The NC DOR says that effective May 11 the state law is amended and provides if a seller transfers an item of tangible personal property as part of a conditional 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 condi-tional 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.

3. The percentage of the presumed sales price that is equal to the percentage of the service in the contract that is not taxable at the combined rate, if any of the service in the contract is not taxable at the combined general rate.

The definition of a conditional 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 mini-mum period of at least 6 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 reduc-tion 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 contract.