Extras on Excise: North and South Carolina’s Blast from the Past Ignites Gas, Other Excise Tax Concerns

High school teachers may rejoice on hearing the news coming out of the two Carolinas: state history has an impact on modern-day occurrences. For some Carolinians, however, the lesson may very well be that history is still annoying even after high school.

North Carolina’s S.B. 575 and South Carolina’s S.B. 667 give quick history and geography lessons, and in the process, change the border between the two states, effective Jan. 1, 2017.

Essentially, when both states were colonies, surveys were used to determine their borders. Over time, the boundary markers have deviated from their original places along the border between the two states, prompting both governments to work together to reestablish the original border.

There are several consequences for those living in the affected areas, including some tax changes. The property taxes, individual income taxes and business taxes of impacted Carolinians will all change, but these bills are meant to transition the taxpayers to their new state.

Among the tax plans are a few excise tax concerns: 

• Cigarette inventories: S.B. 667 (S.C.) provides a refund for former South Carolina retailers who have paid South Carolina taxes on cigarette and tobacco products in their inventories at the time of the border switch date. S.B. 575 (N.C.) will require dealers to submit inventories and pay an additional tax (the amount is the current tax rate less any tax paid on inventory to the other state).

• ABC permits: S.B. 575 gives the North Carolina ABC permission to fast track the alcohol permit process to pre-existing sellers in South Carolina.

• Motor fuel taxes: In North Carolina, an establishment that sells alcohol for off-premises consumption and also sells gasoline, such as a gas station or convenience store, and is on the property located within the border change zone, will be subject to the same fuel excise tax rate as South Carolina, currently $0.16. These establishments can obtain monthly refunds for the difference paid between North Carolina and South Carolina’s tax rates, currently $0.35 per gallon.

The alcohol and motor fuel tax provisions affect one business in particular, as several news articles have highlighted. A South Carolina gas station will be within in the new North Carolina boundary, but its sales of fireworks, alcohol and gasoline at cheaper rates are not in compliance with North Carolina law. Both the alcohol permit and gas tax provisions were created specifically for the boundary change; if the establishment is sold to another owner, then those provisions are void.

Thanks to the new legislation, the gas station can keep offering its “depraved merchandise and cheap unleaded” (in the words of Condé Nast Traveler).

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think there will be any unintended tax consequences of this state boundary change?

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