North Carolina Changes to Sales Tax on Digital Property
June 19, 2020
By: Josh Howell, Senior Manager, Specialty Tax
North Carolina Governor Roy Cooper signed HB 1079 on June 5, 2020, to reduce the sales tax burden on schools and business delivering virtual learning and instruction to their customers. HB 1079 provides tax relief during a time when many otherwise nontaxable services may have been treated as taxable digital property because they were delivered in a digital format. The bill was met with bipartisan support from both parties, passing by unanimous vote in both the North Carolina House and Senate before being presented to the Governor.
The bill makes the following changes with respect to the sales tax on digital property:
- Clarifies that the delivery of instruction or training by a public or private K-12 school or an institution of higher education (public and private universities and colleges, community colleges, proprietary schools, and religious schools), to an enrolled student or as part of vocational training, is a nontaxable “educational service” and is not the sale of digital property. This is true regardless of whether the instruction or training is conducted online in a live or pre-recorded format.
- Exempts sales of digital audio works or audiovisual works to operators of home schools if the work is a qualifying educational expense under G.S. 115C-595(a)(3).
- Exempts sales of digital audio works or digital audiovisual works that consist of nontaxable service content when the transfer occurs contemporaneously and in real-time with the provision of the nontaxable service. Examples could include an exercise class, a music lesson, or a financial planning seminar live-streamed via Zoom. However, pre-recorded or on-demand webinars would be taxable like any other video.
These changes are retroactive to October 1, 2019. Educational institutions and businesses that made qualifying purchases may have a refund opportunity and should review whether tax was paid on these transactions.
Please contact the Cherry Bekaert SALT team or your Cherry Bekaert advisor for more information on how this new law may affect your digital services.