North Carolina Provides Guidance for Sourcing Digital Property
North Carolina has provided guidance regarding the sourcing for certain digital property subject to sales and use tax. The following digital property is subject to tax: an audio work; an audiovisual work; a book, magazine, newspaper, newsletter, report, or other publication; and a photograph or a greeting card. The general sales and use tax rate applies to digital property that is delivered or accessed electronically even though it is not considered tangible personal property, and would be taxable under the sales and use tax if sold in a tangible medium. A purchaser receives digital property when the purchaser takes possession of the property or makes first use of the property, whichever comes first. Sales of digital property are sourced as follows:
- When a purchaser receives digital property at a business location of the seller, the sale is sourced to that business location.
- When a purchaser or purchaser’s donee receives digital property at a location specified by the purchaser and the location is not a business location of the seller, the sale is sourced to the location where the purchaser or purchaser’s donee receives the product.
- When the two scenarios above don’t apply, the sale of digital property is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller’s business when use of this address does not constitute bad faith.
- When the three scenarios above don’t apply, the sale of digital property is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser’s payment instrument, if no other address is available, which use of this address does not constitute bad faith.
- When the four scenarios above don’t apply, including the circumstance in which the seller is without sufficient information to apply the rules, the location will be determined based on the address from which the digital good was first available for transmission by the seller.
The tax applies regardless of whether the purchaser of the item has the right to use it permanently or to use it without making continued payments. (Important Notice: Sourcing for Certain Digital Property Subject to Sales and Use Tax, North Carolina Department of Revenue, August 2013)