LOWER TAX RATES FOR A STRONGER NC ECONOMY.

View NCGA Bill Details2013-2014 Session
Senate Bill 394 (Public) Filed Thursday, March 21, 2013
A BILL TO BE ENTITLED AN ACT TO ADOPT A BIPARTISAN TAX REFORM PLAN TO PROMOTE ECONOMIC DEVELOPMENT IN NORTH CAROLINA BY ESTABLISHING A SOUND STATE TAX STRUCTURE THAT REVISES THE EXISTING STRUCTURE ON A REVENUE-NEUTRAL BASIS, LOWERS ALL MAJOR TAX RATES, TAXES ALL INCOME AT THE SAME RATE, AND MAKES THE STRUCTURE SIMPLER, FAIRER, AND CONSISTENT WITH THE MODERN ECONOMY, AS RECOMMENDED BY PAST TAX STUDIES.
Intro. by Clodfelter.

Status: Ref to Finance. If fav, re-ref to Appropriations/Base Budget (Senate Action) (Mar 25 2013)
S 394

Bill Summaries:

  • Summary date: Mar 25 2013 - More information

    General Findings and Purpose

    States the General Assembly's findings

    Reduce Individual Income Tax Rates and Broaden Tax

    Recodifies numerous statutes.

    Current Statute            Recodified Statute

    GS 105-133               GS 105-153.1

    GS 105-134               GS 105-153.2

    GS 105-134.1            GS 105-153.3

    GS 105-134.5            GS 105-153.4

    GS 105-151               GS 105-153.9

    GS 105-152               GS 105-153.8

    The following statutes are repealed:

    GS 105-134.2,   Individual income tax imposed.

    GS 105-134.3,  Year of assessment.

    GS 105-134.6,  (Effective for taxable years beginning before January 1, 2012) Adjustments to taxable income.

    GS 105-134.7,  Transitional adjustments.

    GS 105-134.8,  Inventory.

    GS 105-151.11,  Credit for child care and certain employment-related expenses.

    GS 105-151.18,  Credit for the disabled.

    GS 105-151.20,  Credit or partial refund for tax paid on certain federal retirement benefits.

    GS 105-151.21,  Credit for property taxes paid on farm machinery.

    GS 105-151.24,  Credit for children.

    GS 105-151.26,   (Effective for taxable years beginning before January 1, 2012) Credit for charitable contributions by nonitemizers.

    GS 105-151.33, Education expenses credit.

    Amends GS 105-134.1, recodified by this act at GS 105-153.3 (Definitions), deleting the terms and definitions for educational institution and retirement benefits.

    Amends GS 105-153.4, (North Carolina taxable income defined), previously GS 105-134.5,  replacing references to GS 105-134.6(now repealed) to GS 105-153.5 (a new section, modifications to adjusted gross income, found below). Makes technical changes.

    Amends GS Chapter 105 by creating a new section GS 105-153.5 (Modifications to adjusted gross income), providing that in calculating NC taxable income, a taxpayer must deduct any of nine  items that are included in the taxpayer's adjusted gross income, including  (1) amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937, (2) the amount received during the taxable year from one or more State, local,  or federal government retirement plans to the extent the amount is exempt from tax, and (3) the amount paid to the taxpayer by the State under GS 148-84 as compensation for pecuniary loss suffered by reason of erroneous conviction  and imprisonment.

    Specifies five items that taxpayers must add to their adjusted gross income if not already included, including (1) the amount excluded from gross income under section 199 of the Code, (2) interest on the obligations of other states, political subdivisions of those states, or agencies, (3) the amount required to be added under GS 105-153.6 when the State decouples from federal accelerated depreciation and expensing.

    Amends GS Chapter 105 by creating new section GS 105-153.6 (Adjustments when State decouples from federal accelerated depreciation and expensing), providing a special accelerated depreciation clause, which specifies that placing certain property into use and taking a special accelerated depreciation requires that taxpayer to add to the taxpayer's federal taxable income or adjusted gross income 85% of the amount taken for that year. For taxable years before 2013, the amount must be added to the taxpayer's federal taxable income. For years after 2013, the amount must be added to the taxpayer's adjusted gross income.

    Taxpayer is allowed to deduct 20% of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.  Includes a table which indicates applicable periods.  Specifies a 2009 Depreciation Exception, relating to property placed in service during the 2009 taxable year and whose taxable income reflects a special accelerated depreciation deduction. Provides that for this subdivision, the definition of section 179 property has the same meaning as section 179 of the Code as of January 2011. A taxpayer placing section 179 property into service will have to add a certain amount to either the federal taxable income amount or adjusted gross income.

