1999 Tax Law Changes - Sales and Use Tax

XVI. SALES AND USE TAX

G.S. 105-164.3 - Definition Changes: This statute was amended several times. The amendments revised two definitions, added a new definition, and recodified three definitions. The changes are as follows and become effective as noted after each definition:

Hub: This definition, set out in subdivision (6b), was expanded and its effective date changed. These changes are part of the changes made to the sales and use tax laws for the purpose of either exempting purchases by U.S. Airways from tax or taxing them at a reduced rate. Other taxpayers that meet the same description will receive the same tax breaks.
The expansion designates the existing language of the statute, designed for Federal Express, as subpart a. and adds a new subpart b. that describes U.S. Airways. Under the expansion in subpart b., a hub includes an airport that is used by an interstate passenger air carrier and meets two conditions. The first condition is that the carrier has allocated more than 60% of its aircraft value under the property tax laws to that airport. The second condition is that the majority of the carrier's passengers that board at the airport are connecting from other airports rather than originating at the airport. Before this expansion, the original definition was to take effect January 1, 2001. The expanded definition takes effect May 1, 1999, and applies to sales made on or after that date.
(Effective May 1, 1999; SB 1115, s. 6, S.L. 99-360.)

Interstate passenger air carrier: New subdivision (6e) defines "interstate passenger air carrier." It is a person whose primary business is scheduled passenger air transportation, as defined in the North American Industry Classification System (NAICS) adopted by the United States Office of Management and Budget, in interstate commerce. The definition was added as part of the changes made to the sales and use tax laws for the purpose of either exempting purchases by U.S. Airways from tax or taxing them at a reduced rate. Other taxpayers that meet the same description will receive the same tax breaks.
(Effective May 1, 1999; SB 1115, s. 6, S.L. 99-360.)

Motor vehicle: The number of this definition was changed from subdivision (8b) to (8c) to allow for the addition, in the correct alphabetical order, of the term "moped." Cross-references to the definitions of "moped" and "special mobile equipment" were changed to reflect their recodification from G.S. 20-4.01 to this statute.
(Effective July 22, 1999; SB 55, s. 28, S.L. 99-337.)

Moped: This definition in new subdivision (8b) was recodified. It was moved from G.S. 20-4.01, which is part of the motor vehicle laws, to this statute. It was moved because mopeds are subject to sales tax rather than highway use tax. The recodification did not change the substance of the definition.
(Effective July 22, 1999; SB 55, s. 28, S.L. 99-337.)

Special mobile equipment: This definition in new subdivision (16b) was recodified. It was moved from G.S. 20-4.01, which is part of the motor vehicle laws, to this statute. It was moved because special mobile equipment is subject to sales tax rather than highway use tax. The recodification did not change the substance of the definition.
(Effective July 22, 1999; SB 55, s. 28, S.L. 99-337.)

Utility: This definition, set out in subdivision (25), was rewritten to avoid the possibility that could arise after electricity deregulation of some sales of electricity being subject to tax at the 3% rate, some at the 2.83% rate, and some at the general 6% State and local rate. Under current law, only utilities regulated by the North Carolina Utilities Commission can sell electricity and only these regulated utilities are subject to the gross receipts tax imposed by G.S. 105-116. Thus, all sales of electricity are currently subject to tax at either the 3% or the 2.83% rate.
The revised definition eliminates references to the privilege tax imposed by G.S. 105-116 and considers all business entities that sell electricity to be utilities. The exclusion for a municipality that buys power at wholesale from a federal agency is moved to G.S. 105-164.13(46). Language in the definition that applies to telephone companies is changed also, but the changes have no practical effect because all business entities that sell telephone service are already included in the definition.
(Effective August 10, 1999; SB 1112, s. 4, S.L. 99-438.)

G.S. 105-164.4(a)(1d) - Recodification and Amendment: Subparts a. through k. were recodified as G.S. 105-164.4A(1) through (11). This subdivision was amended to add a cross-reference to new G.S. 105-164.4A. The new statute now lists all the items that are subject to tax at the rate of 1% with a cap of $80 per article.
(Effective August 4, 1999; SB 1115, s. 3, S.L. 99-360.)

G.S. 105-164.4(a)(4) - Laundry Exemption Updated: This subdivision was amended to add "card-operated" to the types of laundry equipment whose receipts are exempt from sales tax. This change reflects the administrative practice of the Department.
(Effective July 1, 1999; SB 55, s. 29, S.L. 99-337.)

