Identical to S 174, filed 2/28/23.

Part I.

Amends GS 105-228.90 to update the term Code as it applies to the general administration of taxation to mean the Internal Revenue Code as enacted as of January 1, 2023 (currently, April 1, 2021).

Amends GS 105-122, which sets parameters for determining the net worth of a corporation for tax purposes, revising the statutory cross-references used to define the term qualified interest expense in the context of indebtedness owed to a parent, subsidiary, affiliate, or noncorporate entity in which the corporation or group owns more than 50% capital interest, which cannot be added to the corporation’s net worth amount.

Amends GS 105-153.4 to enact a formula for determining North Carolina taxable income for a sole proprietorship operating in one or more other states, as specified.

Amends GS 105-153.9, which allows a tax credit for income taxes paid to other states by individuals, enacting a new subsection to cap the credit at the amount of tax imposed by the Individual Income Tax Act, Part 2, Article 4, for the taxable year reduced by the sum of all credits allowed, less tax payments made by or on behalf of the taxpayer.

Makes the following effective for taxable years beginning on or after January 1, 2022.

Amends GS 105-154(d), which requires taxation of nonresident business owners and partners, deeming partners described in GS 105-154.1(a)(5), as enacted, of a taxed partnership within the scope of the subsection’s provisions (previously excluded all taxed partnerships).

Amends GS 105-154.1(a), which allows taxed partnership election, enacting new subdivision (5) to include within the described types of partners of partnerships permitted to make the election, partnerships that have had a partner that is a partnership at any time during the taxable year. Adds that a partnership partner includes an entity that is classified as a partnership for federal income tax purposes.

Amends GS 105-154.1(b), limiting the application of the formula for taxable income of taxes partnerships to partners who are individuals, estates, trusts, or identified organizations described in subdivision (a)(1) through (a)(4), excluding partnership partners described in new subdivision (a)(5).

Further amends GS 105-153.9, enacting new subsections (d) and (e) to establish when each resident partner or shareholder of a taxed partnership or S Corporation is considered to have paid the tax imposed on that partner or shareholder in the amount of their distributive share or pro rata share of any income tax paid by the partnership or S Corporation to a state or D.C. Details when a partnership or S Corporation is taxable in another state or D.C. Prohibits taxpayers from claiming this credit and the credit under GS 105-131.8 with respect to the same income tax paid by the S Corporation.

Makes the following effective for taxable years beginning on or after January 1, 2023.

Repeals the following:  

GS 105-131.1A(b)(1)b. (requiring an S Corporation to include in its taxable income each resident shareholder's pro rata share of the taxed S Corporation's income or loss not attributable to the State with respect to such taxable period);

GS 105-131.1A(d) (allowing S Corporations a tax credit for income taxes paid to other states);   

GS 105-153.9(a)(4) (regarding tax credits for S Corporations and their shareholders for income taxes paid to another state or country);

GS 105-153.9(a)(5) (regarding tax credits for taxable partnerships and their partners for income taxes paid to another state or country); and   

GS 105-154.1(b)(1)b. (requiring taxable partnerships to include in its taxable income each resident partner's distributive share of the taxed partnership's income or loss not attributable to the State with respect to such taxable period.

Amends GS 105-131.1A(a), which permits an S Corporation to elect to be taxed for the taxable period covered by its timely filed return, required annually under GS 105-131.7, prohibiting making the election or revoking the election after the return is filed (previously prohibited revoking the election after the due date of the return, including extensions).

Amends GS 105-153.3(c3), revising the adjustments for calculating taxable income of pass-through entities as follows. Separates deductions income of S Corporation shareholders and partnerships, based on income attributable to the State and income not attributable to the State. Makes income and losses attributable to the State subject to the adjustments under GS 105-153.5 and GS 105-153.6. Refers to the required addition of a shareholder or partner’s share of net taxable loss attributed to the State (was, loss, generally). Adds qualifications for a deduction of income not attributable to the State.

Further amends GS 105-153.9, prohibiting a credit for taxes paid to another state or D.C. on income eligible for the deduction provided in GS 105-153.3(c3), as amended. Makes conforming changes to eliminate references to repealed provisions. 