    Creates new GS 105-153.7 (Individual income tax imposed), establishing that a tax is charged for each taxable year on the NC taxable income of an individual. The tax is 6% of NC taxable income that exceeds the zero tax brackets for the taxpayer's filing status. Includes a table demonstrating the zero tax brackets, (pg. 6 of bill), for all filing statuses. Beginning January 1, 2016, maximums of the zero tax brackets are indexed in accordance with the cost-of-living adjustment used in the federal rate brackets.  Specifies the Secretary of Revenue (Secretary) can provide tables that compute amount of tax due for a taxable year under this section.  Tables will not apply to individuals filing a return under section 443(a)(1) of the Code for a period of less than 12 months, due to accounting periods, estates or trusts.

    Amends GS 105-153.8 (Income tax returns), (previously G.S. 105-152), making technical, conforming, and clarifying changes. Provides that anyone whose taxable income exceeds the zero tax brackets must file an income tax return.  Clarifies that nonresidents who have (1) received gross income from NC sources, including gambling, and (2) are required to file a return for the taxable year under the Code must file a return.

    Provides that if a taxpayer is deceased or unable to file a return, an authorized agent or guardian must file the return.  If the taxpayer has died before making the return the administrator or executor of the estate must file the return and any tax due is payable by the estate. Replaces "taxable income" with "adjusted gross income" and all instances of "shall" with "must".

    Amends GS 105-153.9 (Tax Credits for incomes taxes paid to other states by individuals), (previously, GS 105-151), making conforming and technical changes. Amends GS 105-153.9(a)(2), to read The fraction of the adjusted gross income as modified in GS 105-153.5 (previously, The fraction of the gross income, as calculated under the Code and adjusted as provided in GA 105-134.6 and GS 105-134.7).

    Amends GS Chapter 105 by creating new section GS 105-153.10 (Other tax credits), providing that there is a personal tax credit. Allowing a taxpayer a tax credit equal to their adjusted gross income (AGI), less the zero tax bracket amount, multiplied by 0.6%.  Tax credit is subject to a minimum ($200) and a maximum ($800).

    Provides that a taxpayer is allowed a credit for each dependent child that qualified for the federal tax credit. Amount of credit allowed per taxpayer AGI can be found in the table on pg. nine of the bill. Establishes a tax credit for charitable contributions. Charitable contributions deductible under section 170 of the Code is allowed a credit equal to 6% of the amount deductible, not to exceed $600.  Tax credit cannot exceed the taxes imposed. A non-resident or part-year resident may not be entitled to the entire amount of the allowed credit.

    Notwithstanding GS 105-163.15, no addition to tax may be made for taxable year beginning on or after January 1, 2015 and January 1, 2016, with respect to any underpayment of individual income tax to the extent the underpayment was created or increased by this section.

     Effective for taxable years beginning on or after January 1, 2015.

    Reduce Corporate Income Tax Rate and Broaden the Tax Base.

    Amends GS 105-130.3 (Corporations), establishing that the tax imposed on a C corporation's State net income is the same as the tax set for the individual income tax in GS 105-153.7 (previously, a 6.9% tax was imposed after 1999, that language is now deleted).

    Amends GS 105-130.5(a), by adding the following new subsections GS 105-130.5(a)(2a) and (24), providing that a financial institution's interest expense, that is allocable to interest income exempt from taxation, and any amount required to be added under GS 105-130.5B, will be added or considered as additions to federal taxable income will also be used in determining State net income.

    Amends GS 105-130.5(b), creating new GS 105-130.5(b)(27), establishing that the deduction allowed under GS 105-130.5B (add-back for federal accelerated depreciation and expensing) will be included in determining State net income.

    GS 105-130.5(a)(15), (15a),(15b), and (23) are repealed (Different additions to federal taxable income in determining State net income).

    GS 105-130.5(b)(1a)b., (7), (19), (21), (21a), (21b), (22), (24), and (26) are repealed  (Different deductions to federal taxable income in determining State net income).

    Amends GS Chapter 105 by creating new GS 105-130.5B (Adjustments when State decouples from federal accelerated depreciation and expensing), providing a special accelerated depreciation clause, which specifies that placing certain property into use and taking a special accelerated depreciation, under section 168(k) or 168(n) of the Code requires that taxpayer to add to the taxpayer's federal taxable income or adjusted gross income 85% of the amount taken for that year.

