Part I. IRC Update
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 May 1, 2020 (currently, January 1, 2019).
Amends GS 105-130.5 to expand the additions to federal taxable income that must be made in determining State corporate net income to include: (1) a taxpayer's interest expense deduction that exceeds the interest expense deduction allowed under the Code as of January 1, 2020, for the 2019 and 2020 taxable year (provides that the provision is meant to decouple from the modification of limitation on business interest allowed under the CARES Act); and (2) the amount of any forgiveness of indebtedness on a covered loan, as defined in the federal CARES Act (provides that this provision is meant to decouple from the loan forgiveness allowed under the federal CARES Act).
Amends GS 105-153.5(a)(2)a., concerning charitable contributions, to provide for the term Code to mean the IRC as enacted as of January 1, 2020, for taxable year 2020, as it applies to the subsubdivision. Also, adds that for taxable years beginning on or January 1, 2021, a taxpayer can only carry forward the charitable contributions from taxable year 2020 that exceed the applicable percentage limitation for the 2020 taxable year allowed under the subsubdivision. Provides that the purpose of the new provisions is to decouple from the modification of limitations on charitable contributions during 2020 allowed under the federal CARES Act.
Amends GS 105-153.5(a)(2)b. to modify the allowable itemized deduction an individual may elect to deduct from their gross income for mortgage expense and property tax. Prohibits the amount allowed as a deduction for interest paid or accrued during the taxable year under the Code with respect to any qualified residence from including the amount for mortgage insurance premiums treated as qualified residence interest for taxable years 2014 through 2020 (currently limited to taxable year 2014, 2015, 2016, and 2017).
Similarly, amends GS 105-153.5(c2) to modify the required adjustments to an individual’s gross income, which are decoupled from federal requirements. Requires the taxpayer to add the amounts excluded from the taxpayer’s gross income for the discharge of qualified principal residence indebtedness and qualified tuition and related expenses under the Code for taxable years 2014 through 2020 (currently limited to taxable year 2014, 2015, 2016, and 2017).
Further amends GS 105-153.5(c2), adding 12 new decoupling provisions and requiring taxpayers to make the specified additional adjustments to their adjusted gross income as specified relating to deductible 2018, 2019 and 2020 net operating losses, excess business losses, excess net operating loss carryforward deductions, excess interest expense deductions, employer paid qualified education loans excluded from gross income, deductions of qualified charitable contributions, and forgiveness of covered debt on a covered loan.
Part II. Excise Tax Changes
Amends GS 105-113.4 to modify the definition of sale under Article 2A, Tobacco Products Tax, to more specifically include transfer of possession and transfer of ownership, rather than a transfer generally.
Amends GS 105-113.4A to require licensees under Article 2A to more specifically display a license at each place of business for which it is issued (was, display at the place of business for which it is issued) and specifies that it be in a conspicuous place. Requires the Secretary of Revenue (Secretary) to make available, rather than provide, a list of licensees upon request of a manufacturer licensee. Amends GS 105-259 to similarly allow the Department of Revenue (Department) to make available, rather than provide, this tax information to all entities licensed under Article 2A (was, to aid in the administration of the tobacco products).
Amends GS 105-449.77 to require the Secretary to make available, rather than annually provide, to each licensee a list of all licensees under Article 36C, governing motor fuels tax. Makes conforming changes to maintain the Secretary’s duty to monthly update the list.
Amends GS 105-449.139 to similarly require the Secretary to make available, rather than provide, a list of licensed alternative fuel providers under Article 36D to each licensed bulk-end user and licensed retailer, and vice-versa. Makes conforming changes to maintain the Secretary’s duty to annually update the lists.