G.S. 105-164.4(c) - Fee Repealed and Filing Clarified: This subsection was amended to make two changes. The first change repeals the $15.00 fee imposed for a Certificate of Registration. The Department asked the General Assembly to eliminate this fee so the Department can implement an on-line registration program. The second change clarifies that a certificate of registration issued to a retailer who does not make taxable sales never becomes void. Thus, certificates issued to wholesale merchants or merchants making only exempt sales would not become void because these merchants are not required to file returns.
(Clarification effective July 22, 1999; SB 55, s. 30, S.L. 99-337; repeal of fee effective January 1, 2000; SB 1112, s. 1, S.L. 99-360.)

G.S. 105-164.4A - Recodification of 1%, $80 Items: Subparts a. through k. of G.S. 105-164.4(a)(1d) were moved to this new statute and numbered (1) through (11). A heading was added to each subdivision, but the substance of the provisions did not change.
(Effective August 4, 1999; SB 1115, s. 3, S.L. 99-360.)

G.S. 105-164.4A(12) - 1%, $80 Rate for Flight Crew Training Equipment: New subdivision (12) was added to extend the 1% State tax, $80.00 per article maximum rate to sales to an interstate passenger air carrier or an interstate air courier of aircraft simulators for flight crew training for use at the air carrier's or air courier's hub. This reduced rate is part of the sales tax preferences designed for U.S. Airways. It applies to air couriers, such as Federal Express, as well.
(Effective May 1, 1999; SB 1115, s. 8, S.L. 99-360.)

G.S. 105-164.6(f) - Fee Repealed: This subsection was amended to repeal the $15.00 fee imposed for issuing a Certification of Registration to an out-of-State business that sells or delivers tangible personal property for storage, use, or consumption in this State. The change accompanies the repeal of the $15.00 fee imposed in G.S. 105-164.4(c). The Department asked the General Assembly to eliminate this fee so the Department can implement an on-line registration program.
(Effective January 1, 2000; SB 1112, s. 1.1, S.L. 99-438.)

G.S. 105-164.13(4d) - Tobacco Sheet Exemption Updated: This subdivision was amended to delete the word "burlap," thereby providing an exemption for the lease or rental of all tobacco sheets used to handle tobacco in the warehouse and move it to and from the warehouse. Burlap is not the only material used for tobacco sheets. This change reflects the administrative practice of the Department.
(Effective July 22,1999; SB 55, s. 31, S.L. 99-337.)

G.S. 105-164.13(12) - Exemption for Durable Medical Equipment: This subdivision was rewritten to divide it into subparts and to add a new exemption. Subparts a., b., and c. are the same as before the revision. The new exemption is in subpart d. It is for durable medical equipment and related medical supplies that are covered under the Medicare or Medicaid program and are sold either on a certificate of medical necessity or a written prescription of a physician, dentist, or other professional person licensed to prescribe. The exemption applies whether or not the item is purchased by a Medicare or Medicaid beneficiary.
(Effective October 1, 1999; SB 1112, s. 5, S.L. 99-438.)

G.S. 105-164.13(13) - All Prescription Drugs Exempted: The exemption for drugs was expanded to include prescription drugs used by physicians in administering treatment. The exemption includes ingredients used to produce drugs, packaging materials, and instructions or information about the product packaged with the drugs. With this expansion, all prescription drugs are exempt regardless of their use. The expansion makes the exemption in G.S. 105-164.13(13b) unnecessary because this exemption includes the one in that subdivision. Nonprescription medicine sold on a written prescription continues to be exempt, as does insulin. The term "medicines" used in the prior law included both nonprescription and prescription drugs.
(Effective October 1, 1999; SB 1112, s. 6, S.L. 99-438.)

G.S. 105-164.13(13b) - Repealed: This exemption was repealed because it is unnecessary. It has been incorporated in revised G.S. 105-164.13(13). (Effective October 1, 1999; SB 1112, s. 7, S.L. 99-438.) G.S. 105-164.13(16) - No Exemption for Used Articles Taken in Trade: The exemption for used articles taken in trade, set out in subpart a. of this subdivision, was repealed. The exemption for repossessed articles, set out in subpart b. of this subdivision, remains. Because subpart a. was eliminated, the subpart designation for b. was eliminated also.
(Effective October 1, 1999; SB 1112, s. 8, S.L. 99-438.)