Further amends GS 105-154.1(a), which provides for taxes partnership election for the taxable period covered by it timely filed return, required annually under GS 105-154(c), prohibiting making the election or revoking the election after the return is filed (previously prohibited revoking the election after the due date of the return, including extensions).

Amends GS 105-249.2(b) to prohibit the assessment of the $50 fee for failure to file returns or reports required by Articles 2A, 2C, 4, 4A, 5, 9, 36C, or 36D of the Chapter for any period in which the time for filing a federal return or report or for paying a federal tax is extended due to a presidentially declared disaster. Applies to presidentially declared disasters occurring on or after the date the act becomes law.

Part II.

Removes the existing definition of “prepared food” in GS 105-164.3(179), and substitutes a reference to the new GS 105-164.4L (Prepared food). The "prepared food” definition in GS 105-164.4L reorganizes and expands on the previous definition, including detailing when the term prepared food includes food sold with eating utensils provided by the retailer based on what type of person places utensils in a package with the food. Uses prepared food sales percentage to determine what sold with eating utensils “provided by the retailer” means when determining if an item qualifies as “prepared food” under subdivision (a)(3). Specifies that a retailer’s prepared food sales percentage is calculated by dividing the numerator of the retailer’s annual sales of prepared food as defined by the section by the total sales of all food, including prepared food, but excluding alcohol. The definition of “provided by the retailer” for retailers with a prepared food sales percentage over 75% includes making eating utensils available to purchasers, but an item with four or more servings packaged together and sold for a single price is not prepared food unless the retailer physically gives or hands utensils to the purchaser of the food item. For retailers with 75% or less of prepared food sales percentage, “provided by the retailer” means that the retailer physically gives or hands eating utensils to the purchasers, except that plates, bowls, glasses, and cups only need to be made available to purchasers.

Adds new subsection (k) (Efficient Administration) to GS 105-164.4J (Marketplace-facilitated sales), permitting the Secretary of the Department of Revenue (Secretary) to classify sales representatives, solicitors, and similar persons as agents of the dealers, distributors, or similar entities under which they operate or from whom they obtained the items they sell, regardless of whether the sales are made on the sales representatives’ or other persons’ own behalf or on the behalf of the dealers or other entities. Permits the Secretary to regard the dealers, distributors or similar entities as “marketplace facilitators,” the sales made as “marketplace-facilitated sales,” and the sellers as “marketplace sellers” for purposes of Article 5, GS Chapter 105.

Creates new subsection (b) (Marketplace Facilitators) in GS 105-164.11B (Recover sales tax paid), permitting marketplace facilitators to recover sales tax paid to marketplace sellers when the marketplace facilitator is considered the retailer under GS 105-164.4J(b) and the tax is separately stated on an invoice or similar billing document given to the marketplace facilitator at the time of the sale. Outlines requirements and limitations on the amount of sales tax recovered and adjustments to taxable receipts.

Adds a reference to the refund of tax allowed under GS 105-449.106 subsection (d) (Off-highway Use) to the list of alternative fuels exempt from tax under GS 105-164.13(11)b., and makes this change retroactive to January 1, 2023, and applicable to applications for refunds submitted on or after that date.

Requires that exempt sales by nonprofits under GS 105-164.13(35) must occur at least 60 days after the beginning of the prior annual sales period, that each annual sales period funds a distinct and different project from the other annual sales periods occurring during the year, and that each annual sales period sells products that are distinct and different from the other products sold during other annual sales periods occurring during the year, in addition to the already required conditions.

Revises the date reference in GS 105-164.3(259) regarding the Streamlined Sales and Use Tax Agreement to December 22, 2022, from December 21, 2021.

Part III.

Clarifies that the definition of “vapor product” in GS 105-113.4(13a) includes products that produce vapor from nicotine, however derived, in a solution. Amends the definition of “cost price” in GS 105-113.4(2) to include the actual price paid for an item identified as a stock keeping unit by a unique code or identifier, and remove the previous language regarding the method of determining the average of the actual price paid for the item over the past 12 calendar months if the actual price is not available. Includes a method for determining the value when documentation is not available using the average of the actual price paid over the past 12 calendar months in new subdivision (b)(2) of GS 105-113.36A.

