Subject: Direct Pay Permit
Tax: Sales and Use Tax
Law: G.S. 105-164.27A
Issued By: Sales and Use Tax Division
Date: December 6, 2000
G.S. 105-164.27A, enacted by Chapter 120 of the 2000 Session Laws, authorizes the Secretary of Revenue to issue a direct pay permit and describes the circumstances in which the permit can be issued. This Directive sets out the procedures for issuance and use of a direct pay permit.
This Directive supersedes the information set out in administrative rule 17 NCAC 7B .5301, as amended effective October 1, 1993, and Sales and Use Tax Technical Bulletin 46-1, revised effective October 15, 1998. Sales and Use Tax Technical Bulletin 46-1 was revised effective November 15, 2000; the revised bulletin is in effect and is not superseded.
The Secretary is authorized to issue a direct pay permit to a taxpayer that purchases tangible personal property whose tax status cannot be determined at the time of purchase for one of the following reasons:
- The place of business where the property will be used is not known at the time of the purchase and a different tax consequence applies depending on where the property is used.
- The manner in which the property will be used is not known at the time of the purchase and one or more of the potential uses is taxable but others are not taxable.
Businesses that meet these conditions include a manufacturer that is subject to various rates of tax or to no tax on an item of tangible personal property depending on how the manufacturer subsequently uses the item as well as a multistate taxpayer that uses the same type of property in various locations inside and outside the State. Retail and wholesale businesses that have locations only in North Carolina and whose exempt purchases are for resale are not eligible for a direct pay permit and, instead, should use a certificate of resale when applicable.
In addition to meeting the statutory conditions set out in G.S. 105-164.27A, a business must meet a volume threshold for the business to qualify for a direct pay permit. The volume threshold is annual purchases of tangible personal property of at least $5 million. All purchases are included in calculating this threshold, not just the purchases whose tax status cannot be determined at the time of purchase.
To apply for a direct pay permit, a taxpayer must complete Form E-595A, Application for Direct Pay Permit for Sales and Use Taxes, and submit it to the Sales and Use Tax Division of the Department to the address shown on the form. A copy of Form E-595A can be requested by calling the Department's Forms Line at (919) 715-0397. A copy of the form is also available on the Department's website at www.dor.state.nc.us.
When the Secretary approves the issuance of a direct pay permit, the Secretary assigns the taxpayer a direct pay permit number and sends the taxpayer a direct pay permit. The permit applies only to the taxpayer to whom it is issued and cannot be used by a subsidiary or an affiliate of the taxpayer. If a taxpayer that has a direct pay permit restructures its business into a new business entity, the new entity must apply for a permit of its own.
Use of Permit
When a taxpayer is issued a direct pay permit, the taxpayer must use that permit for all its purchases that are within the scope of the permit. To use the permit, the permit holder must give a copy of the permit to the vendor. A permit given to a vendor applies to all subsequent purchases from that vendor, unless the purchases are not within the scope of the permit.
When a taxpayer gives a copy of a direct pay permit to a vendor, the vendor is relieved of the vendor's obligation to collect tax from the permit holder. The taxpayer assumes liability for payment of the use tax due on purchases made under the permit. The taxpayer is responsible for accruing this tax and remitting it directly to the Department on the taxpayer's sales and use tax returns.
A vendor to whom a direct pay permit is issued must keep a copy of the permit. The vendor may keep this record in an electronic format. An electronic record must include the permit number, the name and address of the permit holder, and the date the permit was issued.
Registry of Permit Holders
G.S. 105-164.27A authorizes the Department to publish a registry of taxpayers that have a direct pay permit. The Department publishes this registry on its website, www.dor.state.nc.us.
Scope of Permit
A direct pay permit does not apply to the following taxes; these taxes must be paid to the vendor and cannot be self-accrued under the permit:
- State and local sales taxes on prepared food and beverages.
- Prepared food and beverage taxes levied by various local governments in the State.
- State and local sales taxes levied on hotel, motel, or other accommodation rentals.
- Occupancy taxes levied and administered by various local governments in the State.
- Highway use taxes paid on the purchase, lease, or rental of motor vehicles.
- State sales taxes levied on electricity or telecommunications services.
- The scrap tire disposal tax levied on new tires.
- The white goods disposal tax levied on new white goods.
- The dry-cleaning solvent tax levied on dry-cleaning solvent purchased by a dry-cleaning facility.
- The excise tax on piped natural gas.
The Department can revoke a direct pay permit in limited circumstances. The Department can revoke the permit if the holder of the permit does not file a sales and use tax return timely, does not pay sales or use tax on time, or otherwise fails to comply with the sales and use tax laws.
Effect on Certificates of Authority
The direct pay permit replaces the certificate of authority previously issued by the Secretary. The Department will replace the existing certificates of authority issued to taxpayers by issuing these taxpayers a direct pay permit. The direct pay permit will have a number that corresponds to the number on the certificate of authority. The number will be the same with the addition of two zeros at the beginning of the number.
A taxpayer that currently has a certificate of authority does not need to apply for a direct pay permit. The Department will automatically issue a direct pay permit to these taxpayers. A taxpayer that currently has a certificate of authority is not required to give a copy of its direct pay permit to vendors to whom it has previously given a copy of its certificate of authority. The taxpayer must give a copy of its direct pay permit to a vendor when the taxpayer purchases property from the vendor and the taxpayer has not previously given the vendor a copy of its certificate of authority.
In the past, some certificate of authority holders used their certificates when making purchases of some property but not for purchases of other property. Effective January 1, 2001, these taxpayers must use their direct pay permits for all purchases that are within the scope of the permit and are responsible for accruing and remitting use tax on all purchases made under the permit.
A taxpayer does not have to provide a surety bond or another type of security to obtain a direct pay permit. This differs from the prior requirements for obtaining a certificate of authority. A taxpayer was required to provide a surety bond or another type of security to receive a certificate of authority. Because this requirement no longer applies, current certificate of authority holders are not required to maintain a bond or another form of security. The Sales and Use Tax Division will return surety bonds that it currently retains to certificate of authority holders following the Division's review of their accounts.
If you have questions about this Directive, you may contact the Sales and Use Tax Division, North Carolina Department of Revenue, Post Office Box 871, Raleigh, North Carolina 27602. You may also telephone the Division at (919) 733-2151.