North Carolina Sales Tax Enforcement Actions Checklist

North Carolina Sales Tax Enforcement Actions

Checklist

Introduction

Sales tax enforcement actions are formal notices from the North Carolina Department of

Revenue indicating active collection efforts for unpaid sales and use tax obligations. These notices signal that prior filing reminders have not resulted in compliance, and the state is pursuing legal collection remedies under North Carolina Revenue Laws, including G.S. 105-241 and G.S. 105-164.4.

Responding promptly to enforcement actions helps prevent additional penalties, interest charges, revocation of the Certificate of Registration, or property liens, which can significantly impact business operations and your legal entity status.

What This Issue Means

A sales tax enforcement action is an official notice showing the Department of Revenue is actively collecting unpaid sales and use tax through legal remedies authorized under G.S.

105-241 and G.S. 105-256. Common enforcement actions include proposed assessments, demands for payment, notices of intent to revoke your Certificate of Registration for sales and use taxes under G.S. 105-164.4, or liens filed against business property, including real property and tangible personal property. These actions represent a more serious collection stage than initial filing reminders and require immediate attention to avoid complications with state and federal income tax returns or Corporate Income and Franchise Tax filings.

Why the State Issued This

North Carolina businesses must collect sales and use tax on taxable sales, including tangible personal property, digital property, digital goods, digital codes, prepared food under the Food

Code definition, building materials, telecommunications service, electric power, piped natural gas, qualified jet engines, eating utensils, and repair, maintenance, and installation services.

When returns remain unfiled, or payments remain outstanding after initial notices, the Secretary of Revenue follows the statutory administrative procedures under Session Laws 2011-145 and

2013-316, and guidance from the Streamlined Sales Tax Governing Board, to enforce collection.

The specific enforcement action issued depends on whether the issue involves unfiled returns, unpaid assessments based on gross receipts or annual sales, or other compliance failures under the levied taxes.

What Happens If This Is Ignored

Ignoring sales tax enforcement actions typically results in escalated collection measures authorized under North Carolina General Statutes Chapter 105, including G.S. 105-241 and

G.S. 105-263. The Department of Revenue may assess additional penalties and interest, file a

Certificate of Tax Liability creating a public lien against business property, including real property, tangible personal property, mill machinery, logging machinery used in farming operations or wildlife management activities, revoke your Certificate of Registration, preventing legal sales tax collection, or pursue wage garnishment and bank levies. Collection efforts continue until the tax obligation is resolved through payment or conditional contract arrangements.

What This Does Not Mean

An enforcement action does not indicate that criminal charges are being filed or that business operations involving farming, wholesale merchants, accommodation facilitators, wildlife managers, or secondary metals recycling processes must cease immediately. The notice does not mean all business assets, including modular homes, manufactured homes, building supplies, broadcasting equipment, wood chippers, beverage containers, or inventory, will be seized.

Enforcement actions are civil collection tools used to recover unpaid taxes levied by the state for the General Fund, Highway Fund, and Dry-Cleaning Solvent Cleanup Fund, not criminal proceedings. You retain the right to request Departmental review through the appeals process under G.S. 105-241 or establish payment arrangements.

Checklist: What to Do After Receiving a Sales Tax

Enforcement Action

1. Step 1: Review the Notice Thoroughly

   Read the complete notice, including all attachments and identify the specific enforcement action type citing G.S. 105-241 or G.S. 105-164.4, tax periods involved, amount claimed based on reported gross receipts or annual sales, response deadline, docket number if assigned, and

   Department contact information.

2. Step 2: Verify Business Information Accuracy

   Confirm that the business name, address, sales and use tax account number as a legal entity,

   NAICS classification code, and tax periods referenced match your records and note discrepancies between the notice and business documentation, including conditional exemption certificates or property management contracts.

3. Step 3: Gather Supporting Documentation

   Locate filed sales and use tax returns, Individual Income Tax returns, Corporate Income and

   Franchise Tax returns, payment records, bank statements showing remittances, receipts documenting sales of tangible personal property, digital goods, digital codes, prepared food meeting Food Code standards, building materials, mill machinery, qualified jet engines, eating utensils, telecommunications service, or repair, maintenance, and installation services, and prior correspondence.

4. Step 4: Contact the Department of Revenue

   Call the Sales Tax Section using the number on the notice, confirm receipt, provide your sales and use tax account number, ask what specific information is needed regarding your gross receipts, annual sales, lease or rental of tangible personal property transactions, or conditional contracts, and document conversation details.

5. Step 5: Determine Response Requirements

   Check whether the notice requires a written response within 45 days under G.S. 105-241 and

   G.S. 105-256, identify whether you can file Form NC-242 requesting Departmental review through the appeals process, and determine if immediate payment is demanded for taxes supporting the General Fund or Highway Fund.