    Taxpayer is allowed to deduct 20% of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.  Includes a table which indicates applicable periods.  Specifies a 2009 Depreciation Exception, relating to property placed in service during the 2009 taxable year and whose taxable income reflects a special accelerated depreciation deduction. Provides that for this subdivision, the definition of section 179 property has the same meaning as section 179 of the Code as of January 2011. A taxpayer placing section 179 property into service will have to add a certain amount to either the federal taxable income amount or adjusted gross income.

    Amends GS 105-130.7A, changing title to Royalty income and interest expense reporting options (was Royalty income reporting options), adds language that states that now there are options for the way interest expense is reported for taxation.  Adds and defines "interest expense", to the definitions provided for this section.

    Makes other technical and conforming changes for the inclusion of interest expense to this section.

    Repeals the following sections:
    GS 105-130.22, Tax credit for construction of dwelling units for handicapped persons.
    GS 105-130.25, Credit against corporate income tax for construction of cogenerating power plants.
    GS 105-130.34, Credit for certain real property donations.
    GS 105-130.36, Credit for conservation tillage equipment.
    GS 105-130.37, Credit for gleaned crop.
    GS 105-130.43, Credit for savings and loan supervisory fees.
    GS 105-130.44, Credit for construction of poultry composting facility.
    GS 105-130.47, Credit for qualifying expenses of a production company.
    GS 105-151.1, Credit for construction of dwelling units for handicapped persons.
    GS 105-151.12, Credit for certain real property donations.
    GS105-151.13, Credit for conservation tillage equipment.
    GS 105-151.14, Credit for gleaned crop.
    GS 105-151.25, Credit for construction of a poultry composting facility.
    GS 105-151.29, Credit for qualifying expenses of a production company.

    Repeals Articles 3B (Business and Energy Tax Credits), 3D (Historic Rehabilitation Tax Credits) and 3H (Mill Rehabilitation Tax Credit) of GS Chapter 105.

    Repeals GS 105-130.5(a)(10) and (a)(20), (different additions to federal taxable income in determining State net income).

    Amends GS 105-129.45 (Sunset), changing the sunset provision and date of  Article 3E (Low-Income Housing Tax & Credits) to January 1, 2020 (was, January 1, 2015). Makes clarifying changes.

    Amends GS 105-129.51(b), changing the repeal date of  Article 3F (Technology Development), repealing it for taxable years beginning on or after January 1, 2020 (was, January 1, 2014).

     Effective for taxable years beginning on or after January 1, 2014.

    Replace Franchise Tax with a Lower Business Privilege Tax that Includes All Limited Liability Entities.

    Amends GS Chapter 105 Article 3, changing title to "Business Privilege Tax", (was, Franchise Tax).

    Repeals the following sections:

    GS 105-114,  Nature of taxes; definitions.

    GS 105-114.1, Limited liability companies.

    GS 105-120.2, Franchise or privilege tax on holding companies.

    GS 105-121.1, Mutual burial associations.

    GS 105-122, Franchise or privilege tax on domestic and foreign corporations.

    GS 105-122.1, Credit for additional annual report fees paid by limited liability companies subject to franchise tax.

    GS 105-125, Exempt Corporations.

    GS 105-127, When franchise or privilege taxes payable.

    GS 105-128, Power of attorney.

    GS 105-129, Extension of time for filing returns.

    Amends GS Chapter 105 by creating the following new Statutes GS 105-114.2, 105-114.3, 105-114.4, 105-114.5, 105-114.6, 105-114.7, 105-114.8, 105-114.9, 105-114.10, 105-116.2, 105-116.3, 105-and 125.1.

    GS 105-114.2, (Definitions), provides the terms and definitions to be used in this Article.

    GS 105-114.3, (Nature of tax), establishes a privilege tax on business entities for the privilege of doing business in NC in an organizational form that gives limited liability to one or more owners. Payment of the tax is a condition precedent of doing business in NC. Establishes that each owner of a non-corporate business entity doing business in NC is considered to be doing business in NC.

    GS 105-114.4, (Business privilege tax imposed), provides that the rate of the business privilege tax is $1 per $1000 of whichever is higher, (1) the entity's adjusted net worth tax base (as described in GS 105-114.5) or, (2) the entity's investment tax base (as described in GS 105-114.6). Minimum tax payable is $200. Maximum tax for a holding company is $75,000.  Business entities are no longer subject to the business privilege tax after the taxable year in which the entity is dissolved.

