Gift Wrap and Gift Wrapping Services Subject to North Carolina Sales and Use Tax

Effective September 1, 2018, charges for gift wrap or gift wrapping services sold at retail are subject to North Carolina sales and use tax. They are subject to the 4.75% state sales and use tax rate and applicable local and transit sales and use tax. When a retailer makes a retail sale of tangible personal property (TPP) and gift wraps it for no extra charge, the gift wrap components – including the paper, ribbon, bow, and other TPP used by the retailer to wrap the property sold – are part of the sales price of the property sold. Gift wrap provided at no extra charge by the retailer is a part of the sales price of the TPP sold whether the gift wrap of the property takes place at the point of delivery to the consumer or occurs at one of the retailer’s gift wrap stations subsequent to the point of delivery. Gift wrap supplies and other TPP that will be sold at retail as part of the sales price of TPP or as repair, maintenance, and installation services (“gift wrap service”), should be purchased in an exempt manner. To make exempt purchases of such TPP, a person should issue Form E-595E, Streamlined Sales and Use Tax Agreement Certificate of Exemption, to the seller. Alternatively, the data elements required to substantiate an exemption may be provided to the seller. A person is liable for sales and use tax on the purchase of any tool, equipment, supply, or similar tangible personal property that is used to complete the gift wrap service but does not become a part of or is not applied to TPP sold at retail or a customer’s property.

However, when a person provides a gift wrap box, bow, tissue paper, or other similar item free of charge to a consumer, and the person does not wrap the item for the consumer, the retailer is liable for use tax on the purchase price of the items given away. Such items do not constitute a part of the sale, as they are not used for packaging, shipment, or delivery of TPP sold at retail. So a retailer is better off wrapping the purchasers for the customer rather than just providing the wrapping materials.

The sales price of or the gross receipts derived from gift wrap services by a nonprofit civic, charitable, educational, scientific, literary, or fraternal organization are specifically exempt from North Carolina sales and use tax if all of the following conditions are met:

• The sales are conducted only upon an annual basis for the purpose of raising funds for the organization’s activities.
• The proceeds of the sale are actually used for the organization’s activities.
• The products sold are delivered to the purchaser within 60 days after the first solicitation of any sale made during the organization’s annual sales period.

However, the organization will owe use tax on the purchase of the wrapping supplies. Purchases of gift wrap supplies by such qualifying organization, provided all of the required conditions are met, are subject to the 4.75% state sales and use tax rate and applicable local and transit sales and use tax. (Directive No. SD-18-3, North Carolina Department of Revenue, May 25, 2018)