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A yarn manufacturer’s purchase of packaging material used to deliver yarn to its customers was found exempt from North Carolina sales and use tax. To ship its cones of yarn to customers, the taxpayer uses a “yarn pak” which is returned to the taxpayer for recycling and reuse. After the cones of yarn are packed into the yarn pak, the taxpayer typically wraps it in “shrink wrap,” overlapping the edges of the bottom and top pallets as well as the dividers. Although, the shrink wrap is not part of the yarn pak and is not necessary to hold the yarn pak together, it does provide a protective barrier against dust and moisture during shipping.

The North Carolina statute provides an exemption for a container that is used as packaging by the owner of the container or another person to enclose tangible personal property for delivery to a purchaser of the property and is required to be returned to its owner for reuse. However, the Department argued that the plain language of the statute only exempts containers that enclose tangible personal property and the yarn paks did not completely enclose the yarn cones. In order to accept the Departments position that a container must “completely” or “fully” enclose property, the Court would have to add language to the statute, which it has no power to do. Therefore, it was determined that the taxpayer’s purchase of the yarn paks did qualify for the exemption from sales and use tax. (Parkdale America, LLC v. Hinton, North Carolina Court of Appeals, No. COA09-10, October 6, 2009)

(10/26/2009)

The North Carolina Department of Revenue has issued a notice announcing the state sales and use tax rate has been increased from 5.5% to 5.75%, effective October 1, 2009. Local rates, however, decrease from 2.25% to 2% in all counties except Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry where the county rate decreases from 2.5% to 2.25%. Mecklenburg County continues to impose an additional 0.5% Transit rate. The third one-half cent local tax, previously reduced to 0.25% under Article 44, will decrease to zero. The combined State and local rate will continue to be 7.75% in ninety-one counties, 8% in Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry Counties and 8.25% in Mecklenburg County. For purposes of determining the applicable rate of tax, a sale is considered to be consummated when the item is delivered to the purchaser. Therefore, the rate of tax due is generally the rate in effect when delivery of property occurs. (Important Notice 10-09, North Carolina Department of Revenue, October 2009)

(10/20/2009)

North Carolina Governor Bev Purdue has signed a budget bill that passes the Amazon provision related to nexus. This provision states that a retailer is presumed to be soliciting or transacting business in North Carolina if the retailer enters into an agreement with a resident of this State under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the retailer. This presumption applies only if the cumulative gross receipts from sales by the retailer to purchasers in this State who are referred to the retailer by all residents with this type of agreement with the retailer is in excess of ten thousand dollars ($10,000) during the preceding four quarterly periods. (S.B. 202, Laws 2009, effective as noted)

(08/28/2009)

North Carolina Governor Bev Perdue has signed a budget that temporarily increases the general state sales and use tax rate from 4.5% to 5.5%. The 1% increase will be applicable to sales made on or after September 1, 2009 and before July 1, 2011. (S.B. 202, Laws 2009, effective as noted)

(08/11/2009)

A North Carolina trial court incorrectly applied a de novo standard of review to overturn the Tax Review Board and Assistant Secretary of Revenue’s determination that a taxpayer was not a charitable organization, and therefore was not entitled to a sales and use tax refund. The decision reached by the trial court was based on its independent fact-finding done during the review of the agency’s decision, which is inconsistent with the applicable standard of review and is a misapplication of governing law. Since the trial court did not have the authority to disregard or supplement the administrative agency’s factual determinations, its application of a de novo standard of review was erroneous and necessitates remand for further proceedings in the lower court. (In the Matter of: The Denial of NC Idea’s Refund of Sales and Use Tax for the Period January 1, 2003 through June 30, 2003 by the Secretary of Revenue of North Carolina, North Carolina Court of Appeals, No. COA08-561, April 21, 2009)

(06/29/2009)

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