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Recently, an out-of-state company who was sending catalogs to North Carolina for the purpose of advertising its videos and then filling orders placed by North Carolina residents was determined not to have established nexus in North Carolina due to the insubstantial nature of its activities. As result, the company was not required to pay sales or use tax on orders placed by North Carolina residents. (North Carolina Superior Court, Wake County, Nos. 00CVS14723 and 00CVS14724, February 20, 2003)


Upgrade licenses for canned software in the state of North Carolina are subject to sales tax. Since the fees paid constituted a lease of tangible personal property, North Carolina sales tax was applicable. The taxpayer, in this particular case, argued that no additional tangible personal property was delivered. Only the license fees were paid. The state's definition of "tangible personal property" includes prewritten computer software delivered on a storage medium. The Revenue Department found that the original purchase of the canned software included upgrade capabilities for a later time and once the upgrades were utilized they were subject to state sales tax. (Secretary of Revenue Decision No. 2002-141, North Carolina Department of Revenue, August 9, 2002, received February 20, 2003)


The shareholders of a corporation in North Carolina that purchased heavy equipment and then leased it back to the corporation were considered "engaged in business" because rent payments were taken and tangible personal property was maintained for the purpose of a lease or rental. It was important to this particular situation that the transactions only involved select customers. It was the regularity of the transactions that was at issue and prohibits them from being considered an "isolated or occasional sale". (Administrative Decision No. 382, North Carolina Tax Review Board, June 4, 2002)


Legislation has been passed by the North Carolina General Assembly authorizing all counties to levy an additional .5 % local option sales and use tax beginning on December 1, 2002. Most counties had adopted the levy by December 1, 2002, with the rest to follow on January 1, 2003. (Department of Revenue, NC Hot Topics, Increase in County Sales and Use Tax Rate)


The repair parts were purchased by the taxpayer exempt from sales tax, since the engine was for resale. However, the taxpayer was not a manufacturer because he did not manufacture new and different products for sale. Therefore, the taxpayer was liable for the general state and local rates of use tax on the cost of the equipment purchased from out-of-state vendors who did not charge sales tax. (Secretary of Revenue v. Taxpayer, Docket No. 2001-397, September 20, 2002)



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