This month, we continue our blog series with a contrast of a couple of southeastern states – North Carolina and South Carolina – specifically their treatment of technology items for sales tax purposes.
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Software as a Service (SaaS) in North Carolina vs. SaaS in South Carolina
Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.
Cloud Computing Services are not subject to sales and use tax in North Carolina. The North Carolina Department of Revenue has also noted in a sales and use tax bulletin that charges to access computers by way of a remote terminal device are not taxable.
South Carolina taxes charges to access a database or online information service. This includes legal research services, credit reporting, research services, and charges to access an individual website. Charges for computer software delivered by an application service provider are also subject to sales and use tax. The South Carolina Department of Revenue considers an application service provider to be sufficiently similar to database access transmissions, which were ruled taxable in a sales and use tax revenue ruling by the state. SaaS is taxable in South Carolina.
Software in North Carolina vs. Software in South Carolina
In North Carolina, Prewritten computer software is taxable as tangible personal property without regard to whether such software is delivered via a tangible medium, electronically or via load-and-leave. However, canned software is exempt if it meets any of the following criteria: 1) it is designed to run on an enterprise server operating system; 2) it is sold to a person who operates a datacenter and is used within the datacenter; 3) it is sold to a person who provides cable service, telecommunications service, or video programming and is used to provide ancillary service, cable service, internet access service, telecommunications service, or video programming.
North Carolina exempts sales and use tax from the sales of custom computer software without regard to whether such software is delivered via a tangible medium, electronically, or via load-and-leave.
In South Carolina, prewritten computer software delivered electronically is not subject to sales and use tax. Similarly in South Carolina, custom computer software delivered electronically is not subject to sales and use tax.
Digital Goods
States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.
In North Carolina, the sale of digital products are taxable. The state’s tax on digital property applies whether the purchaser of the item has a right to use it permanently or to use it without making continued payments. The tax also applies to the sales price of or gross proceeds from repair, maintenance, and installation services to digital property.
In South Carolina, sales of digital content are generally not taxable. However, the state imposes tax on the sales of streaming transmissions of television programs, movies, and music using the internet.
Sales Tax Holidays
States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These vary greatly by state. Here’s how North Carolina and South Carolina shake out.
North Carolina does not have a sales tax holiday.
The sales tax holiday in South Carolina occurs on August 4-6. During this time, clothing, school supplies, computers and other items are sold tax free.
For more information on both of these sales tax holidays, click here.
Economy
North Carolina has a diverse economy because of its great availability of hydroelectric power, its pleasant climate, and its variety of soils. The state leads the nation in the production of tobacco, textiles, and furniture. Charlotte is a major textile and trade center.
Every year the Appalachian Mountains attract several million tourists to the Western part of the state, including the historic Biltmore Estate. The scenic Blue Ridge Parkway and the Great Smokey Mountains National Park are two of the most visited national parks in the U.S. The city of Ashville is consistently voted as one of the top places to visit and live in the U.S., known for its rich art decor and architecture, mountain scenery and outdoor activities.
Major agricultural outputs in South Carolina are tobacco, poultry, cotton, cattle, dairy products, soybeans, hay, rice, and swine. Industrial outputs include textile goods, chemical products, paper products, machinery, automobiles, automotive products and tourism.
Many large corporations have moved their locations to South Carolina. Boeing opened an aircraft manufacturing facility in Charleston in 2011, which serves as one of two final assembly sites for the 787 Dreamliner. Domtar, in Rock Hill, is the only Fortune 500 company headquartered in the state. The fortune 1000 list includes SCANA, Sonoco Products and ScanSource.
North Carolina fun facts:
- The University of North Carolina Chapel Hill is the oldest state university in the United States.
- In 1903 the Wright Brothers made the first successful powered flight by man at Kill Devil Hill near Kitty Hawk.
- Babe Ruth hit his first home run in Fayetteville on March 7, 1914.
- North Carolina is the largest producer of sweet potatoes in the nation. Students at a Wilson County school petitioned the North Carolina General Assembly for the establishment of the sweet potato as the official state vegetable.
- Andrew Jackson, seventh president of the United States, was born in the Waxsaws area on the border of North and South Carolina.
- North Carolina was the first state in the nation to establish a state museum of art.
- The General Assembly of 1987 adopted milk as the official state beverage.
South Carolina Fun facts:
- South Carolina is the 11th smallest state in the country. It would fit inside Alaska 21 times.
- South Carolina is the only state in the country that grows tea.
- South Carolina’s state flower is the Yellow Jessamine. Children, mistaking the flower for honeysuckle, have been poisoned by sucking its nectar. The nectar is also toxic to honey bees.
- South Carolina is home to the legendary Angel Oak Tree, which shades an area of 17,000 square feet with its enormous limbs. The Live Oak Tree is considered to be over 500 years old and is one of the oldest living things east of the Mississippi River. The tree gets its name from the Angel family who once owned the land the tree is on, on John’s Island, south of Charleston.
- Wild hogs roam much of the state. They were originally brought to the U.S. by the Spanish in the 1500s and they are a continuing problem in the state. They prey on wildlife and livestock and their rooting and nesting behavior promotes soil erosion. Additionally, they contribute to the spread of tree disease and hinder attempts at reforestation.
- South Carolina is called the Palmetto state, named for the distinctive tree that grows along its coast. Additionally, palmetto trees are historically important because they were used to build Fort Moultrie, the site of the American colonists’ first victory in the Revolutionary War. British cannon balls would just bounce off of the soft Palmetto Walls.
- Several popular movies were filmed in South Carolina, including Full Metal Jacket, Prince of Tides, The Swamp Thing, Sleeping with Enemy, and The Notebook.
- South Carolina is named in honor of King Charles I of England, who first formed the English Colony, with Carolus being Latin for “Charles.”
We invite you to further explore North Carolina and South Carolina in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in North Carolina, South Carlina, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
