The State of North Carolina is preparing to enact a Internet Tax.
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2009
H 1
HOUSE BILL 558*
Short Title: Modernize Sales Tax Stat/Digital Products. (Public)
Sponsors: Representatives Weiss, Gibson (Primary Sponsors); Brubaker, Carney,
Harrison, Hill, Insko, Lucas, Luebke, McGee, and Wainwright.
Referred to: Finance.
March 12, 2009
*H558-v-1*
A BILL TO BE ENTITLED
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AN ACT TO MODERNIZE THE SALES AND USE TAX STATUTES BY TREATING
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MUSIC, MOVIES, BOOKS, AND COMPUTER SOFTWARE THAT ARE DELIVERED
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ELECTRONICALLY THE SAME AS THOSE THAT ARE PURCHASED IN A
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TANGIBLE MEDIUM AND BY REVISING THE "MAIL ORDER" SALES TAX
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PROVISIONS TO INCLUDE SPECIFIC REFERENCES TO INTERNET SALES.
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The General Assembly of North Carolina enacts:
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SECTION 1. G.S. 105-164.3 reads as rewritten:
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"§ 105-164.3. Definitions.
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The following definitions apply in this Article:
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…
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(1b) Audio work. – A series of musical, spoken, or other sounds, including a
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ringtone.
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(1c) Audiovisual work. – A series of related images and any sounds
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accompanying the images that impart an impression of motion when shown
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in succession.
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(1b)(1d) Bundled transaction. – A retail sale of two or more distinct and identifiable
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products, at least one of which is taxable and one of which is exempt, for
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one nonitemized price. Products are not sold for one nonitemized price if an
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invoice or another sales document made available to the purchaser separately
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identifies the price of each product. A bundled transaction does not include
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the retail sale of any of the following:
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a. A product and any packaging item that accompanies the product and
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is exempt under G.S. 105-164.13(23).
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b. A sale of two or more products whose combined price varies, or is
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negotiable, depending on the products the purchaser selects.
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c. A sale of a product accompanied by a transfer of another product
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with no additional consideration.
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d. A product and the delivery or installation of the product.
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e. A product and any service necessary to complete the sale.
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(1d)(1e) Business. – Includes any activity engaged in by any person or caused to be
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engaged in by him with the object of gain, profit, benefit or advantage, either
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direct or indirect. The term "business" shall not be construed in this Article
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to include occasional and isolated sales or transactions by a person who does
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not hold himself out as engaged in business.
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…
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General Assembly of North Carolina Session 2009
Page 2 House Bill 558*-First Edition
(7a) Digital code. – A code that gives a purchaser of the code a right to receive an
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item by electronic delivery or electronic access. A digital code may be
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obtained by an electronic means or by tangible means. A digital code does
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not include a gift certificate or a gift card.
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(7a)(7h) Direct mail. – Printed material delivered or distributed by the United States
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Postal Service or other delivery service to a mass audience or to addresses
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on a mailing list provided by the purchaser or at the direction of the
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purchaser when the cost of the items is not billed directly to the recipients.
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The term includes tangible personal property supplied directly or indirectly
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by the purchaser to the direct mail seller for inclusion in the package
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containing the printed material. The term does not include multiple items of
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printed material delivered to a single address.
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…
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(17a) Load and leave. – Delivery to the purchaser by use of a tangible storage
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media where the tangible storage media is not physically transferred to the
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purchaser.
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…
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(35f) Ringtone. – A digitized sound file that is downloaded onto a device and that
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may be used to alert the user of the device with respect to a communication.
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…."
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SECTION 2. G.S. 105-164.4(a) reads as rewritten:
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"(a) A privilege tax is imposed on a retailer at the following percentage rates of the
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retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and
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one-half percent (4.5%).
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…
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(6b) The general rate applies to the sales price of an item that is listed in this
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subdivision, is delivered or accessed electronically, and would be taxable
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under this Article if sold in a tangible medium. The retail sale of a digital
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code that is used to obtain any of the items taxed by this subdivision is
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considered a sale of that item. The tax applies regardless of whether the
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purchaser of the item has a right to redistribute it, to use it permanently, or to
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use it without making continued payments. The tax does not apply to an item
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that is taxed under another subdivision of this subsection or under
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G.S. 105-164.4C. A person who sells an item that is taxable under this
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subdivision is considered a retailer under this Article. The following items
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are subject to tax under this subdivision:
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a. An audio work.
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b. An audiovisual work.
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c. A book.
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d. Computer software.
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…."
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SECTION 3.(a) G.S. 105-164.3(18) is recodified as G.S. 105-164.3(33g) and reads
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as rewritten:
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"(18)(33g) Mail order Remote sale. – A sale of tangible personal property, ordered
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by mail, by telephone, computer link, via the Internet, or other similar
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method, to a purchaser who is in this State at the time the order is remitted,
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from a retailer who receives the order in another state and transports the
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property or causes it to be transported to a person in this State. It is presumed
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that a resident of this State who remits an order was in this State at the time
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the order was remitted."
