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The U.S. District Court found that online travel companies (“OTCs”) did not underpay North Carolina local occupancy taxes. It was agreed that they are not hotel operators for purposes of the state sales tax. North Carolina sales tax is only applicable to operators of hotels and the local occupancy tax may be assessed only against gross receipts as determined from the standpoint of an operating hotel. Although the local occupancy tax is imposed upon certain amounts (gross receipts), the state sales tax is imposed upon specific classes of retailers, including operators of hotels and similar types of businesses. As such, the U.S. District Court found the scope of the local occupancy tax is expressly limited by the state sales tax. In addition, the local occupancy tax applies only to the hotel’s gross receipts (the room price charged by the hotels themselves). The OTCs are required to collect and remit taxes only on the discount price they charge the participating hotels and not the marked-up price that the consumers pay to the OTCs. Since the online travel companies had not underpaid their local occupancy taxes and there was no legal injury to Pitt County, the county had no standing to file suit, the county lacked jurisdiction over the county’s claim and the county’s suit was dismissed. (Pitt County v. Hotels.Com L.P., United States District Court for the Eastern District of North Carolina, Eastern Division, No. 4:06-CV-30-BO)

(06/08/2009)

The North Carolina Department of Revenue announced that, effective January 1, 2009, there will be a new exemption from State sales and use tax for bakery items which are sold without eating utensils by an artisan bakery. These items include buns, rolls, biscuits, bagels, bread, pastries, tarts, tortillas, cookies, donuts, Danish, cakes, croissants, tortes, pies, and muffins. Eating utensils include napkins, plates, knives, spoons, napkins, cups, and straws. The bakery items will still be subject to the 2% local rate of tax imposed on qualifying food products. North Carolina statute exempts sales of food from the State sales and use tax except for the following: dietary supplements, vending machine food, prepared food, soft drinks, and candy. These particular items are subject to the general State and applicable local rates. An “artisan bakery” is one that derives over eighty percent of its gross receipts from the sale of bakery items and its annual gross receipts, combined with the gross receipts of all related persons, do not exceed $1,800,000. (Important Notice: Sales of Baked Goods by Artisan Bakeries, North Caroline Department of Revenue, November 2008)

(02/18/2009)

North Carolina altered the procedure for taxpayer objections to proposed refund or assessments issued by the Department of Revenue. The new rules state that if a taxpayer disagrees with the Department's proposed actions, they must file a request for review within 45 days from the date the Department notice was mailed or within 45 days that the notice was received if the notice was hand delivered or within 45 dates of the Department's proposed denial of a refund, signaled by the Department's inaction on a request for refund. (S.B. 1704, Laws 2008, Effective July 28, 2008)

(01/01/2009)

Any food, non-food and prepared food items, including soft drinks, which are sold at convenience stores that have a connected restaurant are subject to sales and use tax. (Secretary of Revenue Decision No. 2007-1, North Carolina Department of Revenue, June 12, 2007)

(08/06/2008)

A North Carolina taxpayer who entered into optional maintenance agreements with customers on a cost-per-copy basis was not liable for sales tax. Since the cost-per-copy optional maintenance fee charged by the customer did not represent the sale of tangible personal property, the State concluded that there was no substantial difference in the traditional maintenance agreements and the cost-per-copy agreement, and therefore exempt from tax. The Department also concluded that the optional maintenance agreements used by the taxpayer constituted the furnishing of turnkey services for consideration based upon the number of copies produced. However, the taxpayer was liable for tax on the cost of the parts, supplies and materials used by the taxpayer in fulfilling the maintenance agreements. (Secretary of Revenue Decision, No. 2007-14, North Carolina Department of Revenue)

(04/07/2008)

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