North Carolina State Tax Updates

December 23, 2022

Authored by: Brandon Vance and Katie Szymanski, CPA

On December 16, 2022, the North Carolina Supreme Court upheld the Department of Revenue’s (“DOR”) assessment of sales tax against a Wisconsin based printing company. The DOR had previously assessed sales tax on years’ of sales of printed materials shipped into North Carolina via common carrier. In upholding the assessment, the North Carolina Supreme Court cited four reasons:

If you have questions about whether your business is obligated to collect and remit sales and use tax, please contact a member of the Withum SALT Team.

December 16, 2022

Authored by: Zhoudi Tang, MST, CPA and Jessie Racioppi

On December 2, 2022, the North Carolina Department of Revenue issued guidance on how S corporations and partnerships should make the Passthrough Entity Tax election and estimated payments for tax years beginning on or after January 1, 2023. S corporations should use form CD-429 PTE to make the PTE election and partnerships must use form NC-40 PTE. North Carolina does not require electing passthrough entity nonresident owners to file an individual North Carolina return when their only income from North Carolina sources is their respective share of pass-through entity income. If a nonresident owner has other North Carolina source income that is not covered by a pass-through entity tax election, they are required to file a North Carolina income tax return, and they will claim a credit for the PTE tax paid on their behalf. PTE estimated payments are due on April, June, September, and December 15^th. Unlike many states, overpayments of estimated PTE tax by the PTE will be refunded to the entity, not the individual owners.

If you have questions about state PTE taxes, please reach out to a member of the Withum SALT Team.

November 23, 2021

The governor of North Carolina signed a two-year $52.9 billion budget that makes extensive changes to the state’s tax laws. The signed budget phases out the state’s corporate income tax by 2030, and in doing so, will become the seventh state without a corporate income tax. The state will also reduce the personal income tax rate from 5.25% to 3.99% over a period of six years.

As a part of the signed North Carolina budget bill, a State and Local Tax (“SALT”) workaround for owners of pass-through entities. This workaround known as Pass-Through Entity Tax (“PTET”) has been enacted in New York and many other states. The PTET is available for tax years beginning on or after January 1, 2022 for all S Corporations and partnerships that have individuals, estates and trusts as partners. The election can be made on a timely filed annual tax return and is calculated at the same rate as the North Carolina’s personal income tax rate. To avoid duplicate taxation at the member level, North Carolina provides a deduction for their distributable share of the income subject to the tax. This election is irrevocable after the due date of the return (including extensions). As with all newly enacted PTET, the states will release further guidance and forms in the near future.

June 3, 2021

The North Carolina Department of Revenue determined that the sale of a subscription to provide a right and license to access and use the taxpayer’s industry profile reports through the taxpayer’s web portal is subject to sales and use tax. Generally, North Carolina imposes sales tax on the sales price of certain digital property, which includes digital goods such as reports transferred electronically. In this case, the customer pays a subscription fee for a license to gain access to reports that are available to all subscribers through a web-based portal. The reports are not customized to a specific customer or user and customers can add their own content to specific sections of a report if they purchase a license to access all of the reports. The subscription allows a customer to gain access to web-based reports that are delivered or accessed electronically. Since certain digital property includes reports transferred electronically, the subscription fees were held to be subject to the general state and applicable local and transit rates of sales and use tax.

April 1, 2021

The North Carolina Department of Revenue ruled that a taxpayer’s manufacture and sale of nutritional and dietary supplement products was subject to sales tax because each product at issue was a mixture or combination of two or more foods to be sold as a single product. Per State regulation, prepared food includes food that meets one of the following conditions: (1) It is sold in a heated state or it is heated by the retailer; (2) It consists of two or more foods mixed or combined by the retailer for sale as a single item (excluding foods containing raw eggs, fish, meat, or poultry that require cooking by the consumer as recommended by the Food and Drug Administration to prevent food borne illnesses); or (3) It is sold with eating utensils provided by the retailer, such as plates, knives, forks, spoons, glasses, cups, napkins, and straws. See N.C. Gen. Stat. § 105-164.3(179) for further information.

March 23, 2021

The North Carolina Department of Revenue has announced that it will extend the personal income tax filing and payment deadline from April 15, 2021 to May 17, 2021, to mirror the extension of the federal tax deadline. The Department will not charge penalties for those filing and paying their taxes after April 15, 2021, as long as they file and pay their tax on or before May 17, 2021. Unless state law is changed, tax payments received after April 15, 2021 will be charged interest, accruing from April 15, 2021 until the date of payment. The deadline extension only applies to personal income tax returns due April 15, 2021. The deadline extension does not apply to estimated tax payments or trust taxes such as sales and use taxes or withholding taxes due April 15, 2021. ( NCDOR Extends Individual Income Filing and Payment Deadline to May 17, 2021, N.C. Dept. of Rev., 03/18/2021 .)

March 2020

Governor Roy Cooper signed Executive Order 116 which declared a state of emergency in response to COVID-19. Penalties for failing to obtain a license, to file a return, or to pay taxes between March 15, 2020, and March 31, 2020, has been officially waived. The Department’s Penalty Policy allows for a waiver of penalties for special circumstances.

Specifically, the Department will waive any Late Action Penalties assessed against taxpayers that have been affected by COVID-19 (“Affected Taxpayers”). The waiver for Affected Taxpayers will apply to Late Action Penalties for deadlines occurring between March 15, 2020, and March 31, 2020. To qualify for the waiver, an Affected Taxpayer must file the return, pay the tax, obtain the license, or receive an extension on or before April 15, 2020. While the waiver will be considered a waiver for special circumstances, the waiver will not be considered a waiver for good compliance that can only be granted once every three years per tax type.

North Carolina law prevents the Department from waiving any interest, including interest assessed for the underpayment of estimated tax, except in the specific case of interest on taxes imposed prior to or during a period that a taxpayer has declared bankruptcy. Affected Taxpayers, who cannot meet their filing or payment requirement as a result of COVID-19, should complete Form NC-5500, Request to Waive Penalties (“NC-5500”) and write “COVID-19” on the top of the NC-5500. Form NC-5500 is available on the Department’s website, www.ncdor.gov. Affected Taxpayers that do not have access to the NC-5500 can attach a letter requesting a penalty waiver. This letter should contain the taxpayer’s name, address, SSN or FEIN, Account ID, and the tax type and tax period for which the taxpayer seeks waiver of penalty. Form NC-5500 or a letter should be mailed to the North Carolina Department of Revenue, Customer Service, P.O. Box 1168, Raleigh, NC 27602.

More on Taxes and the Coronavirus Pandemic.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.