Frequently Asked Questions About Use Tax

 

What is use tax?

The use tax is a tax due on purchases, leases, and rentals of tangible personal property and certain digital property purchased, leased or rented inside or outside this State for storage, use, or consumption in North Carolina. The use tax is also due on taxable services sourced to North Carolina. The use tax is paid to the North Carolina Department of Revenue by the purchaser when the North Carolina tax has not been collected by the seller.

What is the use tax rate?

The use tax is calculated at the same rate as the sales tax.

What items are subject to use tax?

Tangible personal property and certain digital property purchased, leased or rented which are subject to the sales tax are also subject to the use tax. Some examples include: books, ringtones, digital music, cassettes, compact discs, computers, electronic equipment, clothing, jewelry, canned software, sporting goods, audio and video tapes, appliances, and furniture and other home furnishings, whether purchased by mail order, catalog, shopping networks, or on the internet.

Why doesn't the out-of-state retailer collect the tax?

If the retailer is located out-of-state and is not engaged in business in the state, the state cannot require the retailer to collect North Carolina's tax. However, some out-of-state retailers voluntarily collect the North Carolina tax as a convenience to their customers.

Why do we have to start paying use tax now?

The use tax was enacted in 1939. The Department has included use tax reporting requirements in the instructions of the Individual Income Tax Form Booklets since 1990. Businesses must register and file Form E-500, Sales and Use Tax Return, to report and remit use tax due on items purchased for use in their businesses.

How did the Department determine the amount of use tax due in the Use Tax Table on page 8 of the Individual Income Tax Instructions?

The Department compared the information used in other states and made adjustments for the combined North Carolina state and local rates of tax.

I rarely make purchases from out-of-state vendors. Do I still have to pay the amount of use tax shown in the Use Tax Table?

If you maintained a record of all of your purchases during the year on which sales or use tax was not paid, you should use the worksheet identified for taxpayers who have records of all out-of-state purchases to compute your use tax liability. If you did not maintain your records, you should use the worksheet for taxpayers who do not have records of all out-of-state purchases. If you believe the use tax estimate from the use tax table is too high for your out-of-state purchases, you may estimate the amount of use tax you think you owe.

If the calculated amount of use tax due is higher than the use tax due when using the Use Tax Table, which amount do I pay?

You should only use the Use Tax Table if you do not know the amount of purchases subject to use tax; therefore, you pay the calculated amount of tax.

If I enter "0" on the use tax line or do not enter an amount, will I receive a bill or be audited?

You will not automatically receive a bill for use tax if you do not enter an amount or if you indicate that no use tax is due. If the Department discovers through other means that you owe use tax on out-of-state purchases, you will be assessed tax plus penalties and interest. In addition, your records could be audited.

If I make purchases of tangible personal property or certain digital property while in another state, do I owe North Carolina use tax on these purchases?

If the items are purchased for storage, use, or consumption in North Carolina, they are subject to the North Carolina use tax whether the purchases are delivered to you in another state or shipped to you in North Carolina. If you paid another state's sales or use tax on the out-of-state purchases, credit for the tax paid is allowed against the North Carolina use tax due. You may not claim a credit for sales tax or value-added tax paid to another country.

If I purchase tangible personal property from an out-of-state retailer, are the shipping and handling charges subject to the North Carolina use tax?

All shipping and handling, transportation, and delivery charges that are in any way connected with the taxable sale of tangible personal property and certain digital property are subject to the North Carolina use tax.

Didn't the Internet Tax Freedom Act (ITFA) ban taxes on sales over the Internet?

The Act prohibited new taxes on internet access fees and multiple or discriminatory taxes. North Carolina does not tax Internet access fees. In addition, the use tax is not a multiple or discriminatory tax since it applies to all vendors (mail order, internet, out-of-state, home shopping) and taxes goods purchased outside the state in the same manner as goods purchased in the state.