A BILL TO BE ENTITLED
AN ACT to AMEND THE SALES TAX DEFINITIONS TO COMPLY WITH THE STREAMLINED SALES TAX AGREEMENT AND TO MAKE OTHER SALES TAX CHANGES.
The General Assembly of North Carolina enacts:
SECTION 1. G.S. 105‑164.3 reads as rewritten:
"§ 105‑164.3.  Definitions.
The following definitions apply in this Article:
(1)	Ancillary service. – A service associated with or incidental to the provision of a telecommunications service. The term includes detailed communications billing, directory assistance, vertical service, and voice mail service. A vertical service is a service, such as call forwarding, caller ID, three‑way calling, and conference bridging, that allows a customer to identify a caller or manage multiple calls and call connections.
(1b)	Bundled transaction. – A retail sale of two or more distinct and identifiable products, at least one of which is taxable and one of which is exempt, for one nonitemized price. Products are not sold for one nonitemized price if an invoice or another sales document made available to the purchaser separately identifies the price of each product. A bundled transaction does not include the retail sale of any of the following:a.	A product and any packaging item that accompanies the product and is exempt under G.S. 105‑164.13(23).
b.	A sale of two or more products whose combined price varies, or is negotiable, depending on the products the purchaser selects.
c.	A sale of a product accompanied by a transfer of another product with no additional consideration.d.	A product and the delivery or installation of the product.
e.	A product and any service necessary to complete the sale.
(1d)	Business. – Includes any activity engaged in by any person or caused to be engaged in by him with the object of gain, profit, benefit or advantage, either direct or indirect. The term "business" shall not be construed in this Article to include occasional and isolated sales or transactions by a person who does not hold himself out as engaged in business.
(1f)	Cable service. – The one‑way transmission to subscribers of video programming or other programming service and any subscriber interaction required to select or use the service.
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(12)	Gross sales. – The sum total of the sales price of all retail sales of tangible personal property  and services.
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(37)	Sales price. – The total amount or consideration for which tangible personal property or services are sold, leased, or rented. The consideration may be in the form of cash, credit, property, or services. The sales price must be valued in money, regardless of whether it is received in money.
a.	The term includes all of the following:
1.	The retailer's cost of the property sold.
2.	The cost of materials used, labor or service costs, interest, losses, all costs of transportation to the retailer, all taxes imposed on the retailer, and any other expense of the retailer.
3.	Charges by the retailer for any services necessary to complete the sale.
4.	Delivery charges.
5.	Installation charges.
	
7.	Credit for trade‑in.
8.	Discounts that are reimbursable by a third party and can be determined at the time of sale through any of the following:
I.	Presentation by the consumer of a coupon or other documentation.
II.	Identification of the consumer as a member of a group eligible for a discount.
III.	The invoice the retailer gives the consumer.
b.	The term does not include any of the following:
1.	Discounts that are not reimbursable by a third party, are allowed by the retailer, and are taken by a consumer on a sale.
2.	Interest, financing, and carrying charges from credit extended on the sale, if the amount is separately stated on the invoice, bill of sale, or a similar document given to the consumer.
3.	Any taxes imposed directly on the consumer that are separately stated on the invoice, bill of sale, or similar document given to the consumer.
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(45a)	Streamlined Agreement. – The Streamlined Sales and Use Tax Agreement as amended as of December 14, 2006."
SECTION 2.  G.S. 105‑164.4D, as enacted by Section 5 of S.L. 2006‑151, reads as rewritten:
"§ 105‑164.4D.  Bundled transactions.
		
