Sales and use tax has always been a confusing issue and every state has different laws to add to the confusion.  The general rule of thumb has been that if it is tangible, it is taxable.  Usually labor and services are not subject to sales tax.  Well, throw that rule out the window when it comes to digital property in North Carolina.

Effective for 2010, digital property is now taxable even if it is delivered electronically.  “Digital works” includes (1) an audio work; (2) an audiovisual work; (3) a book, a magazine, a newspaper, a newsletter, a report, or another publication; (4) a photograph or a greeting card.  These are some big changes and the issue has not been publicized much.

Sellers of these products should take note of the changes and begin to charge sales tax if they are required to collect in North Carolina.  Buyers should also beware — use tax may be due.  If the seller is not required to collect tax in NC and you as the purchaser are in NC, you should still remit the applicable tax as use tax.

For the full detail of the changes from the North Carolina Department of Revenue, please review the notice at http://www.dornc.com/taxes/sales/impnotice_digital_property09.pdf.

NC Sales Tax Increase goes into affect on Septemeber 1st.

Just a reminder that the North Carolina state sales tax rate will increase by 1% on Tuesday, September 1, 2009.  For Mecklenburg county and the Charlotte area, that means the new sales tax rate will be a whopping 8.25% on goods (9.25% for prepared foods/restaurants).  For those counties without special rates, the rate will increase to 7.75%. 

This special rate was put into effect by Governor Bev Purdue and is scheduled to end on July 1, 2011 — unless it gets extended…. 

You can still make a run for the border to neighboring York county where the rate continues to be 7%.  On large purchases, this could add up but make sure you are penny wise and not pound foolish — add the cost of gas to your analysis to see if it is worth it to make the drive.

For full details and rate changes by county, you can visit the NC Department of Revenue site at http://www.dornc.com/taxes/sales/rate_increase2009.html.

Next weekend (Friday, August 7th through Sunday, August 9th) is a Tax Free Weekend for both North and South Carolina residents.  For a listing of 2009 Sales & Use Tax Holidays in other states, visit:  http://www.taxadmin.org/fta/rate/sales_holiday.html

North Carolina
G.S. 105-164.13C provides an exemption for certain items of tangible personal property sold between 12:01 A.M. on the first Friday in August and 11:59 P.M. the following Sunday. For 2009, the dates are Friday, August 7th through Sunday, August 9th. Clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreation equipment of $50 or less per item, computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt.

Clothing accessories, jewelry, cosmetics, protective equipment, wallets, furniture, items used in a trade or business, and rentals are not covered by the exemption and will be subject to the applicable tax.   For a more detailed list of what is and is not included in the Sales Tax Holiday, visit the list of items exempt during the sales tax holiday.  For other information, visit the North Carolina Sales Tax Holiday FAQ.

South Carolina
SC Code Section 12-36-2120(57) provides an examption from the sales and use tax for any sales taking place during a period beginning 12:01am on the first Friday in August and ending at twelve midnight the following Sunday on (a) clothing; (b) clothing accessories including, but not limited to, hats, scarves, hosiery, and handbags; (c) footwear; and (d) school supplies including, but not limited to, pens, pencils, paper, binders, notebooks, books, bookbags, lunchboxes, and calculators;(e) computers, printers and printer supplies, and computer software; (f) bath wash clothes, blankets, bedspreads, bed linens, sheet sets, comforter set, bath toels, shower curtains, bath rugs and mats, pillows, and pillow cases.  The exemption specifically does NOT apply to jewelry, cosmetics, eyewear, wallets, watches, furniture.  The exemption also does not apply to items placed on layaway or a similar deferred payment and delivery plan, the rental of clothing or footwear, or and item the is purchased for use in a trade or business.  For a more detailed listing of items, read the SC Revenue Ruling 05-09.