Amends GS 105-113.4B, concerning licensees under Article 2A, and GS 105-449.76, concerning licensees under Article 36C, to more clearly differentiate license cancellation and revocation procedures. Makes changes to cancellation procedures to now require the licensee’s request to cancel to include a proposed effective date of cancelation and requires the license be returned to the Secretary on or before the proposed effective date (previously required immediate return upon request). Adds that a request to cancel that does not include a proposed effective date will result in the cancelation of the license 15 days after the Department receives the written request. Establishes protocol for when a license is unable to be returned. Requires the Secretary to notify the licensee when the license is canceled. Finally, in regards to license revocation, provides that if a person whose license may be revoked fails to attend the noticed hearing on the revocation, the license revocation is effective 15 days after the noticed hearing.
Amends GS 105-113.4E to require the manufacturer of modified risk tobacco products rather than the taxpayer to substantiate that the product qualifies as a modified risk tobacco product. Also subjects the manufacturer rather than the taxpayer to the reduced tax rate provided under the statute, and makes the manufacturer rather than the taxpayer responsible for notifying the Department of expiration or USFDA withdrawal of product qualification. Makes conforming changes.
Enacts GS 105-113.4G to establish general recordkeeping requirements for licensees under Article 2A and all persons required to make reports under Article 2A. Requires the records to be open to inspection by the Secretary or an authorized representative at all times, and requires records to be preserved for a period of three years. Makes conforming changes to repeal GS 105-113.26 and GS 105-113.40.
Amends GS 105-113.13, concerning licensed distributors of cigarettes, and GS 105-113.38, concerning wholesaler dealers or retailer dealers of other tobacco products, to remove the qualification of requiring a bond to protect the State from loss, specifically, in the event of the distributor or dealer’s failure to pay taxes. Instead, provides for the bond requirement simply to protect the State.
Amends GS 105-113.27, which prohibits the sale or offering for sale non-tax-paid cigarettes, to add a qualifying phrase to provide for instances which exceptions to this general prohibition are provided for in Article 2A.
Amends GS 105-187.76, GS 105-187.77 and GS 105-187.80 to correct the name of the Mining and Energy Commission as the Oil and Gas Commission.
Amends GS 105-449.37 to update the term International Fuel Tax Agreement as the term is used in Article 36B, which governs motor carrier taxation. Now defines the term to mean the Articles of Agreement adopted by the International Fuel Tax Association, Inc., as amended as of December 1, 2018 (was, as of January 1, 2017).
Amends GS 105-449.49 to allow licensed motor carriers in the State that are subject to the International Fuel Tax Agreement to apply for a temporary permit authorizing the motor carrier to operate a qualified motor vehicle in the State for 30 days without the required decal. Requires the licensed motor carrier to be in compliance with the motor carrier tax provisions of Article 36B. Describes application parameters. Requires a motor carrier operating under a temporary permit to keep a copy of the permit in the motor vehicle. Makes conforming changes to GS 105-449.47.
Amends GS 105-449.69A to add to the provisions concerning the issuance of temporary licenses for importing, exporting, distributing, or transporting motor fuel in the State in response to a disaster declaration. Expands the provisions to also include temporary licensing during a state of emergency, defined by statutory cross-reference. Modifies the provisions concerning the duration of the temporary licenses issued in response to a disaster declaration, which previously stated that the temporary licenses expires upon the expiration of the disaster declaration. Now provides that a temporary license issued in response to a disaster declaration or a state of emergency is effective on the date the applicant engages in business in the State and expires 30 days after that date. Allows for a request for a 30 day extension of the temporary license prior to its expiration if the disaster declaration or state of emergency remains in effect. Prohibits issuance or renewal if the licensee failed to comply with Article 36C (previously, if the licensee failed to file the requested returns or make payments of the required taxes). Modifies the application requirements to now require application within seven calendar days of engaging in business in the State (was, from the date of the disaster declaration). Further specifies that the application must be filed when a state of emergency or a disaster declaration is in effect. Maintains the existing application criteria concerning required information.
Amends GS 105-449.134 to specify that the revocation and cancelation procedures set forth for licensure under Article 36C, concerning motor fuels, apply to revocation and cancelation of licenses under Article 36D, concerning alternative fuels (previously only referred to revocation procedures).
