As a seller, you have the obligation to collect sales tax from your customers and remit it to the state. In many cases your customers may be exempt from tax. Where your customer is claiming that a sales tax exemption applies, you must make sure that you obtain support for the exemption. Otherwise, you and your business will be on the hook for the uncollected tax. For this reason, we recommend that you review the following discussions in order to avoid undercollecting sales tax from your customers.

Procedure for accepting a resale certificate. If your customers purchase goods or products for resale in their business, North Carolina provides a resale exemption from sales tax. North Carolina does not set forth any specific procedures for accepting a resale certificate. However, you should require that the purchaser present, in good faith, a resale certificate that includes the following information:

• your and your customer's name and address
• an indication of the general character of the property your customer is purchasing
• your customer's registration number or resale number
• your customer's foreign certificate of resale if your customer is an out-of-state purchaser

Procedure for accepting blanket resale certificates. North Carolina allows you to accept blanket resale certificates from your customers. A blanket resale certificate is a resale certificate provided to you by those customers who make numerous exempt resale purchases from you. The idea is that by maintaining a blanket resale certificate, both you and your customer can avoid the hassle of having to present a certificate every time your customer makes a purchase. The law does not set forth any specific procedures for accepting a blanket resale certificate. However, you should require that the purchaser present, in good faith, a blanket resale certificate that contains the same information as the regular resale exemption certificate.

Sales and use tax liability for out-of-state mail order and catalogue retailers. North Carolina has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if your business has physical presence within North Carolina. To determine if you have a physical presence, ask yourself the following:

• Do I have retail facilities, a warehouse, or any office space in North Carolina? Maintaining retail or warehouse facilities means that your business has a physical presence within the state. Also, if you have an office for employees, even for business activities unrelated to mail order sales, your business will have a physical presence within the state.
• Do my employees or I enter North Carolina for purposes of taking and transmitting orders from customers in North Carolina? If your employee or independent contractor enters North Carolina for purposes of taking or transmitting orders, your business has a physical presence in North Carolina. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence within the state.
• Do my delivery vehicles frequently enter North Carolina for purposes of delivering property? Frequent deliveries in North Carolina by your trucks will give you physical presence in North Carolina. An occasional delivery, however, may not constitute a physical presence within the state.

Passing on the sales tax to your customers. You will be responsible for collecting the sales tax for North Carolina. State law does not allow you to pay the tax out of your pocket (known as absorbing the tax).

Using a "no sales tax" advertising strategy to drum up business. North Carolina does not allow you to absorb sales tax. Instead, you must pass it on to your customers. If the Attorney General discovers that your business is advertising a "no sales tax" strategy, you will be guilty of a misdemeanor.

Calculating sales taxes. You calculate sales taxes by taking the tax rate, which is 4 percent, and multiplying it by your gross receipts from sales. Gross receipts are based on your total retail sales or services provided to your customers.

Claiming a refund of overpayment for sales and use taxes. If you frequently audit your sales transaction reports, you may discover that through an error, sales or use tax was overpaid on a transaction. If you or your customer discover such an overpayment, the state allows you or your customer to file a claim for a credit or refund. You or your customer should submit the claim on forms furnished by the North Carolina Department of Revenue. The State will normally issue a credit memorandum rather than give a refund to the person who made the erroneous payment. The state will not issue this credit memo until you have refunded the amount of the overcharged tax to your customer.

Time limitations for filing a refund claim. If you're going to file a refund claim for overpayment of sales or use tax, you'll have to do it within three years from the date you paid the tax. If you file a refund claim after that time, the state will not approve it.