(a)	Tax Application. – Tax applies to the sales price of a bundled transaction unless one of the following applies:
(1)	Fifty percent (50%) test. – All of the products in the bundle are tangible personal property, the bundle includes one or more of the exempt products listed in this subdivision, and the price of the taxable products in the bundle does not exceed fifty percent (50%) of the price of the bundle:
a.	Food exempt under G.S. 105‑164.13B.
b.	A drug exempt under G.S. 105‑164.13(13).
c.	Medical devices, equipment, or supplies exempt under G.S. 105‑164.13(12).
(2)	Allocation. – The bundle includes a service, and the retailer determines an allocated price for each product in the bundle based on a reasonable allocation of revenue that is supported by the retailer's business records kept in the ordinary course of business. In this circumstance, tax applies to the allocated price of each taxable product in the bundle.
(3)	Ten percent (10%) test. – The price of the taxable products in the bundle does not exceed ten percent (10%) of the price of the bundle and no other subdivision in this subsection applies.(b)	Determining Threshold. – A retailer of a bundled transaction subject to this section may use either the retailer's cost price or the retailer's sales price to determine if the transaction meets the fifty percent (50%) test or the ten percent (10%) test set out in subdivisions (a)(1) and (a)(3) of this section. A retailer may not use a combination of cost price and sales price to make this determination. If a bundled transaction subject to subdivision (a)(3) of this section includes a service contract, the retailer must use the full term of the contract in determining whether the transaction meets the threshold set in the subdivision."
SECTION 3. G.S. 105‑164.12B reads as rewritten:
"§ 105‑164.12B.  Tangible personal property sold below cost with conditional service contract.
(a)	Conditional Service Contract Defined. – A conditional service contract is a contract in which all of the following conditions are met:
(1)	A seller transfers an item of tangible personal property to a consumer on the condition that the consumer enter into an agreement to purchase services on an ongoing basis for a minimum period of at least six months.
(2)	The agreement requires the consumer to pay a cancellation fee to the seller if the consumer cancels the contract for services within the minimum period.
(3)	For the item transferred, the 		seller charges the consumer a price that, after any price reduction the seller gives the consumer, is below the purchase price the seller paid for the item. The seller's purchase price is presumed to be no greater than the price the seller paid, as shown on the seller's purchase invoice, for the same item within 12 months before the seller entered into the conditional service contract.
(b)	Tax. – If a seller transfers an item of tangible personal property as part of a conditional service contract, a sale has occurred. The sales price of the item is presumed to be the retail price at which the item would sell in the absence of the conditional service contract. Sales tax is due at the time of the transfer on the following: 
(1)	Any part of the presumed sales price the consumer pays at that time, if the service in the contract is taxable at the combined general rate.
(2)	The presumed sales price, if the service in the contract is not taxable at the combined general rate.
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SECTION 4. G.S. 105‑164.13(9) reads as rewritten:
"§ 105‑164.13.  Retail sales and use tax.
The sale at retail and the use, storage, or consumption in this State of the following tangible personal property and services are specifically exempted from the tax imposed by this Article: 

Agricultural Group.

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(9)       Boats, fuel oil, lubricating oils, machinery, equipment, nets, rigging, paints, parts, accessories, and supplies sold to any of the following:
a.	The holder of a standard commercial fishing license issued under G.S. 113‑168.2 for principal use in commercial fishing  operations.
b.	The holder of a shellfish license issued under G.S. 113‑169.2 for principal use in commercial shellfishing operations.
c.	The operator of a for-hire boat, as defined in G.S. 113‑174, for principal use in the commercial use of the boat. "
SECTION 5. G.S. 105‑164.42L reads as rewritten:
"§ 105‑164.42L.  Databases on taxing jurisdictions.
The Secretary may develop databases that provide information on the boundaries of taxing jurisdictions and the tax rates applicable to those taxing jurisdictions. A  person who relies on the information provided in these databases is not liable for underpayments of tax attributable to erroneous information provided by the Secretary in those databases."
SECTION 6. G.S. 105‑467(a) reads as rewritten:
"§ 105‑467.  Scope of sales tax.
(a)	Sales Tax. – The sales tax that may be imposed under this Article is limited to a tax at the rate of one percent (1%) of the transactions listed in this subsection. The sales tax authorized by this Article does not apply to sales that are taxable by the State under G.S. 105‑164.4 but are not specifically included in this subsection.
(1)	The sales price of tangible personal property subject to the general rate of sales tax imposed by the State under G.S. 105‑164.4(a)(1) and (a)(4b).
(2)	The gross receipts derived from the lease or rental of tangible personal property when the lease or rental of the property is subject to the general rate of sales tax imposed by the State under G.S. 105‑164.4(a)(2).
(3)	The gross receipts derived from the rental of any room or other accommodations subject to the general rate of sales tax imposed by the State under G.S. 105‑164.4(a)(3).
(4)	The gross receipts derived from services rendered by laundries, dry cleaners, and other businesses subject to the general rate of sales tax imposed by the State under G.S. 105‑164.4(a)(4).
(5)	The sales price of food that is not otherwise exempt from tax pursuant to G.S. 105‑164.13 but is exempt from the State sales and use tax pursuant to G.S. 105‑164.13B.
(5a)	The sales price of a bundled transaction that includes food subject to tax under subdivision (5) of this subsection, if the price of the food exceeds ten percent (10%) of the price of the bundle. A retailer must determine the price of food in a bundled transaction in accordance with G.S. 105‑164.4D. 
(6)	The sales price of prepaid telephone calling service taxed as tangible personal property under G.S. 105‑164.4(a)(4d).
(7)	The gross receipts derived from providing satellite digital audio radio service subject to the general rate of tax under G.S. 105‑164.4(a)(6a)."
SECTION 7.  The first paragraph of Section 4 of Chapter 1096 of the 1967 Session Laws, as amended, is amended by inserting a new subdivision between subdivisions (5) and (6) to read as follows:
"(5a)	The sales price of a bundled transaction that includes food subject to tax under subdivision (5) of this section, if the price of the food exceeds ten percent (10%) of the price of the bundle. A retailer must determine the price of food in a bundled transaction in accordance with G.S. 105‑164.4D."
SECTION 8. This act becomes effective October 1, 2007.