North Carolina created an exception to local sales tax sourcing rules for renewals of software service contracts. Sourcing a renewal to the address where the buyer received the software is acceptable if:
- the customer relocated the software serviced under the contract; and
- the retailer did not know the customer moved the software.
North Carolina guidance discusses the sourcing exception for renewals of service contracts for prewritten computer software.
Sourcing Exception, Lack of Bad Faith
Sourcing a renewal to a customer’s old address is not sourcing in bad faith when the customer did not inform the retailer that the software is in a new location.
For example, a retailer of service contracts for prewritten computer software makes a sale. The purchaser provides an address where the software covered by the service contract is located. That address in Franklin County in North Carolina The retailer sources the sale to Franklin County.
Later, the purchaser moves to New Hanover County in North Carolina. It then renews the service contract using the same payment method and address that was used in the original purchase.
The retailer may source the sale of that renewal to Franklin County because the retailer is unaware that the software is now located in New Hanover County.
Important Notice: Principle of Sourcing the Renewal of a Service Contract for Prewritten Computer Software, North Carolina Department of Revenue, September 10, 2018, ¶202-806