What's Tax Free and What's Not?

The rules of the Sales Tax Holiday from the North Carolina Department of Revenues website (scroll down for lists):

34-25 SALES TAX HOLIDAY

A. Sales Tax Holiday Allowed Under G.S. 105-164.13C
G.S. 105-164.13C provides that retail sales of specific items of tangible personal property areexempt from all State and local sales and use taxes, including the Mecklenburg public transportation tax, if sold between 12:01 AM on the first Friday of August and 11:59 PM the
following Sunday.

B. Definitions

G.S. 105-164.3 contains the following definitions that apply to the sales tax holiday. Some of the definitions apply to items that are exempt from tax during the holiday period, and some apply to items that are subject to tax during the holiday period. Sections C. and D. below list items that
are included in these terms.

1. “Clothing” is defined in G.S. 105-164.3(3) as “All human wearing apparel suitable for general use including coats, jackets, hats, hosiery, scarves, and shoes.”

2. “Clothing accessories or equipment” is defined in G.S. 105-164.3(4) as “Incidentalitems worn on the person or in conjunction with clothing including jewelry, cosmetics, eyewear, wallets, and watches.”

3. “Protective equipment” is defined in G.S. 105-164.3(31) as “Items for human wear designed as protection of the wearer against injury or disease or as protection against damage or injury of other persons or property but not suitable for general use including breathing masks, face shields, hard hats, and tool belts.”

4. “Sport or recreational equipment” is defined in G.S. 105-164.3(42) as “Items designed for human use and worn in conjunction with an athletic or recreational activity that are not suitable for general use including ballet shoes, cleated athletic shoes, shin guards, and
ski boots.”

C. Exempt Property

Sales of the following items are exempt from sales or use tax during the sales tax holiday period, unless the items are sold for use in a trade or business or are sold under a deferred payment plan and are not delivered during the holiday period:

1. Clothing with a sales price of $100 or less per item.

2. Sport or recreational equipment with a sales price of $50.00 or less per item.

3. School supplies, such as pens, pencils, paper, binders, notebooks, textbooks, reference books, book bags, lunchboxes, and calculators, with a sales price of $100 or less per item. The exemption applies to items purchased for any use other than in a trade or business; therefore, the item need not be intended for use in school or in connection with a school activity to receive the exemption.

4. Computers with a sales price of $3,500 or less per item.

a. Effective Until October 1, 2003
For the purpose of the exemption, “computer” means a central processing unit for personal use plus any peripherals sold with it and any computer software installed in it at the time of purchase. The exemption applies to desktops,laptops, hand-held computers, and personal digital assistants (PDA). Peripherals include monitors, keyboards, printers, scanners, web/PC cameras, microphones, and external drives. Network cards, internal drives, and additional
storage are not peripherals but are considered part of the computer. The separate sale of a peripheral, other than a printer, is taxable. Sales of printers at a sales price of less than $3,500 are exempt.
b. Effective October 1, 2003
A new definition of “computer” was adopted effective July 15, 2003. The term is defined as “an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.” For purposes of the exemption during the sales tax holiday, a computer includes a central processing unit, monitor, keyboard, mouse, and speakers since these items are deemed to be necessary in the operation of the computer; these items
are exempt when sold with the computer at the time of purchase provided the combined sales price does not exceed $3,500. Printers and other peripherals are not considered part of the computer and are subject to the applicable tax notwithstanding that they may be sold with the computer as a package. Printers and other peripherals must be separately stated on the invoice and the appropriate tax charged on those items.

5. Printers and printer supplies with a sales price of $3,500 or less per item. Printer supplies include ink cartridges and paper.
Effective October 1, 2003, printers and printer supplies are no longer exempt from sales or use tax during the sales tax holiday period.
6. Educational computer software with a sales price of $3,500 or less per item. Educational software is designed to teach the user a subject, such as reading, math, geography,science, or a foreign language, or how to develop a skill other than how to play a game. Software that teaches the user how to play a musical instrument or type is educational software. Software that teaches the user to play bridge, chess, or another game is not educational software. Educational software does not include any of the following types of software:
a. business management; b. database; c. entertainment, which includes action games, adventure games, card and casino games, simulation games, sports games, and strategy d. financial; e. games; f. graphics;
g. Office Suite; h. programming; or i. utility, including virus protection.
Effective October 1, 2003, educational software is no longer exempt from sales or use tax during the sales tax holiday period.

