State Tax Day - Current, S.6, North Carolina—Sales and Use Tax: Analysis of How Replenishments Should Be Taxed Depended on How They Could Be Redeemed, (Dec 17, 2025)

During the first period of the audit conducted by the North Carolina Department of Revenue, the taxpayer, an independent contractor and agent engaged in the retail sale of equipment, service, gift cards, and replenishments for a prepaid wireless service provider, was responsible for the collection and remittance of sales tax on its sale of replenishments (the real time replenishment of prepaid airtime units for use on a network). During the second period of the tax audit, however, the taxpayer was not responsible for the collection and remittance of sales tax on replenishments at the point of sale. Rather, the provider was responsible for the collection and remittance of sales tax on the replenishments when they were redeemed for prepaid wireless service on the network or products provided by the provider.

Under the North Carolina Sales and Use Tax Act (the Tax Act), the taxpayer was a retailer of replenishments it sold. The Tax Act imposes a tax on the sale of digital property including prepaid wireless calling service sold by retailers within the state. Because prepaid wireless calling service can be offered in different forms, the Tax Act defines the characteristics of products that constitute "prepaid wireless calling service." The taxpayer and the provider changed how the replenishments could be redeemed during the audit period, which affected the court’s analysis of how the replenishments should be taxed. During the first half of the audit period, replenishments could only be redeemed for prepaid wireless service on the network. However, during the second half of the audit period, replenishments could be redeemed for prepaid wireless service on the network or for the purchase of products from the provider. The replenishments were prepaid wireless calling services during the first period of the audit and gift cards during the second period.

North Carolina Department of Revenue v. Wireless Center of NC, Inc., Supreme Court of North Carolina, No. 272A23, December 12, 2025, ¶202-986