Bill to exempt taxes on some digital content

By Nyamekye Daniel

(The Center Square) – The N.C. Senate will consider a bill next week that makes changes to sales tax on digital property.
House Bill 1079 clarifies current tax law to make digital educational content exempt from sales tax.

The measure, sponsored by a dozen Republicans, cleared the House on May 19 and is on the Senate calendar for May 26 floor vote after advancing out of two Senate committees.

“This is the sales tax changes that we continue to update and change,” said Rep. Julia Howard, R-Davie, one of the bill’s sponsors.

Under current law, the sales of digital publications, music, photographs, digital codes, audiovisual work and other audio are subject to sales and use tax.

Last year, representatives from the University of North Carolina questioned whether the law applied to their online classes.

“From a definitional standpoint, the terms ‘audio work’ and ‘audiovisual work’ could technically be interpreted to include live-streamed or pre-recorded videos of online classes and presentations,” fiscal analysts wrote. “In this context, the ‘transaction’ is the provision of education, which North Carolina does not tax, rather than the sale of a digital good.”

HB 1079 would codify the law to make it clear online classes and educational live-streams from schools and other education institutions are not taxable.

If the bill becomes law, the exemption also would apply to digital products purchased for homeschooling and live-stream lessons such as exercise or music classes and financial planning seminars. Pre-recorded or on-demand webinars still would be taxable.

The law has become more relevant as the coronavirus outbreak has called for remote learning measures to stop the spread of COVID-19.

Although North Carolina enters its second phase of reopening May 22, which allows more businesses to open, public health officials still recommend taking precautions to contain COVID-19 as new cases are identified each day.

The North Carolina Department of Health and Human Services reported 738 new cases of COVID-19 on May 21, with a total of 20,860 cases confirmed in the state, including 716 deaths.

HB 1079, a three-part measure, also would offer tax relief to auctioneers and estate sales companies and expand sales and use tax exemptions for equipment purchased by large fulfillment facilities.