We understand that North Carolina is becoming very aggressive in auditing, and then assessing additional Sales and Use Taxes plus penalties and interest, on companies involved in manufacturing and repairing boats and boat equipment.  The tax rates, exemptions, and exceptions concerning materials, supplies and services, purchased and sold, are not clearly defined for these business activities.  

The State Code explicitly says “For the purpose of the proper administration of this Article and to prevent evasion of the retail sales tax, it shall be presumed that all gross receipts of wholesale merchants and retailers are subject to the retail sales tax until the contrary is established by proper records”.  This is fair warning that it is the taxpayer’s responsibility to prove that a transaction is not fully or partially taxable.  Also, the seller of tangible property, or the buyer if it has a certificate allowing it to accrue and pay its own sales and use tax, is “holding” the tax until remitted to the State as a “trustee” for the State.  The Tax collected (cash) and owed (accrued), belongs to the

State from the instant the “sale” occurs.

The seemingly simplest things, like separately stating installation costs or labor costs on a customer’s invoice for repairs and service, can be the difference between having the total sales amount fully taxable, and only being taxed on the value of the tangible personal property sold.  The place of delivery of the property sold obviously has an effect on the imposition of sales tax.  If tangible personal property is delivered or sold outside of North Carolina no NC sales tax is due UNLESS the seller knows or believes that the property will be returned to, used, or consumed in North Carolina.  Then the North Carolina seller is responsible for collecting and remitting the proper tax.   Another example is that if a yacht, not registered or domiciled in NC, is brought into NC for repairs and refurbishment, and is delivered back to the owner outside of NC, where the “sale” of the personal property installed or provided during the refurbishment, is consummated, the transaction is not subject to NC sales tax.  If the same “sale” occurs in NC the transaction is taxed. A further example is if, after the appropriate time has passed and all legal requirements are satisfied, a marina, storage yard, or repair facility sells property in its care, to offset and pay the property owners unpaid bills, this sale transaction is taxable, and the seller owes the State the sales tax based on the amount received for the property.

There are some refunds of sales taxes available if the Taxpayer meets certain requirements as legislated by the State. Sometimes a taxpayer can claim a refund of up to fifty percent of sales taxes paid on machinery and equipment purchased during a year if the taxpayer is an eligible business type (i.e.” (1) Air courier services. (2) Central administrative office that creates at least 40 new jobs. (2a) Customer service center located in an enterprise tier one or two area. (3) Data processing. (3a) Electronic mail order house that creates at least 250 new jobs and is located in an enterprise tier one or two area.(4) Manufacturing.(5) Warehousing. (6) Wholesale trade.)” and is located in an “enterprise tier one” or an “enterprise tier two” area as defined in the State code.  These areas are generally rural or disadvantage counties.

Determining a Taxpayer’s liability for sales and use taxes is sometimes complicated, and being wrong can be ruinous.  In certain situations business managers and owners can be personally liable for tax deficiencies and penalties and interest.  Consulting your qualified tax professional is the best way, along with keeping accurate books and records, to avoid expensive surprises.  For more information you can go to the State Legislature’s website,  http://www.ncga.state.nc.us/Statutes/GeneralStatutes/HTML/ByArticle/Chapter_105/Article_5.html, to read the law, and to the Department of Revenue’s site, http://www.dor.state.nc.us/taxes/sales/, for Directives and some explanations in general terms.

Some CPA and Law firms around the state provide training sessions regarding Sales and Use Taxes and you should call your tax professional, or local college or university, to locate these seminars if you want some additional education in this area. 

Neither Marine Trades Services nor the SBTDC have any interest in their programs, but we know that Padget-Thompson, a well known “business Training” firm based in Kansas City, MO is presenting a series of one day seminars about NC Sales and Use Taxes in various NC locations including Wilmington, Charlotte, Greenville, Raleigh, RTP, Greensboro, Winston-Salem and Fayetteville during the end of April and beginning of May.  These seminars will cover how to determine, account for, pay, and recognize the Sales and Use Tax that is due.  The fee per person is $195.00.  You can get information and register on line at www.pttrain.com. 

Contact Jack Morrow at the SBTDC’s Wilmington Marine Trades Services office at 910-962-3351 or jmorrow@sbtdc.org for information regarding how to register for a discounted registration fee if you are interested