Amends GS 119-19 to require the Secretary to give notice of summary revocation of a kerosene license and notice of a hearing on the proposed revocation of a kerosene license to be sent by certified mail rather than registered mail.
Part III. Sales and Use Tax Changes
Amends GS 105-164.14 to allow nonprofit entities a semiannual refund, and certain governmental entities an annual refund, of sales and use taxes paid by it under Article on direct purchases of items (was, tangible personal property and services, which are now included in the defined term items by SL 2019-169). Effective July 1, 2020, and applies to purchases made on or after that date.
Amends GS 105-164.16 to make clarifying changes regarding use tax on purchases by removing references to out of state purchases.
Amends GS 105-164.4J, which governs marketplace-facilitated sales. Redefines the scope of the statute to make the statute applicable to a marketplace facilitator engaged in business in the State (previously, limited to marketplace facilitators that make sales sourced to this State that meet certain gross sale or transaction thresholds in the previous or current calendar year). Makes conforming changes. Effective July 1, 2020, and applies to sales occurring on or after that date.
Amends GS 105-164.4, concerning privilege tax, to specify that the retail sale or the use, storage, or consumption in the State of a digital code is treated the same as the retail sale or the use, storage, or consumption in the State of certain digital property for which the digital code relates. Under existing provisions, the general tax rate of 4.75% applies to the sales price of certain digital property.
Amends GS 153A-154.1, concerning local meals taxes imposed by counties, and GS 160A-214.1, concerning local meals taxes imposed by cities, to set forth uniform provisions governing local meals taxes. Establishes that the each statute preempts local acts in the event of conflict, respectively. Places responsibility of remitting the local meals tax on prepared food and beverages on retailers that are required to remit State and local sales and use tax; requires the tax to be remitted to the county or city on or after the effective date of the levy of the local meals tax. Adds defined terms to GS 153A-154.1. Adds to the defined terms set forth in GS 160A-214.1 to include prepared food and beverages. Both statutes define prepared food and beverages to include prepared food, and alcoholic beverages that meet at least one of the conditions of prepared food, as the term is defined under the Code. Makes organizational changes. Effective July 1, 2020, and applies to sales occurring on or after that date.
Part IV. Personal Income Tax Changes
Corrects a statutory cross reference in GS 105-131.8, concerning income tax credits.
Repeals GS 105-153.5(b)(10) to eliminate the state income tax deduction allowed for cancelation of debt income recognized as federal income for certain taxable years.
Amends GS 105-154 concerning tax payments on behalf of nonresident owners or partners. Current law allows a business manager to include a copy of an affirmation of a nonresident partner, who is not an individual, to pay the tax with its corporate, partnership, trust, or estate income tax return, with the manager’s report to the Secretary regarding the business earnings in the State and the distributive share of the income of each nonresident owner or partner. Adds that the affirmation must be annually filed by the nonresident partner and submitted by the manager by the due date of the report or the manager is required to pay the tax on the nonresident partner’s share.
Enacts GS 105-252.1 to prohibit using a truncated taxpayer identification number (TTIN) on any state tax return, statement, or other document required to be filed with or furnished to the Department unless specifically authorized by GS Chapter 105.
Amends GS 105-228.90 to add taxpayer identification number (TIN) and TTIN to the defined terms set out that apply to the general administration of the Chapter. Makes conforming changes to GS 105-163.1(12a).
Amends GS 105-241.13 concerning taxpayer requests for review of the Department’s proposed denial of a refund or a proposed assessment, including the Department scheduling a conference with the taxpayer. Specifies that the conference can be rescheduled if there is mutual agreement of the Department and the taxpayer.
