Are Public Schools exempt from Sales Tax in NC?

by David Prins on January 20, 2013

The short answer is yes and no.

North Carolina exempts public schools (and most other governmental entities) in the same way it does non-profits.  They are exempt, but they must pay sales tax at the point of sale, then file to be reimbursed by the state.

This round-about process may seem a bit backwards.  But walk a mile in a retailer’s shoes; they are already required to collect, track, and remit sales tax for the state (without getting paid for the work).  What would it be like if you had to also verify each person/entity’s non-profit status, not collect their sales tax, and track and report those sales separately?  A freaking nightmare.  Therefore, in an act of benevolence, the DOR has established a compromise: that public schools non-profits pay sales tax at the retail point of sale (like everyone else), but then (unlike everyone else) they can request that the amounts be paid back to them by the state.

(For confirmation of the rule, please see Sales Tax Technical Bulletin 18, items 1 and 4.)

If you work for a public school and would like to know how to file for reimbursement for sales tax, it would be best to contact your school’s finance office for next steps.  There will probably be an exemption number already set up for your school or district.   Keep in mind that if you yourself are being reimbursed by your school for supplies or other expenses, the sales tax paid on your expenses is not eligible for reimbursement.  It’s only eligible on purchases made by the school directly.  Another good reason to check with your finance office.

Hope this has helped!  Best wishes.

{ 2 comments… read them below or add one }

Wayne Drummond April 26, 2013 at 3:15 pm

I sponsor the Student Council at my public school. I’m told we are submitting NC taxes on our profits from operating a concession stand for four small events per year plus on the small profit we gain from selling pencils daily from a machine. Must we do this?

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David Prins April 29, 2013 at 1:53 pm

Great question. Your example covers the other side of Sales tax – charging and collecting it at the register when your school (or related organization) sells something. The answer is yes, you have to collect and remit the sales tax if you are selling the items. The role of the school or organization in this example is of “middle-man.” According to the state, when someone buys a pencil or a drink, the sale is subject to sales tax. As the one selling it, you automatically inherit the role of collecting and remitting the sales tax for the state.

One other thing – You said you’re paying sales tax “on our profits,” and I just want to clarify that sales tax must be paid on total sales revenue, not just on the profit. Donation revenue by comparison is non-taxable.

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