    GS 105-114.5, (Adjusted net worth tax base), establishes that the net worth of an entity is the entity's total assets less its total liabilities calculated according to generally accepted accounting principles (GAAP), as of the end of the entity's taxable year. If the entity's books are not maintained according to GAAP, net worth can then be computed using the accounting method used for federal tax purposed, as long as it fairly represents the entity's net worth.  Provides eight adjustments that an entity's net worth is subject to, including (1) a liability may not be deducted unless it is a definite and accrued legal liability, (2) a deduction for depreciation and amortization is determined in accordance with the method used for federal tax purposes, and (3) a corporation may deduct the cost of treasury stock.

    GS 105-114.6, (Investment tax base), establishes that the entity's investment tax base is the entity's investment in real and tangible personal property in this State as of the end of the entity's taxable year. The value of an entity's investment in property is the consideration for the property subject to five adjustments, including (1) the addition of improvements to the property, and (2) a deduction for indebtedness on the property or on an improvement to the property.

    GS 105-114.7, (Exclusions in calculating tax), specifies and describes certain exclusions, for certain entities, that can be used in the calculation of tax liability for this section.  These exclusions include provisions concerning, (1) disregarded LLC, (2) no tax tiering, (3) investment companies, and (4) short year adjustment.

    GS 105-114.8, (Determination of ownership after certain transfers), provides how to determine ownership of capital interests when asset transfers have taken place. Also provides how ownership of tax-free distributions are calculated for tax purposes.

    GS 105-114.9, ( Apportionment by multistate business entities), provides that an entity doing business in NC and in one or more other states must apportion its net worth to NC. Establishes rules for apportioning income to NC in various situations for entities or corporations.

    GS 105-114.10, (Return and payment), establishes when taxes and returns are due. Provides for an extension of time to file tax returns.  Also states that the president, vice president, treasurer, or chief financial officer must sign the tax return.

    GS 105-116.2, (Compensating privilege tax on seller that is not a registered retailer), establishes that an annual privilege tax is imposed on a person, who sells tangible personal property, digital property, or services at retail to a consumer, that is not a registered retailer or entity if that person (1) is not registered as a retailer under Article 5 of this Chapter, and (2) the person reported gross sales of at least $5 million on its most recent federal income tax.  If imposed, the tax is a percentage of the retailer's gross receipts from sales in NC. The rate is the same as the combined rate under GS 105-164.3. Tax is in addition to any charged under GS 105-114.14.

    GS 105-116.3, (Compensating privilege tax on unregulated electric power producer), establishes that an annual privilege tax is imposed on a person that meets all of the following, (1) produces electric power by using the public waters of NC and sells the electricity it produces, (2) is not subject to regulation by the NC Utilities Commission, and (3) received at least $5 million in gross receipts during the preceding calendar year from its sale of electric power.  The tax is a percentage of the person's gross receipts from sales of the produced electric power. The rate is the same as the combined rate under GS 105-164.3. Tax is in addition to any charged under GS 105-114.14.

    GS 105-125.1, (Exempt business entities), provides that certain entities are exempt from the privilege tax, including (1) a business entity exempt from federal income tax under, (2) an insurance company subject to tax under Article 8B of this Chapter, (3) a single member limited liability company that is disregarded for federal income tax purposes if the single member is a corporation and the disregarded limited liability company's net worth and property is included in that of its single member, and (4) a real estate mortgage investment conduit, as defined in section 860D of the Code.

    Entities in the exempt list above that have unrelated business income, owes a tax on the adjusted net worth/property attributed to that unrelated business income. Provides this section is effective for taxable years beginning on or after January 1, 2015, and applies to taxes due in that year or a subsequent year.

    Amends GS 55-1-22, (Filing, service, and copying fees), deleting references to an annual paper or electronic report in lieu of specifying just an annual report with no fee to submit the report (was, $25 for paper report and $18 for electronic report). Deletes reference to the fee for annual reports being nonrefundable.

    Amends GS 55-16-22, (Annual report), reorganizing the majority of language through GS 55-16-22(d), providing clarifying language that simplifies and specifies exactly which types of business entities must submit annual reports and the information that must be included in each annual report.  Establishes a firm due date for annual reports, the 15th day of the 4th month following the close of the entity's fiscal year.  Clarifies the requirements and expectations in cases where the Secretary deems an annual report to be incomplete.  Deletes GS 55-16-22(e –h).  Makes technical and conforming changes.