6. Step 6: Prepare Your Response

   Write a clear letter referencing the notice number, date, tax periods, docket number if assigned, and applicable statutes such as G.S. 105-164.4 or G.S. 105-241, explain your position with supporting facts regarding gross receipts, sales price calculations, annual sales, lease or rental of tangible personal property, or conditional exemption certificates, include copies of documentation, and avoid admitting liability.

7. Step 7: Submit Your Response Properly

   Follow the submission method specified in the notice, send to the exact address provided, keep copies for your records, including any conditional exemption certificates, service contracts, property management contracts, or conditional contracts, use certified mail with return receipt, and document submission date.

8. Step 8: Request Payment Agreement If Needed

   Complete Form RO-1033 Installment Agreement Request if you have received a Notice of

   Collection, cannot pay the full sales and use tax liability, including local sales and use taxes in full, meet statutory requirements under G.S. 105-241, and commit to bank draft payments through certified automated systems or federal reserve bank transfers.

9. Step 9: Monitor for Follow-Up Communication

   Keep all notices and documents in one organized file; watch for additional correspondence from the Department or a potential referral to the Office of Administrative Hearings under G.S.

   105-241 with a docket number; record phone calls; and respond promptly to avoid default.

10. Step 10: Seek Professional Assistance If Necessary

    Consider consulting with a tax professional or attorney if the situation involves complex issues such as marketplace facilitator obligations, local sales and use taxes, telecommunications taxes, conditional exemption certificates, property management contracts, Job Development

    Investment Grant Program benefits, payments instead of taxes, or disputes requiring administrative hearings through the appeals process with boundary and rate databases verification.

    What Types of Sales Are Subject to Enforcement

    Understanding which transactions generate sales and use tax liability under G.S. 105-164.4 helps identify potential compliance issues using the taxability matrix. The Department of

    Revenue enforces collection on retail sales of tangible personal property, digital property, digital goods, digital codes, prepared food based on prepared food sales percentage and Food Code definitions including food containing raw eggs, fish, meat, or poultry, food that is only sliced, repackaged, or pasteurized, eating utensils, serving sizes, building materials, building supplies, mill machinery, logging machinery used in farming operations or wildlife management activities, qualified jet engines regulated by the National Highway Transportation Safety Association and

    Division of Aviation, telecommunications service including PEG channel access, electric power, piped natural gas, video programming service, direct mail, spirituous liquor, admission charges to entertainment activities, beverage containers, ice used to preserve agriculture, and repair, maintenance, and installation services under G.S. 105-164.4.

    The Department also enforces the collection of other leases or rentals of tangible personal property, including modular homes, manufactured homes, qualified jet engines, mill machinery, and equipment. Local sales and use taxes imposed by counties and transit authorities supporting Transportation Needs are subject to enforcement actions when not properly collected using certified automated systems with boundary and rate databases.

    Businesses, including marketplace facilitators, marketplace sellers, wholesale merchants, accommodation facilitators, cable service providers, recycling facilities operating secondary metals recycling processes, wildlife managers, and entities receiving Job Development

    Investment Grant Program benefits, must understand their obligations. Specialized transactions involving products of a farm, commercial fishery products, manufactured products, farm replacement parts, prepaid telephone calling service, rodenticides, insecticides, herbicides, fungicides, and pesticides regulated by the Food and Drug Administration may have specific taxability rules under G.S. 105-164.4 requiring careful compliance to prevent foodborne illnesses and ensure public safety.

    How Other Tax Obligations Relate to Sales Tax

    Enforcement

    Sales tax enforcement actions may trigger a review of concurrent tax obligations that businesses must address. The Secretary of Revenue coordinates enforcement across multiple tax types, including Individual Income Tax, Corporate Income and Franchise Tax under G.S.

    105-277.15, Estate Tax, Gift Tax under G.S. 105-187.44, and Motor Fuels Tax supporting the

    Highway Fund. Businesses with unpaid sales and use tax may face simultaneous enforcement for other taxes, particularly when the Department identifies compliance patterns through state and federal income tax returns or through coordination with federal agencies.

    Understanding the relationship between different tax obligations helps businesses avoid compounding enforcement issues. The Department may coordinate with federal agencies, the

    Federal Reserve Bank for payment processing, and other state divisions to ensure comprehensive tax compliance.

    Revenue from sales and use tax supports the General Fund, Highway Fund, and Dry-Cleaning

    Solvent Cleanup Fund under G.S. 105-143-215.104C, making enforcement a priority.

    Businesses receiving payments instead of taxes or participating in programs like the Job