D. List of Property Eligible for Exemption

1. Clothing

The following is a list of items that are included in the term “clothing” and are therefore exempt from tax during the sales tax holiday period if their sales price is $100 or less per item.

The list is not all-inclusive.

a. aprons, household and shop;
b. athletic supporters;
c. baby receiving blankets;
d. bandannas;
e. bathing suits and caps; beach capes and coats;
f. belts and suspenders;
g. boots; overshoes;
h. coats, jackets, capes, and wraps;
i. costumes (does not include costume masks sold separately);
j. diapers (children and adults, including disposables);
k. earmuffs; gloves and mittens for general use; hats and caps; hosiery; scarves;
l. formal wear (rentals are not eligible);
m. garters and garter belts; girdles; leotards and tights; panty hose; socks; stockings
and footlets; underwear;
n. insoles for shoes;
o. jogging suits;
p. lab coats;
q. neckties;
r. rainwear; rubber pants;
s. sandals; shoes and shoelaces; slippers; sneakers; steel-toed shoes;
t. uniforms (athletic and nonathletic when purchased for nonbusiness use); and
u. wedding apparel (does not include rentals).

2. Sport or Recreational Equipment

The following is a list of items that are included in the term “sport or recreational equipment” and are therefore exempt from tax during the sales tax holiday period if their sales price is $50.00 or less per item. The list is not all-inclusive.

a. ballet and tap shoes;
b. cleated or spiked athletic shoes;
c. gloves (baseball, bowling, boxing, hockey, golf and other sports);
d. goggles;
e. hand and elbow guards;
f. helmets (bicycle, skating, baseball, and other sports);
g. life preservers and vests;
h. mouth guards;
i. roller and ice skates;
j. shin guards;
k. shoulder pads;
l. ski boots; and
m. waders; wetsuits and fins.
3. School Supplies
The following is a list of items that are included in the term “school supplies” and are
therefore exempt from tax during the sales tax holiday period if their sales price is $100
or less per item. The list is not all-inclusive.
a. art supplies; crayons; glue or paste;
b. binders; folders; notebooks;
c. “Bluebooks”;
d. book bags;e. calculators;
f. compasses;
g. composition books;
h. erasers; highlighters; index cards;
i. lunch boxes;
j. paper;
k. paper clips and binder clips;
l. pencils; pencil sharpeners (manual and electric); pens;
m. personal organizers (those that do not communicate with a computer);
n protractors;
o reference books; reference maps and globes;
p scissors; staplers and staples; and
q. textbooks (exempt only if designed to teach a subject in elementary schools,
middle schools, high schools, and institutions of higher learning. Novels are not
considered textbooks and are not exempt during the sales tax holiday period.)

E. Non-Exempt Property

The sales tax holiday applies only to items included in the list of exempt property. It does not apply to any of the following:

1. clothing accessories or equipment;
2. protective equipment;
3. furniture;
4. any item sold by means of a layaway contract or similar deferred
payment and delivery plan, unless the item is delivered during the holiday period (effective October 1, 2003, an eligible item sold under a layaway contract is exempt from tax during the holiday period);
5. any item sold for use in a trade or business;
6. any rental of property;
7. luggage;
8. stereo equipment, VCR’s, DVD players, and similar items;
9. effective October 1, 2003, printers and printer supplies; or
10. effective October 1, 2003, educational software.

F. List of Property Not Eligible for Exemption

1. Clothing Accessories or Equipment

The following is a list of items that are included in the term “clothing accessories or equipment” and are therefore subject to tax during the sales tax holiday period. The list is not all-inclusive.

a. briefcases;
b. cosmetics;
c. fabric, thread, yarn, and other such items purchased to make clothing;
d. hair notions, including barrettes, hair bows, hairnets, and similar items;
e. handbags;
f. handkerchiefs;
g. jewelry;
h. sunglasses (nonprescription);
i. umbrellas;
j. wallets;
k. watches; and
l. wigs and hairpieces.