G.S. 105-164.13(35) - Exemption for Sales by Nonprofits Revised: This subdivision was rewritten to make two changes. The first change deletes the requirement that a nonprofit organization must have been continuously chartered or incorporated in North Carolina for at least two years to receive the exemption. The second change separates into three subparts the remaining conditions that a nonprofit organization must meet to qualify for the exemption.
(Effective October 1, 1999; SB 1112, s. 9, S.L. 99-438.)

G.S. 105-164.13(39) - No Exemption for Free Circulation Publications: This subdivision was repealed. Before its repeal, it exempted paper, ink, and other tangible personal property sold to commercial printers and publishers for use in free circulation publications. It also exempted sales by printers of free circulation publications to the publishers of these publications.
(Effective October 1, 1999; SB 1112, s. 10, S.L. 99-438.)

G.S. 105-164.13(42) - Donated Property Exemption Expanded: This subdivision was expanded to include donations made by retailers and wholesale merchants to governmental entities. Before this change, the exemption applied only to property donated to nonprofit organizations and did not apply to property donated to governmental entities, such as schools.
(Effective October 1, 1999; SB 1112, s. 11, S.L. 99-438.)

G.S. 105-164.13(45) - New Exemption for U.S. Airways: This subdivision was rewritten to create an exemption for U.S. Airways that parallels the exemption for Federal Express slated to take effect January 1, 2001. In the 1998 session, the General Assembly enacted a State and local sales and use tax exemption for aircraft lubricants, aircraft repair parts, and aircraft accessories sold to an interstate air courier for use at its hub. That exemption was part of the tax incentives enacted for Federal Express to locate in Greensboro.
The rewritten exemption takes effect May 1, 1999, and applies to aircraft lubricants, aircraft repair parts, and aircraft accessories sold to an interstate passenger air carrier for use at its hub. This exemption is part of the tax incentives designed for U.S. Airways. Purchases of these items by other taxpayers whose activities meet the definition of interstate passenger air carrier and hub are exempt as well.
Air couriers, such as Federal Express, are added to the rewritten subdivision effective January 1, 2001. This preserves the exemption enacted in the 1998 session for air couriers.
(Exemption for passenger air carriers effective May 1, 1999; and expansion to air couriers effective January 1, 2001; SB 1115, s. 7, S.L. 99-360.)

G.S. 105-164.13(46) - Conforming Change: This new subdivision sets out an exclusion that was formerly contained in the definition of "utility" in G.S. 105-164.3(25). The exclusion is for sales of electricity by a municipality whose only wholesale supplier of electric power is a federal agency and who is required by a contract with that federal agency to make payments in lieu of taxes. The movement of this exclusion from the definition of "utility" to this subdivision does not make a substantive change.
(Effective August 10, 1999; SB 1112, s. 12, S.L. 99-438.)

G.S. 105-164.13A - Tip Percentage Increased: This statute was amended to provide that a service charge on food, beverages or meals is exempt if it does not exceed 20% (previously 15%) of the sales price and meets the other conditions stated in the statute.
(Effective October 1, 1999; SB 1112, s. 13, S.L. 99-438.)

G.S. 105-164.14(a) - Carrier Refund Expanded: This subsection was amended to add sales and use tax paid on fuel to the list of items refundable to interstate carriers. Refunds under this subsection are in proportion to the amount of miles the carrier operates outside North Carolina. The amendment applies primarily to passenger air carriers and air couriers because fuel used by the other types of interstate carriers, such as railroads and trucking companies, are not subject to sales tax. Diesel fuel used by railroads is exempt from sales tax under G.S. 105-164.13(11a), and motor fuel used by trucking companies is exempt under subdivision (11). The amendment to this subsection was designed as part of the tax incentives for U.S. Airways.
(Effective October 1, 1999; SB 1115, s. 9, S.L. 99-360.)

G.S. 105-164.14(c)(16) - Refunds for All Airport Authorities: This subdivision was amended to remove the requirement that airport authorities meet one of three listed criteria to be eligible for State and local sales and use tax refunds. As a result, any airport authority created pursuant to an act of the General Assembly will be eligible for the refund.
(Effective July 1, 1999 and applies to purchases made on or after this date; SB 1112, s. 14, S.L. 99-438.)

