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1. What is the total Orange County Sales Tax rate?

The total Orange County sales tax rate is 7.5% and is comprised of:

Jurisdictions	Percentages	County Articles
State of North Carolina	4.75%
Orange County	2.25%	Articles 39,40,42 and 46
Public Transit	.50%	Article 43
Total	7.5%

 

2. Is Food Exempt from Sales Tax?

Food is exempt from the State portion of sales tax (4.75%) but local sales taxes (Articles 39, 40 and 42) do apply to food to make up a 2% sales tax on food. The Article 43 (half-cent Transit Tax) and Article 46 (quarter-cent county sales tax) do not apply to food. 

“Non-qualifying food” includes prepared foods and beverages in restaurants, dietary supplements, food sold through vending machines, bakery items sold with eating utensils, soft drinks and candy.

The 4.75% general sales rate tax plus local taxes, including the transit and Article 46 sales tax, are charged on purchases of "non-qualifying food."

The reduced 2% local tax rate is charged on “qualifying food,” which includes groceries and bakery items sold without eating utensils.

3. Are there separate State and County distribution methodologies?

Yes. There are two distinct sales tax distributions; a) State-wide and b) County-wide.

The state collects local sales taxes (Articles 39, 40 and 42) and distributes them to counties using two different formulas. Articles 39 and 42, which account for 1.5%, are distributed on a point of delivery basis. The point of delivery benefits counties with strong commercial bases. The remaining .5% from Article 40 is distributed on a per capita basis. The per capita basis methodology pools the .5% of Article 40 State-wide tax proceeds and allocates based on the relative population of each county.

Counties then distribute sales taxes to municipalities using one of two methods; either on a per capita basis or ad valorem basis. The Orange County Board has approved a distribution based on a per capita basis but can choose to change its distribution method each April. The per capita basis allocates revenues based on municipalities' population relative to the County-wide population. The ad valorem basis allocates based on municipalities' property tax rate relative to the County-wide total property tax rate.

The Article 43 (transit tax) is not shared with other local governments and is instead managed by GoTriangle on behalf of Orange County. The Article 46 quarter-cent tax is, by agreement from the BOCC, split between Economic Development initiatives and the public school systems in the county. It is also not shared directly with other local governments.

4. Are remote sellers required to collect sales and use tax on sales made via the Internet?

Yes. Effective November 1, 2018 all remote sellers having gross sales in excess of $100,000 sourced to North Carolina or 200 or more separate transactions sourced to North Carolina in the previous or current calendar year (collectively "Threshold") must register to collect and remit sales and use tax to North Carolina. Remote sellers may voluntarily begin collecting and remitting sales and use tax any time prior to November 1, 2018.

The Internet Tax Freedom Act prohibits North Carolina from imposing a sales tax on Internet access services, but does not prohibit North Carolina from taxing sales made via the Internet.

5. Who is considered a remote seller?

A seller that does not have a physical presence in North Carolina and does not have any other legal requirement to register in North Carolina for sales and use tax purposes, but sells products for delivery into North Carolina, is a remote seller subject to the requirements of N.C. Gen. Stat. § 105-164.8(b).

6. When making a sale, does the merchant collect tax for the state that you are located in or the state where the customer is located?

North Carolina is a destination-based state (sales are taxed where the buyer is located). Merchants collect the tax for the state where the merchandise is delivered to the customer. If the item is shipped to the customer, then tax applies for the delivery state. If the customer picks up the item at the merchant's location, tax should be collected for that state.

Sales tax is charged on the gross receipts of the retail sale or lease of tangible personal property (TPP), certain digital property, and certain services.

For manufacturers, purchases used for production are not taxed.

For distributors, items purchased for resale are not taxed.

7. How do merchants determine where the sale occurred?

The sales tax is imposed on sales where the transfer of title or possession occurs within the taxing jurisdiction. Therefore, if a sale occurs in interstate commerce, the original state where the sale occurs cannot tax the transaction. The destination state will be subject to the tax. If the vendor is registered to collect the destination state’s tax, the use tax should be collected and remitted to that state.

8. Is this a new tax?

No. Existing State law, N.C. Gen. Stat. § 105-164.8(b), requires a retailer making remote sales sourced to North Carolina to register, collect, and remit sales and use tax on the remote sales. If sales and use tax is not collected by the seller, the purchaser is required to track and annually self-report use tax from mail order and online retailers. This consumer use tax was enacted in 1939.

9. What is Nexus in North Carolina?

Nexus is determined in North Carolina by the state’s Doing Business Rule (North Carolina's Doing Business Rule, 17 NCAC 5C .0102).

Business activities that establish nexus in North Carolina include:

• Maintaining an office or other places of business in the state
• Maintaining inventory, whether in a warehouse or otherwise, in the state
• Selling or distributing from a company-owned vehicle in the state
• Owning, renting, or operating income-producing properties in the state
• Having an employee working out of the office of another company in the state