How to Avoid Criminal Charges While Desperately Trying to Comply w/ Sales Tax Reporting in N. Carolina

I should be far too old to start a blog post with “OMG,” but I just can’t refrain: OMG, North Carolina’s move to impose a 1% temporary sales and use tax increase probably created more problems than were worth it. And now even the Department of Revenue has panicked.

Applicable to sales dated September 1, 2009 but with notice from September 9^th (yes, yes, after the fact), the general sales tax rate in North Carolina increased to anywhere from 7.75% to 8.25%, depending on the county in question.

The change happened so quickly as part of a bill passed in August in an attempt to patch N. Carolina’s gaping budget holes that the DOR didn’t even have time to create new electronic tax forms reflecting the new rates, and now officials there are trying to assist businesses struggling to achieve compliance for their September 2009 and Q3 2009 sales tax obligations.

Unless a business happened to be lucky enough to have anticipated the legislature’s passage and ultimate signing of the bill and actually took the risk of imposing an unlawful tax, it was doomed to encounter problems from the start. The law has language to the effect that for all business that were not in compliance with the new rate, the state would not actually pursue criminal charges against them if they “used their best efforts” to collect, leaving open the question of required evidence of what constitutes “best efforts.”

So it definitely seems that businesses are on the hook to change their systems immediately to comply, creating tremendous difficulties with reconciliation, not to mention that they will be held liable for the higher rate on goods they already sold to customers in the first ten days of September.

The DOR’s suggested practice? Use the old forms while turning to newly created worksheets (see quarterly here and monthly here) to determine the new collection amount and, for those businesses that aren’t connected to the web (nor have an automation sales tax solution provider), they’ll accept phone calls to help make this determination (can you imagine the on-hold time?). I didn’t notice a phone number mentioned at this URL, where the DOR suggests how to handle this mess, so for your “convenience,” try (877)-252-3052.

But OMG yet again (if you’ll indulge such banter), with effect from this past October 1^st, there is a .25% state tax increase accompanied by a simultaneous county tax decrease of .25%. If a business tries to handle this sort of nonsense manually, and maybe only handles rate changes at the state and not more micro level, it’s clear how many mistakes can and will result – requiring time-costly amended returns and perhaps literally costly penalties. 

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