homes are now subject to the state’s general rate of 4.75%, and the state is no longer required to distribute 20% of this tax to counties.
- Nutritional Supplements sold by chiropractors are now subject to sales tax.
- Newspapers sold by street vendors, carriers, and vending machines are now subject to sales tax.
- Meals served in higher educational institutional facilities are now subject to sales tax.
- Meals served to students in primary educational facilities are exempt from sales tax; this includes public schools – both charter and district – and private schools as well as student organizations.
- Admission charges to a live event, movie theatre, or attraction are subject to both state and local sales tax. Elementary and secondary school events, agricultural fairs, limited nonprofit events, youth athletic contests, and state attractions are exempt from both state and local sales taxes.
- Service contracts, or warranty agreements, maintenance agreements, repair contracts, or similar agreements where the seller agrees to maintain or repair tangible property are subject to the state and local sales tax. An exemption from the tax is in place for service contracts for an item exempt from sales tax, an item used to fulfill that contract, and transmission, distribution, or other network assets contained on utility-owned land, right-of-ways, or easements.
These changes will take effect July 1, 2014:
- Electricity and Piped Natural Gas are now subject to the combined state and local rate of 7%. Existing exemptions for manufactures, farming operations, and data centers still apply. These items were previously under the franchise tax.
- Farmersare now required to meet an annual income threshold of $10,000 for farming activities to qualify for the farm-related sales tax exemption. The qualifying farmers operate in dairy, egg and poultry, livestock, crops, and aquatic species.
- Bakery Items sold in bakery thrift stores are now subject to the sales tax.
- Sales Tax Holidays for clothing, school supplies, computers and sports equipment, and Energy Star qualified products have been removed. There are no more sales tax holidays.
- Non-profits are allowed to receive a refund from state and local government for sales tax paid on certain items used in carrying on the work of the nonprofit. The state and local taxes how have a combined cap of $45 million.
In addition to the clear-cut changes that are outlined above, there have been other items not specifically mentioned in the law that effect most citizens on a day-to-day basis.
- Gift Shops – All items are subject to sales tax.
- T-Shirt Sales – These sales by churches and other non-profits were subject to sales tax before the law change. Nonprofits are now allowed a once-yearly tax exemption on sales if they meet three criteria:
o Sales only on an annual basis
o Proceeds used for the organization’s activities
o Products delivered 60-days after purchase
- Admission Fees for School Children to a Museum – These are currently exempt from the sales tax.
- Farmer’s Market – If an item is sold by a farmer in its original state and the farmer/producer is not primarily a retail merchant, then it is exempt from the sales tax.
- Plant Sales – Unless it is an annual sale used as a fundraiser, all are subject to sales tax.
- Luncheons and Dinners for Organizations – Non-profits can sell tickets for up to three events without charging sales tax: two events with a speaker or any form of "live" entertainment, and one event without a speaker or other "live entertainment."
- Christmas Tea/Holiday Events – These are taxable as annual fundraisers unless they are counted as one of the two sales tax exempt events for a nonprofit in a calendar year.
- Flea Market – Vendors who are not in permanent locations do not pay sales tax. Vendors who have a permanent location and sell more than their own personal items are to register and collect sales tax.
You can find more information about the specifics of the sales tax changes at the North Carolina Department of Revenue.
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