Part V. Corporate Tax Changes
Amends GS 105-122, concerning corporate franchise or privilege tax. Requires the addition for the amount of indebtedness the corporation owes that creates net interest expense, but does not create qualified interest expense, as defined by statutory cross reference (previously, detailed adjustments for borrowed capital). Makes conforming changes. Effective for taxable years beginning on or after January 1, 2021, and applicable to the calculation of franchise tax reported on the 2020 and later corporate income tax returns.
Amends GS 105-130.4, concerning allocation and apportionment for corporate tax purposes. Provides that a wholesale content distributor’s amount of receipts sourced to the State (was, amount of income apportioned to the State) cannot be less than 2% of the total domestic gross receipts of the wholesale content distributor from advertising and licensing activities. Amends GS 105-122(c1) to eliminate duplicate language. Effective for taxable years beginning on or after January 1, 2020.
Repeals GS 105-130.5(a)(21) and (b)(25), concerning adjustments to federal income in determining State income tax, to conform to the repeal of GS 105-153.5(b)(10) that eliminates the State income tax deduction allowed for cancelation of debt income recognized as federal income for certain taxable years.
Amends GS 105-130.5A, concerning the Department’s proposed assessment or refund for corporations. Provides that when a refund is determined in whole or in part by a proposed assessment to an affiliated group member pursuant to the statute, the refund cannot be issued until the proposed assessment to the affiliated group member has become collectable under state law. Requires the refund to reflect any changes made by the Department under the statute.
Repeals GS 105-130.11(b)(4), which set out an income tax exemption for nonrelated business income concerning parking facilities for nonprofit entities.
Part VI. Tax Enforcement and Administration Changes
Amends GS 105-236.1 to authorize the Secretary to appoint employees of the Criminal Investigations Section of the Tax Enforcement Division to serve as revenue law enforcement officers having the responsibility and subject matter jurisdiction to enforce GS 105-259, which governs secrecy of tax information by State officers, employees and agents, when the offense involves a tax imposed under GS Chapter 105.
Amends GS 105-241.8 to allow the Secretary to propose a tax assessment at any time with no statute of limitations if the taxpayer, as a trustee, collected taxes on behalf of the State but did not remit all the taxes held in trust when due. Applies to assessments not barred by the statute of limitations on or after the date the act becomes law.
Amends GS 105-242.2, concerning personal civil liability for unpaid taxes of a business entity, to define the scope of the act to exclude the criminal liability of any person.
Amends GS 105-243.1 to redefine overdue tax debt to mean any part of a tax debt that remains unpaid 60 days or more (was, 90 days or more) after it becomes collectible under state law and excludes tax debt for which an installment agreement was in place for the tax debt within 60 days (was, 90 days) after the tax debt become collectible. Provides for a collection assistance fee of 20% to be imposed on any overdue tax debt (previously, imposed on an overdue tax debt that remains unpaid 60 days or more after the debt is deemed collectible under state law). Requires the Department to notify the taxpayer that the fee will be imposed at least 60 days prior to its imposition and allows the Department to include the fee notice on the notice of collection. Makes conforming changes. Effective August 1, 2020, and applies to tax debts that become collectible on or after that date.
Amends SL 2019-169, Section 5.1, to postpone related changes made by Section 5.1 of that act to GS 105-243.1 from January 1, 2020, to August 1, 2020.
Amends GS 93B-1 to exclude the Department from the term State agency licensing board, as the term applies to occupational licensing regulations.
Part VII. Extend Certain Sunsets
Amends GS 105-269.8 to extend the sunset for individuals to donate all or a portion of their State tax refunds to aid in the early detection of breast cancer and cervical cancer from taxable years beginning on or after January 1, 2021, to on or after taxable years beginning on or after January 1, 2026.
Amends GS 160A-239.1 to extend the sunset of Article 10A, Special Assessments for Critical Infrastructure Needs, from July 1, 2020, to July 1, 2025, which allows local governments to finance certain infrastructure needs through special assessments, for projects that have not been approved under a final assessment resolution.
Part VIII. Effective Date
Bill S 727 (2019-2020)Summary date: May 13 2020 - View summary