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Bill Summary · HB 1065

Summary of HB 1065 (Session 2025, North Carolina) — Prepared Foods Sales Tax Modification

Purpose and Intent

  • The bill, sponsored by Representative Vernetta Alston (with co-sponsors Tim Longest and Eric Ager), proposes to exempt certain prepared foods from North Carolina state sales tax.
  • Effective date: October 1, 2026, with application to sales occurring on or after that date.

Key Provisions

1) Definition of Prepared Food (G.S. 105-164.4L) — Section 1(a)

  • Rewrites the definition of “prepared food” to include:
    • (1) Food sold in a heated state, or heated by the retailer.
    • (2) Food consisting of two or more foods combined by the retailer into a single item.
  • Exclusions remain (i.e., items that do not count as prepared food under other provisions):
    • Food containing raw eggs, fish, meat, or poultry that requires consumer cooking as recommended by the FDA.
    • Food that is only sliced, repackaged, or pasteurized by the retailer.
    • Food sold without eating utensils by a retailer whose primary business is food manufacturing, provided it is sold in a sealed, shelf-stable container with a Nutrition Facts panel as required by federal law.

2) State Exemption and Tax Status of Food (G.S. 105-164.13B) — Section 1(b)

  • Amends the list of foods subject to state sales tax by clarifying exemptions. The bill designates:
    • Certain items still subject to tax (existing exemptions continue, with some changes):
    • Dietary supplements.
    • Food sold through a vending machine.
    • Prepared food, except for:
      • Bakery items sold without eating utensils by an artisan bakery.
      • Food excluded from the definition of prepared food under the revised G.S. 105-164.4L(a)(2)c. (This aligns with the new definition in Section 1(a).)
    • The term “bakery item” includes classic bakery goods such as bread, rolls, pastries, cookies, cakes, etc.
    • An “artisan bakery” is defined by criteria:
    • Derives more than 80% of its gross receipts from bakery items.
    • Combined annual gross receipts with related parties do not exceed $1,800,000.
    • “Related person” follows the relationships described in internal Revenue Code sections 267(b) or 707(b).

3) Effective Date and Scope

  • The act becomes effective October 1, 2026.
  • Applies to sales made on or after October 1, 2026.

Who is Affected

  • Retail sellers of prepared foods in North Carolina, including:
    • Restaurants, deli counters, and other establishments selling heated or combined foods.
    • Retailers that package or combine multiple items into a single prepared item.
    • Artisan bakeries and conventional bakeries (in light of the new exemptions and definitions).
  • Consumers purchasing prepared foods that fall into the exempt category or the taxed category under the new rules.
  • Operators of vending machines, dietary supplement sellers, and others currently subject to certain taxes under G.S. 105-164.13B.

Procedural and Timeline Considerations

  • Passage creates a new framework for what counts as “prepared food” and which items are taxed.
  • Effective date set for October 1, 2026; impacts sales on or after that date.
  • The changes could require retailers to adjust point-of-sale tax collection, labeling, and accounting to reflect the revised definitions and exemptions.
  • Artisan bakery criteria establish a threshold for determining eligibility for certain exemptions related to bakery items.

Potential Impact

  • Tax Burden: Depending on interpretation and application, some prepared foods may shift from tax-exempt to taxable status or vice versa, affecting consumer prices and retailer tax collections.
  • Administrative: Retailers may need to update systems to reflect the new definitions, especially for items that are produced by combining multiple foods or that are heated by retailers.
  • Bakeries: Artisan bakeries may gain clarity on when bakery items are taxed, given the specific exemption criteria.

Note: This summary reflects the bill text as introduced and revised. If enacted, statutory language may be further refined or interpreted by state tax authorities and courts.

Compiled from official sources — confirm details with the bill’s official record.

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