2. Protective Equipment

The following is a list of items that are included in the term “protective equipment” and are therefore subject to tax during the sales tax holiday period. The list is not all-inclusive.

a. breathing masks;
b. clean room apparel and equipment;
c. ear and hearing protectors;
d. face shields;
e. finger guards;
f. hard hats;
g. print or dust respirators;
h. protective gloves;
i. safety glasses and goggles;
j. safety belts;
k. tool belts; and
l. welders’ gloves and masks.

G. Holiday Exemption Certificate

1. Over-the-Counter Sale
For any item with a sales price of $1,000 or more, a retailer must obtain and keep a Sales Tax Holiday Exemption Certificate, Form E-599H, or other evidence sufficient to support an exemption from tax.
2. Remote Sale
For any item with a sales price of $1,000 or more made over the Internet or by other
remote means, a retailer must obtain an affirmation from a purchaser that the purchaser
qualifies for the exemption. A retailer can contact the Sales and Use Tax Division to
review the retailer’s procedure for obtaining such affirmation.
H. Specific Issues
The following information sets out the application of tax with respect to various matters
concerning sales during the sales tax holiday period.
1. Participation in the Sales Tax Holiday
Can retailers elect not to participate in the sales tax holiday and collect tax from their
customers on eligible items? No. Retailers may only collect from their customers sales
taxes that are legally due. The Department may take action to revoke a retailer’s
Certificate of Registration if the retailer collects sales taxes that are not legally due.
2. Discounts and Retailer Coupons
A discount given by a retailer constitutes a reduction in sales price and the amount of the
discount is deducted before determining whether an item is eligible for the exemption.
For example, if a retailer issues a 15% off coupon and a customer purchases a dress
with a price of $105 and uses the coupon, the dress is exempt from tax. The price of the
dress after the 15% reduction is less than $100, which is the per item clothing price limit
for an exemption.
3. Layaway Sales
Prior to October 1, 2003, an item placed in a layaway or similar deferred plan during a
sales tax holiday period is not eligible for the exemption unless the item is delivered to
the purchaser during the period. An item that was placed in a layaway or similar deferred
plan before a sales tax holiday period and is then delivered to the purchaser during theperiod is eligible for an exemption from sales or use tax. For example, if a customer
places an item on layaway in June and the item is delivered to the customer during the
sales tax holiday period when the customer completes the layaway payments, the item is
eligible for the exemption.
Effective October 1, 2003, the sale of an eligible item under a layaway sale is exempt
from tax if the purchaser selects the item and the retailer accepts the order for the item
during the holiday period, even if delivery occurs after the holiday period.
“Eligible property” or “eligible item” means an item of a type, such as clothing, that
qualifies for a sales tax holiday exemption. “Layaway sale” means a transaction in
which property is set aside for future delivery to a customer who makes a deposit, agrees
to pay the balance of the purchase price over a period of time, and, at the end of the
payment period, receives the property. An order is accepted for layaway by the seller
when the seller removes the property from normal inventory or clearly identifies the
property as sold to the purchaser.
4. Manufacturers’ Coupons
A manufacturer’s coupon does not constitute a reduction in sales price. A determination
as to whether an item is eligible for the exemption is made before deducting the amount
of the coupon.
5. Rain Check
An item purchased pursuant to a rain check is not eligible for the exemption unless the
item is delivered during the sales tax holiday period. If an eligible item is delivered to a
purchaser during the holiday period pursuant to a rain check issued before the holiday
period, the sale of the item is exempt from tax. “Rain check” means the seller allows a
customer to purchase an item at a certain price at a later time because the particular item
was out of stock.
6. Rebates
A rebate occurs after a sale and does not constitute a reduction in sales price. The
amount of the rebate is not considered when determining whether an item is eligible for
an exemption. For example, a customer buys a computer with a sales price of $3,550
and can obtain a $100 rebate upon mailing proof of purchase to the manufacturer. The
computer is taxable because its sales price of $3,550 exceeds the per item limit of
$3,500 for computers.
7. Retailer Charges Tax in Error
If a retailer charges a customer tax on a qualifying exempt item during the sales tax
holiday period, how can the customer obtain a refund of the tax paid in error?
In order to obtain a refund of tax paid in error, a customer must return to the store with
