NCDOR Communication

2009 State Tax Law Changes At A Glance

The N.C. General Assembly made a number of changes to North Carolina state tax laws.  Following is a quick first look at some of the changes, some of which go into effect immediately and others over the next few months. 

We will post more information about the changes in the future.  Unless otherwise noted, all the dates mentioned are in 2009. 

Sales tax increase

The state sales tax will increase by 1 percent effective Sept. 1.  As a result of the increase, the combined state and county tax rate will increase to 8.25 percent in Mecklenburg County, 8 percent in Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry Counties, and 7.75 percent in the remaining 91 counties.

Taxpayers should use the self-calculating worksheets available online to compute the sales and use tax they owe for September 2009 to reflect the temporary 1 percent increase in the state sales tax rate. Please click here for additional information about how to use the worksheets to compute the sales and use tax you owe for September, 2009.

Sales tax on online purchases

Some digital downloads of items like songs and movies may be subject to sales tax effective Jan. 1, 2010.  The department will provide a more detailed interpretation of this change soon.

 

Online sales made by referrals from N.C. website owners

Online retailers who have more than $10,000 worth of sales through online referrals from websites owned by North Carolina residents – such sales are also known as “click-thru’s,” – may need to charge sales tax on all sales to North Carolina residents.  The department will provide a more detailed interpretation of this change soon.

 

Personal surtax

Individuals who meet certain income requirements will pay a surtax on the amount of tax they owe before any withholding, payments or credits, as shown on Line 14 of the D-400 Individual Tax Return. 

Please see the Surtax Percentage Table for the thresholds.

For example, if your filing status is “married filing jointly” and your North Carolina taxable income shown on Line 13 of Form D-400 is $150,000, you would compute your “regular” state income tax on Line 14 and then multiply that amount by 2 percent.  The result would be added to your “regular” tax on Line 14 to give you your total tax liability. Then you subtract credits, withholding, payments, etc., to find out if you are due a refund or if you have to pay any additional tax.    

• Note:  there is no penalty (interest) for underpayment of estimated tax if the underpayment is because of the surtax.

Withholding Required For Contractors With ITINs

Effective Jan. 1, 2010, any payer that pays an Individual Taxpayer Identification Number (ITIN) holder more than $1,500 a year must withhold 4 percent of that pay. ITINs are issued by the Internal Revenue Service to people who are not eligible to receive a social security number. Payers can be businesses, organizations or individuals.

This new law applies to compensation “other than wages,” which means pay from which state and federal income taxes are not withheld. ITIN holders who are paid as employees as opposed to contractors and who already have state and federal taxes withheld from their pay are not subject to additional withholding.

Payers should file and pay withholding taxes on contractors with ITINs just like they would for regular employees (using the same online process or forms and the same filing and paying frequency). Payers that are subject to this new withholding requirement and that don’t currently file and pay withholding taxes must register with the state and receive a withholding account number so they can begin filing and paying the taxes. Click here to review frequently asked questions about withholding.

Corporate surtax

Corporations subject to corporate income tax must pay an income tax surcharge of 3 percent on its North Carolina income tax due before deducting any tax credits or payments.

S corporations filing composite income tax returns on behalf of shareholders who live outside North Carolina must calculate the amount of North Carolina income tax due separately for each nonresident shareholder.  That calculation must include the amount of individual income surtax based on the Surtax Percentage Table for individuals with a filing status of single.

• Note:  there is no penalty (interest) for underpayment of estimated tax if the underpayment is because of the surtax.

Tobacco products excise tax

Beginning Sept. 1, the state excise tax on cigarettes will increase to 2.25 cents per individual cigarette (45 cents per pack of 20), and the state excise tax on “other tobacco products” will increase to 12.8 percent of the cost price of the products. For more information on the tobacco products excise tax increase, click on Important Notice Regarding Cigarette Excise Tax Rate Increase and Tax on Inventory on Effective Date of Increase or Important Notice Regarding Other Tobacco Products Excise Tax Rate Increase and Tax on Inventory on Effective Date of Increase.

In addition, every person subject to the tobacco products tax increase must also file a complete inventory by Sept. 21 and pay an additional tax equal to the difference between the former tax rate and the increased tax rate.

Note: unlike the tobacco tax increase in 2007, retailers that sell tobacco products and are not subject to the tobacco excise taxes are not subject to the additional tax on their inventories of tobacco products (includes cigarettes and other products like cigars and chewing tobacco).

Alcohol excise tax

Beginning Sept. 1, the state excise tax on beer will increase to 61.71 cents per gallon, the excise tax on unfortified wine will increase to 26.34 cents per liter, the excise tax on fortified wine will increase to 29.34 cents per liter, and the excise tax on spirituous liquor will increase to 30 percent of taxable sales of liquor sold in ABC stores. For more information on the alcohol excise tax increase, click on Important Notice Regarding Alcohol Excise Tax Rate Increase.