North Carolina clarifies sales tax on digital goods

Aug 05, 2019
State tax nexus Business tax State & local tax Indirect tax

On July 26, 2019, North Carolina Gov. Roy Cooper signed Senate Bill 523, providing various clarifications and changes to the state’s tax law including a broadening of the sales tax base to include certain digital property.  

Currently, the sales and use tax is imposed on digital property if it is: 1) delivered or accessed electronically, 2) is not considered tangible personal property, and 3) would be taxable if sold in a tangible medium. For example, a digital music album would be subject to the sales tax if the consumer could also purchase a physical version of the product. However, this provision created confusion for digital property purchases where a tangible version did not exist, often leading to the interpretation that digital property without a tangible equivalent was not subject to the tax.

Senate Bill 523 clarifies that the sales and use tax is imposed on “certain digital property.” Certain digital property includes the following items that are 1) delivered or accessed electronically and 2) are not considered tangible personal property: audio works; audiovisual works; books, magazines, newspapers, newsletters, reports, or other publications; and photographs and greeting cards. Certain digital property does not include an information service. The prong related to considering whether the product would be taxable in a tangible medium was eliminated. The tax on certain digital property is effective Oct. 1, 2019.

Additionally, a new definition for an “item” was created in order to create some consistency among the sales and use tax law’s various references to tangible personal property, digital property, and services. Conforming changes were made throughout the sales and use tax code to replace those references with “item” where appropriate.   


Taxpayers and retailers conducting business in North Carolina that sell or purchase digital goods should be aware of the modifications to how sales tax is imposed on digital property. Taxpayers should contact their state and local tax adviser to discuss how the changes may impact their business.

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