There appears to be a Paypal rumor moving about the artist sphere that states that there's a new "digital adult content" that will "immediately get your account shut down" if you select it.
Fortunately, this is not true. Here is where you select your business account details.
From that screen click on "Update". It will take you to a new screen that looks like this.
Click on "edit".
Here is a listing of the categories you can choose for your business account. I've left my caps uncropped so that members can see the timestamp. Category 1, Category 2
The most users can specify is "digital art". There is no "digital adult content".
As for Paypal's policy on the sales of adult content, that can be found here.
Edit: Some more digging has brought up that an "adult digital content" section does exist under "Entertainment and Media", but not under the Arts and Crafts sections.
See here for the comment from our member.
With that said, we don't suggest leaving the "arts" category if you choose to fill out this type of business information. Why Paypal has this under entertainment and media when adult subscriptions are banned under their ToS is anyone's guess.