Removes the requirement that a duplicate license state that it is a duplicated or amended license in GS 105-113.4A(e).

Amends GS 105-113.4F subsection (c) (Filing Requirement) to insert “for which tax is due under this Article” to the requirement that a delivery seller file a copy of the invoice for every delivery sale made during the previous month, effective when the act becomes law and applicable to sales made during the previous month.

Amends GS 105-113.4G to organize the section into subsections (a) and (b). New subsection (a) includes an amendment changing the requirement to make reports as required under the article to as required by the Secretary of Revenue. New subsection (b) makes the applicable statute of limitations for preserving the required records as provided in Article 9 of GS Chapter 105, and for records applying to transactions not required to be reported, three years.

Changes the language in GS 105-113.12 subdivision (a)(2) and GS 105-113.39A subdivision (a)(3) from “ships” to “receives or stores non-tax-paid cigarettes (or tobacco products, as relevant)for” regarding delivery sales of cigarettes and tobacco products. Requires a remote seller required to be licensed to maintain the records required under GS 105-113.38B. Creates two new license types, a vapor products license and an other tobacco products license, for wholesale dealers and retailers selling vapor products and other tobacco products at locations where they make, receive, store, and receive or store the products for delivery sales. The new license types are effective July 1, 2024.

Amends GS 105-113.88 (Record-keeping requirements) to change that persons make reports or returns as required under the article to as required by the Secretary of Revenue, including any additional information required. Makes the applicable statute of limitations for preserving the required records as provided in Article 9 of GS Chapter 105, and for records applying to transactions not required to be reported in a return, three years. Permits the Secretary’s designee to inspect records at any reasonable time, and this authority is ongoing and not limited to records for transactions on or after the effective date of the act.

Changes the reference from “time period covered by the return” to “reporting period” in GS 105-449.39, and reorganizes that section into subsections (a) and (b).

Amends GS 105-449.42 to specify that if motor carriers are exempt from filing a tax return under GS 105-449.45(b)(2), the tax levied is due when collectable under GS 105-241.22.

Changes the due date of motor carrier quarterly returns from the last day of April, July, October, or January to the last day of the month following the quarter in GS 105-449.45. Amends subdivision (b)(2) to clarify that exemptions only apply to a motor carrier who operates exclusively in North Carolina.

Amends the title of GS 105-449.46 to “Record-keeping requirements; inspection authority,” and inserts new subsection (a) regarding record keeping requirements for interstate motor carriers, while maintaining existing language authorizing inspections in new subsection (b). Specifies that the Secretary’s authority to authorize inspections is ongoing and not limited to records for transactions occurring on or after the effective date of the act.

Creates a grace period for motor carriers to display the new calendar year decals required by the section if they meet the applicable requirements in new subsection (a3) under GS 105-449.47, and makes clarifying changes to existing text reorganized as subsection (a2).

Amends GS 105-449.61 to also prohibit a county or city from imposing a tax on the sale, distribution, or use of motor fuel, except for those for which a refund of the per gallon excise tax is allowed under GS 105-449.106(d).

Amends GS 105-449.97, concerning deductions and discounts that are allowed when a supplier (a position holder or a person who receives motor fuel pursuant to a two-party exchange, a fuel alcohol provider, or a biodiesel provider) files a return, by adding that when filing a return, a licensed supplier who is the position holder may take a credit for tax-paid motor fuel entering the terminal system. Makes organizational changes to the statute.

Amends GS 105-449.106(a), under which a nonprofit, in one of the specified categories, that purchases and uses motor fuel may receive a quarterly refund at the specified rate. Removes the requirement that the refund application be made in accordance with the specified Part and signed by the organization’s chief executive officer.

Amends GS 105-449.121 which requires a person subject to audit to keep a record of all shipping documents or other documents used to determine information the person provides in a return or to determine the person’s motor fuel transactions. Requires the records to be kept for the applicable period of statute of limitations, and if the records apply to a transaction not required to be reported in a return, the records must be kept for three years from the date of transaction. Gives the Secretary or their designee the right to inspect the records at any reasonable time. Apples to documents required to be kept for transactions occurring on or after the date that this section becomes law. Specifies that the authority of the Secretary or their designee to inspect records at any reasonable time is ongoing and not limited to records for transactions occurring on or after the section’s effective date.

