North Carolina clarifies marketplace facilitator law and more

A measure recently enacted by the North Carolina Legislature makes it clear that in-state marketplace facilitators and food-delivery marketplaces have an obligation to collect and remit sales tax on behalf of third-party sellers. The bill also makes several other clarifications to North Carolina sales and use tax law.

Marketplace facilitators with more than $100,000 in gross sales into North Carolina or at least 200 separate transactions in the state annually are required to collect and remit North Carolina sales tax on behalf of third-party sellers under Session Law 2019-246 (effective February 1, 2020). Yet the law leaves the sales tax collection obligation of in-state marketplace facilitators unclear. Are they required to handle sales tax for third-party sellers if their sales are below the $100,000 sales or 200 transactions economic nexus threshold?

Newly enacted House Bill 1080 removes all doubt by applying the sales tax collection obligation to marketplace facilitators that are “engaged in business” in North Carolina. Effective July 1, 2020, a marketplace facilitator is engaged in business in North Carolina if either of the following are true:

• It has a physical presence in North Carolina; or
• It has economic nexus with North Carolina. 

A marketplace facilitator that's engaged in business in the state must be registered to collect and remit sales and use tax on all marketplace-facilitated sales into North Carolina.

HB 1080 also expands collection obligations for certain retailers of prepared food and beverages, including prepared food delivery platforms such as DoorDash and Grubhub.

Effective July 1, 2020, retailers required to collect and remit state and local sales and use tax are also required to collect and remit the local meals tax on prepared food and beverages. Yet while state and local sales tax is remitted to the North Carolina Department of Revenue, local meals tax must be remitted directly to the taxing county.

A meals tax is a tax on prepared food and beverages. G.S. 105-164.3 defines “prepared food” as a food that:

• Consists of two or more foods mixed or combined by the retailer for sale as a single item
• Is sold in a heated state or is heated by the retailer
• Is sold with eating utensils provided by the retailer (e.g., cups, forks, plates, napkins)

“Beverages” refers to alcoholic beverages (as defined in G.S. 18B-101) meeting one of the conditions of prepared food under G.S. 105-164.3.

North Carolina sales tax applies to sales of certain digital property. Under HB 1080, a digital code is treated the same as the digital property for which the digital code relates.

Additionally, for filing periods October 1, 2019–August 1, 2020, the Department of Revenue will not assess sales or use tax on retail sales of digital audio works or digital audiovisual works consisting of:

• Continuing education instruction approved or required by an occupational licensing board; or
• Professional development instruction for school board members, administrators, or staff.

This follows on the heels of a bill, enacted and effective June 5, 2020, clarifying that educational services are not taxable digital property in North Carolina.

Note: The grace period doesn’t apply to anyone who received specific written advice from the Secretary of Revenue or to persons who collected tax but failed to remit it to the department.

If you do business in North Carolina and are unsure whether you have an obligation to collect North Carolina sales or use tax, take our free sales tax risk assessment.