Taxation – Sales & Use – Prepaid Cell Service

Respondent is a retailer of Boost Mobile goods and services. During the audit period, respondent failed to collect sales tax on Boost’s “Real Time Replenishments” (RTRs). Even though the RTRs may be redeemed on a variety of goods and services sold by Boost – and not just on wireless plans – under G.S. § 105-164.3(27a), a prepaid wireless calling service (PWCS) is not defined as the purchase of wireless service, but instead as “a right that . . . [a]uthorizes the purchase” of wireless service. By purchasing an RTR in any amount, a customer has paid in advance for the right to later purchase wireless service in that predetermined amount. Accordingly, the Office of Administrative Hearings (OAH) properly determined that, during Period I (from 1 January 2016 to 7 September 2017, before Boost changed its business model), respondent’s sales of RTRs involved the sale of a type of PWCS, for which respondent should have collected sales tax.

However, as to Period II (from 8 September 2017 to 31 December 2018, after Boost changed its business model), the court reverses the OAH’s judgment in favor of the respondent-retailer and remands for entry of a revised decision affirming in whole the Department of Revenue’s (the Department’s) tax assessment.

The fact that Boost revised its business model to allegedly collect tax upon use, rather than sale, of RTRs does not remove RTRs from the ambit of G.S. § 105-164.4(a)(4d). Accordingly, the OAH’s conclusion that RTRs were not PWCS during Period II was erroneous. The RTRs were taxable as PWCS during both periods at issue.

The OAH properly concluded that respondent was a retailer at all relevant times. Respondent’s 18 April 2016 agreement with Boost’s former owner, Sprint, was in effect during the audit period. The agreement clearly defines respondent as a retailer of Boost’s products—specifically including RTRs.

Furthermore, the N.C. Sales and Use Tax Act (SUTA) defines “sale” in such a way that does not require ownership or control of the item by the seller. It is defined as “[t]he transfer for consideration of title, license to use or consume, or possession of tangible personal property or digital property or the performance for consideration of a service.” G.S. § 105-164.3(36). The term is defined broadly, applying to . . . “[a]ny . . . item subject to tax under [SUTA].” § 105-164.3(36)(h).

RTRs are taxable under SUTA; therefore, the term “sale” applies to the purchase of an RTR. As a result, the OAH properly concluded that respondent was a retailer at all relevant times.

However, the OAH erred in concluding that (1) respondent overcame the presumption that the Department’s tax assessment is correct and (2) the Department was required, and failed, to prove, by a preponderance of the evidence, that respondent’s taxes remain due and owing (i.e., that Boost had not paid all the taxes due as a result of the RTR sales).

In contested tax cases, the “proposed assessment of the Secretary [of Revenue] is presumed to be correct.” G.S. § 105-241.9(a). Under SUTA, retailers “must keep records that establish their tax liability[,]” and “all gross receipts of . . . retailers are subject to the retail sales tax until the contrary is established by proper records[.]”G.S. §§ 105-164.22, .26.

Therefore, the court begins with a presumption that the Department did not receive any payments for the tax due on RTRs sold by respondent and gives due regard to the Department’s knowledge and expertise.

Boost has no record that it paid tax on behalf of respondent, and respondent admits it made no remittances to the state for the sale of RTRs. In the absence of records establishing satisfaction of its tax liability, respondent is unable to overcome the presumption that the tax assessment is correct.

The court reverses the OAH and upholds the tax assessment by the Department for Period II.

North Carolina Department of Revenue v. Wireless Center of NC, Inc. (Lawyers Weekly No. 020-039-23, 18 pp.) (Michael Robinson, J.) 2023 NCBC 39. Tania Laport-Reverón for petitioner; Stanton Geller and Harris Sinsley for respondent. North Carolina Business Court