Amends GS 105-449.139 to require licensees as a provider of alternative fuel, a bulk end-user or as a retailer under Article 36D (Alternative Fuel) to keep a record of any information required by the Secretary, in addition to documents used to determine the information provided in a return under Article 36D. Requires the records to be kept for the applicable period of statute of limitations, and if the records apply to a transaction not required to be reported in a return, the records must be kept for three years from the date of transaction. Gives the Secretary or their designee the right to inspect the records at any reasonable time (was, during business hours). Apples to documents required to be kept for transactions occurring on or after the date that this section becomes law. Specifies that the authority of the Secretary or their designee to inspect records at any reasonable time is ongoing and not limited to records for transactions occurring on or after the section’s effective date.

Amends GS 119-18, concerning the inspection tax of one-fourth of one cent per gallon that is levied on the listed types of fuel. Adds that the tax return must be in the form prescribed by, and contain information required by, the Secretary. Adds record keeping requirements for the person required to remit the tax and gives the Secretary or their designee the right at any reasonable time to inspect the records. Effective when the act becomes law and applies to documents required to be kept for transactions occurring on or after that date. Specifies that the authority of the Secretary or their designee to inspect records at any reasonable time is ongoing and not limited to records for transactions occurring on or after the effective date of this section.

Part IV.

Repeals GS 105-277.9, which designated real property that lies within a transportation corridor marked on an official map as a special class of property taxable at 20% of the appraised value of the property if (1) as of January 1, no building or other structure is located on the property, and (2) the property has not been subdivided, since it was included in the corridor.

Part V.

Amends GS 105-236 to provide that when the bank upon which an uncertified check tendered to the Department of Revenue (Department) in payment of any obligation due to the Department returns the check because of insufficient funds or the nonexistence of the account of the drawer, the Secretary must assess the drawer of the check, the specified penalties (was, assess a penalty without specifying whom it was to be assessed against). Defines the drawer, in the case of a garnishment payment, as the garnishee. Provides that the stated penalties are to be assess against the transferor (was, penalty was assessed without specifying whom it was assessed against), when an electronic funds transfer cannot be completed due to insufficient funds or the nonexistence of an account of the transferor. Provides that in the case of a garnishment payment, transferor means the garnishee.

Amends GS 105-242.1(b), which requires a garnishee to comply with a notice of garnishment or file a written response to the notice, after which the Department must hold a conference to discuss the garnishee’s response or inform the garnishee of the Department’s position on the response. Provides that when the Department does not agree with the garnishee on the garnishee’s liability, the Department may proceed to enforce the garnishee’s liability for the tax by sending a notice of proposed assessment including any penalties that are to be imposed (previously did not include penalties). Adds that if the garnishee does not file a response to the notice within the set time frame and fails to comply with the notice, the garnishee is subject to penalties imposed under Article 9 (General Administration; Penalties and Remedies). Amends GS 105-241.11(a) which allows a taxpayer who objects to a proposed denial of a refund or a proposed assessment of a tax to request a Departmental review, to now allow the request for review to be, instead of on the required form, in a written statement clearly indicating the taxpayer requests review of a proposed denial of a refund or a proposed assessment of tax.

Enacts new GS 105-241.24 allowing the Department to collect a tax for a period of 10 years from the date it becomes collectible. Allows tolling the 10 year period for the same reasons the enforcement period for a certificate of tax liability may be tolled under GS 105-242(c) (which allows tolling for the specified amounts of time for instances in which the taxpayer is absent from the State, upon the death of the taxpayer, while an action is pending to set aside a conveyance made by the taxpayer as a fraudulent conveyance, while an insolvency proceeding against the taxpayer is pending, during the period of any statutory or judicial bar to the enforcement of the certificate, and the period for which a taxpayer has waived the 10-year period). Specifies that if the tax is not collected within the authorized time frame, then the remaining liability is abated. Amends GS 105-242(c) by making conforming and clarifying changes.