his sales receipt and obtain a refund from the retailer. The retailer can claim a credit for
the tax refunded to customers on his sales and use tax return, provided he remitted the
tax to the Department. The Department does not issue refunds to individual customers
for tax remitted to retailers in error.
8. Returns and Exchanges
If an eligible item that was purchased during the sales tax holiday period is returned after
the holiday period and is replaced by the same item (different size, different color, etc.),
no additional tax is due. If a retailer gives the purchaser a credit for an item purchased
during the holiday period and the credit is used to purchase a different type of item after
the holiday period, the combined State and county rates of tax apply to the sales price of
the new item.For 30 days following the end of the sales tax holiday period, when a purchaser returns
an item that would have been exempt if purchased in the holiday period, the retailer may
not refund or give credit for any sales or use tax on the item unless the customer either
provides a receipt or invoice showing payment of the tax or the retailer has other
evidence to document payment of the tax. This procedure is for the purpose of
establishing whether tax was paid on an item and is not intended to alter a retailer’s
policy for accepting returned merchandise.
9. Sales by Remote Sellers
Sales of eligible items by mail order, telephone, Internet, or other remote means qualify
for the exemption. For the purpose of the sales tax holiday, an item is eligible for the
exemption if the following occurs during the holiday period:
a. The customer orders the item and pays for the item. A customer pays for an
item when the seller receives a credit card number, a debit authorization, a
check, or a money order.
b. The retailer accepts the order and takes an action to fill the order for immediate
delivery. The actual delivery can occur after the holiday period. Actions to fill an
order include placement of an “in date” stamp on a mail order or assignment of
an “order number” to a telephone order. An order is for immediate delivery when
the customer does not request delayed shipment. An order is for immediate
delivery notwithstanding that the shipment may be delayed because of a backlog
or orders or because stock is currently unavailable to, or on back order by, the
seller.
Most retailers are only able to change their tax application systems for an entire day and
not for periods during the day. Remote sellers located in a time zone other than Eastern
Daylight Time are allowed to use local time in the region in which the programming
equipment is located for the purpose of determining the beginning and ending times for
the holiday period.
10. Shipping and Handling
Delivery charges, including shipping, handling, and service charges, are part of the sales
price of eligible property. For the purpose of determining a sales tax holiday price
threshold, if all the property in a shipment qualifies as eligible property and the sales
price for each item in the shipment is within the sales tax holiday price threshold, then the
seller does not have to allocate the delivery, handling, or service charge to determine if
the price threshold is exceeded. The shipment will be considered a sale of eligible
products.
If the shipment includes eligible property and taxable property (including an eligible item
with a sales price in excess of the price threshold), the seller should allocate the delivery
charge by using:
a. a percentage based on the total sales price of the taxable property compared to
the total sales price of all property in the shipment; or
b. a percentage based on the total weight of the taxable property compared to the
total weight of all property in the shipment.
The seller must tax the percentage of the delivery charge allocated to the taxable
property but does not have to tax the percentage allocated to the eligible property.
11. ThresholdWhen the sales price of an item is greater than the ceiling threshold amount set for the
sales price of an exempt item, whether $50.00, $100, or $3,500, sales or use tax is due
on the entire charge for the item. The sales price is not reduced by the threshold
amount. For example, if a coat is sold for $120, the entire sales price of the coat is
taxable and not just the amount that exceeds $100.
12. Units
Items that are generally sold as a unit, such as a pair of shoes, must continue to be sold
as a unit and cannot be priced separately and sold as individual items to obtain an
exemption. For example, if a pair of shoes is sold for $120, the shoes are not exempt
because they exceed the per item clothing price limit of $100 per item. The retailer
cannot price each shoe at $60.00 and thereby exempt the sale of the pair of shoes from
sales tax.
History Note: Authority: G.S. 105-113.68; 105-164.4; 105-164.6;
105-164.13; 105-264;
Issued: December 1, 2002;
Revised: July 1, 2004; February 1, 2004.
Source: NC Department of Revenue


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