The Taxable Difference Between Supplies & Inventory

taxable difference

NC is one of the few states in the Southeastern US to offer a tax exemption on BPP inventory; and to taxpayers, there is often a thin and confusing line between what counts towards inventory versus supplies, and which types of businesses can benefit from this exemption.

Even more confusing, what is seen as supplies for one business, can count as inventory for another.

Why does the difference matter? It matters because while inventory is exempt from the tax base, supplies most certainly are not. Business supplies are required by NC General Statutes to be listed and taxed annually.

Supplies that are mistakenly viewed by taxpayers (and their accountants) as inventory go unreported and are left off the tax rolls. That’s yearly revenue lost for your tax office – and more time that will be spent on discoveries down the road.

Save time and resources by educating business owners! See below for a summarized refresher on the NCGS definitions of “supplies” versus “inventory” and the business types this distinction applies to.


Which businesses are exempt?

Manufacturers, retailers, wholesalers, & construction contractors are exempt while in the regular course of business.

Inventory: Items in stock, which are held for sale during the regular course of business, and any packaging materials that go with, and become a part of the goods sold.

Examples include: 

  • Manufacturers  – Raw materials, goods in process, finish goods, or other materials that accompany and become a part of the sale of the property being sold
  • Construction Contractors – Goods held to be furnished in the course of building, installing, repairing, or improving real property
  • Crops, livestock, poultry, feed used in the production of livestock and poultry, orr other agricultural or horticultural products held for sale.
  • Cars, trucks, tires, etc. sold in the automobile industry
  • TVs, computers, mobile phones, etc.  sold in the electronics

Supplies: Items used to help conduct and maintain a business, but are not the direct source of the income – and are not held for sale by the business.

For example, purchasing coffee and popcorn to have on-hand daily for customers at a car dealership may contribute to the business and play a part in retaining customers, but those items are not held for sale and are therefore categorized as supply verses inventory.

Additional examples include:

  • Cleaning/Janitorial items
  • Office items (paper clips, note pads)
  • Maintenance items (oils & lubricants)
  • Fuels (consumed in vehicles owned or leased by the business)
  • Medical/Dental/Doctor/Veterinarian items (syringes, molds, crutches, cat litter)
  • Barber/Beauty items (shaving cream, hair coloring, make-up)
  • Restaurant/Hotel items: (dishware, trashcans, glasses, linens)
  • Snacks & Drinks that are on hand & free for employees or customers
  • Rental items & replacement parts

For tips on how to prepare and educate your taxpayers for annual listing, check out this article on ways to Prepare Taxpayers for the Supply vs. Inventory Distinction.

Sources:

Duty, David. “Cross Section of Business Personal Property Issues.” 2013 Advanced Personal Property Seminar. Sheraton Four Seasons Hotel, Greensboro, NC. 23 September 2013. PowerPoint Presentation.

North Carolina General Statutes, Chapter 105 (2013).

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