Sales Tax Articles
Sales Tax State Activity Update - November 2006
North Carolina Makes the Call on Redefining Telecom
Session Law 2006-33 of the 2006 General Assembly made changes to the manner in which sales tax is imposed on telecommunications and related services. New definitions have been added and the structure of exemptions has been changed however the application of the tax remains the same except for charges for paging services and how to recover assessments for the Universal Service Fund. These changes take effect on January 1, 2007.
The definition of the term "telecommunications service" under G.S. 105-164.3(48) has been amended and means: "The electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The term includes any transmission, conveyance, or routing in which a computer processing application is used to act on the form, code or protocol of the content for purposes of the transmission, conveyance, or routing, regardless of whether it is referred to as voice-over Internet protocol or the Federal Communications Commission classifies it as enhanced or value added. The term does not include the following:
- Data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by electronic transmission to a customer whose primary purpose for using the service is to obtain the processed data or information.
- The sale, installation, maintenance, or repair of tangible personal property.
- Directory advertising and other advertising.
- Billing and collection services provided to a third party.
- Internet access service.
- Radio and television audio and video programming service, regardless of the medium of delivery, and the transmission, conveyance, or routing of the service by the programming service provider. The term also includes cable service and audio and video programming service provided by a mobile telecommunications service provider.
- Ancillary service.
- A digital product delivered electronically, including software, music, a ring tone, video, and reading material."
The definition of the term "ancillary service" has been added as G. S. 105-164.3(01) and is defined as "a service associated with or incidental to the provision of a telecommunications service. The term includes detailed communications billing, directory assistance, vertical service, and voice mail service. A vertical service is a service, such as call forwarding, caller ID, three-way calling, and conference bridging, that allows a customer to identify a caller or manage multiple calls and call connections." Ancillary services are subject to tax at the combined general rate of sales tax and the application of tax on ancillary services will not change.
Items 1 through 8 in the list of items shown above that are not considered to be a telecommunications service are currently set out as exclusions from gross receipts in the law that is currently in effect. However, G.S. 105-164.13(54) creates a new exemption for certain telecommunications services and charges. The services and charges included in the new exemption include:
- Telecommunication service that is a component part of or is integrated into a telecommunications service that is resold. This exemption does not apply to service purchased by a pay telephone provider who uses the service to provide pay telephone service.
- Pay telephone service.
- 911 charges imposed under G.S. 62A-4 or 62A-23 and remitted to the Emergency Telephone System Fund under G.S. 62A-7or the Wireless Fund under G.S. 62A-24.
- Charges for telecommunications service made by a hotel, motel, or another entity whose gross receipts are taxable under G.S. 105-164.4(a)(3) when the charges are incidental to the occupancy of the entity's accommodations.
- Telecommunications service purchased by a State agency or a unit of local government for the North Carolina Information Highway or another data network owned or leased by the State or unit of local government.
New definitions are added for "prepaid wireline calling service" and "prepaid wireless calling service". These services are currently included under the term "prepaid telephone calling service." However, these services are not taxed as telecommunications service. Rather the general State and applicable local sales and use tax rates continue to be imposed on the sale or recharge of these services at the point of sale.
Under the law in effect prior to January 1, 2007, one-way paging service is excluded from sales tax, however two pay paging service is taxable. Effective January 1, 2007, all charges for paging services, regardless of one or two-way, are subject to tax. Also effective January 1, 2007, surcharges imposed to recover a carrier's contributions to the Universal Service Fund are subject to tax; currently these surcharges are excluded from taxable gross receipts.
Finally, the combined general rate of tax imposed on telecommunications service will decrease from 7.00% to 6.75% on December 1, 2006. It will decrease again on July 1, 2007 from 6.75% to 6.50%.
(Important Notice: Telecommunications Service, North Carolina Department of Revenue, October 2006)
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