Taxation – North Carolina Sales and Use Tax Act – Sales Tax

During Period I of the tax audit, Wireless Center was responsible for collecting and remitting sales tax on its sale of Replenishments. During Period II of the tax audit, Wireless Center was not responsible for collecting and remitting sales tax on Replenishments at the point of sale.

We affirmed the decision of the  Business Court for the first portion of the audit period and reversed the decision of the Business Court as to the second portion of the audit period.

The North Carolina Sales and Use Tax Act imposes a tax on the sale of digital property including prepaid wireless calling service sold by retailers within the state. Wireless Center of NC, Inc., a North Carolina retailer for Boost Mobile, sells a product referred to as real-time replenishments. The North Carolina Department of Revenue audited Wireless Center over a period from January 2016 to December 2018 and concluded Replenishments were “prepaid wireless calling service.” Therefore, it concluded that Wireless Center was responsible for collecting and remitting sales tax on its sale of Replenishments at the point of sale. This tax dispute centered on whether Wireless Center was responsible for collecting and remitting sales tax on Replenishments at the point of sale or whether tax should have been collected when the customer redeemed the Replenishments for Boost’s prepaid wireless service or products.

Wireless Center and Boost changed how the Replenishments could be redeemed during the audit period and that change affects our analysis of how the Replenishments should be taxed under the Tax Act. During the first half of the audit period (Period I), Replenishments could only be redeemed for prepaid wireless service on the Sprint network. However, during the second half of the audit period (Period II), Replenishments could be redeemed for prepaid wireless service on the Sprint network or for the purchase of products from Boost. The Office of Administrative Hearings (OAH) hearing concluded Wireless Center was liable for collecting and remitting sales tax on Period I Replenishments but was not liable for collecting and remitting sales tax on Period II Replenishments. OAH found the Period II Replenishments did not constitute prepaid wireless calling service at the point of sale from Wireless Center. The Business Court agreed on the Period I Replenishments but found Wireless Center liable for collecting and remitting sales tax on Period II Replenishments.

We held that during Period I of the tax audit, Wireless Center was responsible for collecting and remitting sales tax on its sale of Replenishments. During Period II of the tax audit, we held that Wireless Center was not responsible for collecting and remitting sales tax on Replenishments at the point of sale; rather, in Period II, Boost was responsible for collecting and remitting sales tax on Replenishments when they were redeemed for prepaid wireless service on the Sprint network or products provided by Boost.

Affirmed in part, reversed in part, and remanded.

North Carolina Department of Revenue v. Wireless Center of NC Inc. (Lawyers’ Weekly No. 010-057-25, 33 pp.) (Allison Riggs, J.) Appealed from Wake County Superior Court (Michael L. Robinson, J.) Jeff Jackson, Attorney General, by Tania X. Laporte-Reverón, Assistant Attorney General, Hunter E. Fritz, Assistant Attorney General, and Ronald D. Williams II, Special Deputy Attorney General, for State-appellee. Culp Elliott & Carpenter, P.L.L.C., by Stanton P. Geller, for defendantappellant. Eversheds Sutherland (US) LLP, by Virginia “Jenny” Worthy, for Dish Wireless LLC, amicus curiae. North Carolina Supreme Court