NC Sales and Use Tax for Digital Content and Property Management
We warned you this might happen, and the N.C. General Assembly has made it so: Changes to the North Carolina Sales and Use Tax became effective Oct. 1, 2019, and if you're a digital content creator, a property manager, providing a service or buying or selling many other types of property these changes affect your business.
Read the official announcement here (PDF).
What qualifies as digital content?
"Certain digital property," or what you probably think of as your work product, that is exchanged digitally that is considered an audio, audiovisual, photographic, greeting card, or print (book, magazine, newspaper, newsletter, report or other publication) product.
What types of taxes apply?
The appropriate tax rate is the rate where the purchaser takes possession of the digital property or makes first use of it, whichever comes first. As of Oct. 1, 2019, the state's general sales and use tax rate is 4.75% and applicable local taxes range from 2% to 2.25%. Additionally, mainly in urban zip codes, there is a 0.5% transit tax.
For 56 of North Carolina's 100 counties, the total rate is 6.75%*.
For these counties, the total rate is 7%:
Alexander, Anson, Ashe, Buncombe, Cabarrus, Catawba, Cherokee, Clay, Cumberland, Davidson, Duplin, Edgecombe, Gaston, Graham, Greene, Halifax, Harnett, Haywood, Hertford, Jackson, Jones, Lee, Lincoln, Martin, Montgomery, Moore, New Hanover, Onslow, Pasquotank, Pitt, Randolph, Robeson, Rockingham, Rowan, Rutherford, Sampson, Stanly, Surry, Swain, and Wilkes.
For these counties, the total rate is 7.25%:
Mecklenburg and Wake.
For these counties, the total rate is 7.5%:
Durham and Orange.
These rates apply to the retail sale of "tangible personal property, certain digital property, and certain services."
Review N.C. Sales and Use Tax Rates and Charts here.
Tax rate is based on the location of the buyer
So, for example, if you live and work in Mecklenburg County but sell your digital song or video to someone in Bladen County, you would apply the Bladen County tax rate to that purchase.
Similarly, if you live in New York, New York, and you sell a photograph to someone in Wake County, North Carolina, you would apply the Wake County sales and use tax rate to the sale price.
Does it matter if the purchaser is only granted one-time, or otherwise limited, use of the property?
No, it doesn't; if you are selling a digital product it is now subject to taxation in the state of North Carolina.
But, you might ask, I thought these types of products have been taxed by the N.C. Department of Revenue (NCDOR) since 2010? You would be right, but there is an important caveat: Before the recent legislative changes, there had to be a tangible counterpart. Now, it doesn't matter if the photos you sold are ever printed in a physical format, or if your eBook is only ever read online -- if you sell a digital product to a buyer in North Carolina that product is subject to taxation.
How are property managers affected?
Effective Jan. 1, 2020: Some definitions are now dictated by N.C. General Statute § 105-164.3 and some services provided by property managers are now taxable.
A property management contract is now legally defined as a "written contract obligating a person to provide five or more real property management services." Further, the legislative tweaks define what it means to offer real property management services, and defines the role of a real property manager.
The General Assembly has also determined that repairs, maintenance, and installation services under a property management contract are taxable under some circumstances. For example, when those services are provided at an additional charge; the property manager arranges for a third party to make the repairs or to do the maintenance and installation for which an additional charge is applied; when more than 25% of the time spent managing the property is considered repair, maintenance, or installation work.
There are some applicable exclusions. Call us to schedule a consultation to discuss the particulars of your situation.
Additional changes possible; details unavailable
The NCDOR states in their update:
The annual Tax Law Changes publication produced by the Department should be available by the end of the calendar year on the Department's website, www.NCDOR.gov, will contain detailed explanations of the 2019 legislative changes.
The NCDOR also notes that the legislative changes supersede anything else you may have read or heard about the sales and use tax laws on their site or elsewhere.
That update is critical, and it won't be until that publication is made available that every question about these changes will be answered. Until then, we are reviewing the new legislation and are glad to discuss these changes, and how they affect your business.
We know: This is complicated, and dealing with such matters is not why you became a video editor or author. You should also know that the situation is further complicated by the fact that the NCGA is still in session and has the power to continue changing these laws. We will, of course, update you if there are any additional changes.
You can also watch for updates at NCDOR.gov and sign up for their Tax Updates Email List here.
If you have any questions about how to implement these changes in your business, give Kocaj Consulting a call at (980) 209-0836 or email us about scheduling a consultation at firstname.lastname@example.org.
* Per NCDOR: The combined general rate of sales and use tax imposed on the sales price or gross receipts derived from telecommunications service and ancillary service, video programming, piped natural gas, electricity, antique spirituous liquor other than mixed beverages, and aviation gasoline and jet fuel continues to be 7% in all N.C. counties.