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SECTION 3.(b) The catch line of G.S. 105-164.8 reads as rewritten:
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General Assembly of North Carolina Session 2009
House Bill 558*-First Edition Page 3
"§ 105-164.8. Retailer's obligation to collect tax; mail order remote sales subject to tax."
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SECTION 3.(c) G.S. 105-164.8(b) reads as rewritten:
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"(b) Mail Order Remote Sales. – A retailer who makes a mail order remote sale is
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engaged in business in this State and is subject to the tax levied under this Article if at least one
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of the following conditions is met:
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(1) The retailer is a corporation engaged in business under the laws of this State
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or a person domiciled in, a resident of, or a citizen of, this State.
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(2) The retailer maintains retail establishments or offices in this State, whether
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the mail order remote sales thus subject to taxation by this State result from
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or are related in any other way to the activities of such establishments or
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offices.
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(3) The retailer has representatives in this State who solicit business or transact
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business on behalf of the retailer, solicits or transacts business in this State
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by employees, independent contractors, agents, or other representatives
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whether the mail order remote sales thus subject to taxation by this State
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result from or are related in any other way to such the solicitation or
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transaction of business. A retailer is presumed to be soliciting or transacting
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business by an independent contractor, agent, or other representative if the
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retailer enters into an agreement with a resident of this State under which the
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resident, for a commission or other consideration, directly or indirectly refers
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potential customers, whether by a link on an Internet Web site or otherwise,
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to the retailer, if the cumulative gross receipts from sales by the retailer to
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purchasers in this State who are referred to the retailer by all residents with
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this type of agreement with the retailer is in excess of ten thousand dollars
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($10,000) during the preceding four quarterly periods. This presumption
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may be rebutted by proof that the resident with whom the retailer has an
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agreement did not engage in any solicitation in the State on behalf of the
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seller that would satisfy the nexus requirement of the United States
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Constitution during the four quarterly periods in question.
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(4) Repealed by Session Laws 1991, c. 45, s. 16.
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(5) The retailer, by purposefully or systematically exploiting the market
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provided by this State by any media-assisted, media-facilitated, or
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media-solicited means, including direct mail advertising, distribution of
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catalogs, computer-assisted shopping, television, radio or other electronic
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media, telephone solicitation, magazine or newspaper advertisements, or
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other media, creates nexus with this State.
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(6) Through compact or reciprocity with another jurisdiction of the United
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States, that jurisdiction uses its taxing power and its jurisdiction over the
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retailer in support of this State's taxing power.
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(7) The retailer consents, expressly or by implication, to the imposition of the
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tax imposed by this Article. For purposes of this subdivision, evidence that a
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retailer engaged in the activity described in subdivision (5) shall be prima
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facie evidence that the retailer consents to the imposition of the tax imposed
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by this Article.
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(8) The retailer is a holder of a wine shipper permit issued by the ABC
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Commission pursuant to G.S. 18B-1001.1."
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SECTION 4. G.S. 105-164.13(43a) is repealed.
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SECTION 5. G.S. 105-467(a) is amended by adding a new subdivision to read:
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"(8) The sales price of an audio work, audiovisual work, a book, and computer
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software that is subject to the general rate of tax under
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G.S. 105-164.4(a)(6b)."
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General Assembly of North Carolina Session 2009
Page 4 House Bill 558*-First Edition
SECTION 6. Section 4 of Chapter 1096 of the 1967 Session Laws, as amended,
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reads as rewritten:
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"Sec. 4. Scope of Sales Tax. The sales tax which may be imposed under this division after
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the holding of a special election is limited to a tax at the rate of one per cent (1%) of: (1) the
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sale price of those articles of tangible personal property now subject to the general rate of sales
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tax imposed by the State under G.S. 105-164.4(a)(1) and (4b); 105-164.4(a)(1), (4b), and (6b);
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(2) the gross receipts derived from the lease or rental of tangible personal property when the
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lease or rental of the property is subject to the general rate of sales tax imposed by the State
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under G.S. 105-164.4(a)(2); (3) the gross receipts derived from the rental of any room or
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lodging furnished by any hotel, motel, inn, tourist camp or other similar public
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accommodations now subject to the general rate of sales tax imposed by the State under G. S.
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105-164.4(a)(3); (4) the gross receipts derived from services rendered by laundries, dry
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cleaners, cleaning plants and similar type businesses now subject to the general rate of sales tax
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imposed by the State under G.S. 105-164.4(a)(4); (5) The sales price of food and other items
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that are not otherwise exempt from tax pursuant to G.S. 105-164.13 but are exempt from the
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State sales and use tax pursuant to G.S. 105-164.13B; and (6) The sales price of prepaid
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telephone calling service taxed as tangible personal property under G.S. 105-164.4(a)(4d). The
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taxes authorized by this division do not apply to sales that are taxable by the State under
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G.S. 105-164.4 but are not specifically listed in this section.
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The exemptions and exclusions contained in G.S. 105-164.13 and the sales and use tax
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holiday contained in G.S. 105-164.13C apply with equal force and like manner to the local
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sales tax authorized to be imposed and levied under this division. The county shall have no
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authority, with respect to the local sales and use tax imposed under this division, to change,
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Tags: North Carolina Internet Tax