Chapter 104 of the 1999 Session Laws - Airport Authority Refunds: This act authorizes the Sanford-Lee Airport Authority and the Brunswick County Airport Commission to receive State and local sales and use tax refunds. With the amendment to G.S. 105-164.14(c)(16), that amendment and this act overlap for the period beginning July 1, 1999.
(Effective May 27, 1999; HB 708, S.L. 99-104.)

Chapter 238 of the 1999 Session Laws - Airport Authority Refund: This act allows Macon County to establish an airport authority for the maintenance of airport facilities in the County. If established, the act provides that the Macon County Airport Authority is eligible for a refund of State and local sales and use taxes. With the amendment to G.S. 105-164.14(c)(16), this act is not needed.
(Effective June 30, 1999; SB 618, S.L. 99-238.)

G.S. 105-164.14(h) - Refunds for Businesses in Low Enterprise Tier: This new subsection allows annual refunds to eligible taxpayers of taxes paid at the general rate on qualifying machinery and equipment purchased for use in an enterprise tier one area or an enterprise tier two area, as defined in G.S. 105-129.3. Taxes paid at the 1% rate or another preferential rate are not eligible for refund.
An annual claim for refund is due before January 1 and covers the preceding fiscal year (July 1 to June 30). A new form is being designed for use in claiming this refund. An eligible taxpayer is a taxpayer that is engaged primarily in a type of business that qualifies for a tax credit under Article 3A of Chapter 105. The types of businesses that qualify under that Article and, consequently, under this new refund provision are providers of air courier services, a business that creates a central administrative office that hires at least 40 new employees, a customer service center, a data processing business, an electronic mail order house that creates at least 250 new jobs, a manufacturer, a warehouse business, and a wholesale business.
To qualify for the refund, the machinery and equipment must be capitalized under the Internal Revenue Code. This means that its cost must be depreciated over several years.
(Effective for taxes paid on or after January 1, 2000; SB 1115, s. 4, S.L. 99-360.)

G.S. 105-164.14(i) - Refund for TIAA-CREF: This new subsection allows an annual refund of State and local sales and use taxes paid by a nonprofit insurance company that meets all of the conditions set out in the subsection. The refund is designed for TIAA-CREF, but other taxpayers that meet the conditions in the subsection will also qualify for the refund. The conditions are that the company is a nonprofit corporation, it provides insurance and annuity contracts to employees of organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, and it plans to invest at least $20 million in constructing a facility in this State.
From May 1, 1999, to January 1, 2004, the refund applies to taxes paid on purchases of building materials, building supplies, fixtures, and equipment that become a part of the company's real property and on computer systems hardware and software capitalized for tax purposes under the Code. Effective January 1, 2004, the refund applies only to the described building materials and equipment; it does not apply to computer hardware or software after that date. Effective January 1, 2008, the refund for the described building materials and equipment is repealed. A claim for refund is due within 6 months after the end of the insurance company's fiscal year.
(Effective May 1, 1999 and applies to taxes paid on or after that date; refund for tax paid on computer hardware and software is repealed effective January 1, 2004; remainder of refund is repealed effective January 1, 2008; SB 1115, s. 5, S.L. 99-360.)

G.S. 105-164.16(d) - Pay Use Tax on Income Tax Return: This subsection was rewritten to change the method for paying use tax due on out-of-State purchases of tangible personal property for nonbusiness purposes. Under the rewritten subsection, an individual who is required to file an individual income tax return must pay the use tax with that return. The individual income tax return has been modified so that it has a line for reporting consumer use tax. An individual who owes use tax on consumer items but is not required to file an individual income tax return will continue to file the separate use tax form.
(Effective for taxable years beginning on or after January 1, 1999; HB 1433, s. 1, S.L. 99-341.)

G.S. 105-164.29(d): New Reason to Revoke License: This subdivision was amended to allow the Secretary to revoke the sales tax license of a taxpayer who violates G.S. 14-400.18. That statute, which is in the criminal laws, prohbits the sale of certain packages of cigarettes. The sales tax license is the Certificate of Registration.
(Effective December 1, 1999; HB 74, s. 8, S.L. 99-333.)

Chapter 341 of the 1999 Session Laws - Collection of Use Tax By Vendors: Section 7 of this Chapter imposes a new requirement on vendors who do business with this State through the Department of Administration. The requirement is the collection of use tax on sales by the vendor and any affiliate of the vendor. A vendor that does not meet this requirement or that has an affiliate that does not meet this requirement cannot be on the State contract to provide goods and services.
(Effective July 1, 1999; HB 1433, s. 7, S.L. 99-341.)