    Amends GS 57C-1-22(a)(25),  GS 59-35.2(a)(18), GS 59-1106(a)(22), changing the associated fees for the required annual reports of these sections to "No fee".

    Repeals GS 105-122.1 (Credit for additional annual report fees paid by limited liability companies subject to franchise tax).

    Amends GS 105-228.90(a), making technical and conforming changes.

    Repeals GS 105-256.1 (Secretary and deputies to administer oath).

    Amends GS 105-259(a), making technical and conforming changes.

     Effective January 1, 2015. Subsection (f) repealing GS 105-122.1of this section applies to returns due on or after April 15, 2015, for taxable years beginning on or after January 1, 2015. The remaining sections apply to annual reports due on or after January 1, 2015.

    Reduce Sales Tax Rate and Broaden Sales Tax Base

    Under current law, GS 105-164.13, exempts the sale, use, storage, or consumption of certain tangible personal property, digital property, and services from the sales and use tax imposed by Article 5, GS Chapter 105. Repeals the following subdivisions of GS 105-164.13 to delete the exemptions for certain property and services: (13C), nutritional supplements sold by a chiropractor to patients as a part of treatment; (28) sales of newspapers by street vendors, door to door carriers, and vending machines; (30) vending machine sales at a price of one cents per sale; (36) advertising supplements and other printed material distributed with or as a part of a newspaper; (39) sales of paper, ink, and other tangible personal property to commercial printers and publishers for use as ingredients or component parts of "free distribution periodicals" as defined in this section, and; (50) fifty-percent of the sales price of tangible property, other than tobacco, sold through a coin operated vending machine. Also repeals GS 105-164.13C (sales and use tax holiday) and GS 105-164.13D (sales and use tax holiday for Energy Star qualified products). Effective July 1, 2013.

    Current law provides that taxes under Article 2 (Privilege Tax), GS Chapter 105 are imposed for the privilege of carrying on the business, exercising the privilege, or doing the act named in this Article. Repeals the following statutes under Article 2 (Privilege Tax) of The Revenue Act (Subchapter I of GS Chapter 105) having to do with admissions, ticket sales, and licensing: GS 105-33, 15.33.1, 105-37.1, 105-38.1, 105-40, 105-103, 105-105, 105-106, 105-108, and 105-109. Effective January 1, 2014 and applies to receipts to admission tickets sold on or after that date.

    Repeals GS 105-116, which imposes a privilege or franchise tax on electric power, water, and sewage companies; GS 105-116.1, which provides for the distribution of gross receipts on taxes collected on electric power companies, and GS 164.21A, which provides for deductions for municipalities that sell electric power. Makes conforming changes, repealing subsections (b), (c), (d), and (e) of GS 159B-27 regarding payments made in lieu of taxes by municipalities engaged in  the generation, transmission and distribution of electric power and energy. Effective January 1, 2014 and applies to taxes due in the 2014 tax year or a subsequent year.

    Repeals GS 105-164.13(44), which exempts piped natural gas from tax under sales and use tax provisions because it is taxed under Article 5E of GS Chapter 105, however this provision also repeals Article 5E to remove the tax on piped natural gas. Effective January 1, 2014 and applies to piped natural gas received on or after January 1, 2014, pursuant to a sale made on or after that date.

    Directs the Utilities Commission, under GS 62-31 and 62-32, to lower the rate set for the following utilities: (1) electricity, to reflect the repeal, in this act, of GS 105-116 and the resulting liability of electric power companies for the tax imposed under GS 105-114.4 and the increase in the tax rate on sales of electricity under GS 105-164.4, and (2)  piped natural gas, to reflect the repeal of Article 5E of GS Chapter 105, the repeal of the former credit under GS 105-122(d1), and the resulting liability of companies for the tax imposed on sales of piped natural gas under GS 105-164.4.

    Prohibits a city, despite the provisions of GS 160A-211, from imposing or collecting greater taxes on an electric power company than was collected on or before January 1, 1947, or from levying a tax on a person in the business of supplying piped natural gas.

    Amends GS 105-164.3 to add definitions for the following terms as they apply in Article 5 (sales and use tax): (1) alteration, repair, maintenance, cleaning, and installation services; (2) capital equipment; (3) datacenter equipment; (4) service contract; and (5) short-term lease or rental. Modifies the definition for "retailer" to include a person who sells tangible personal property, other than the person's own personal property, at a specialty market as defined in GS 66-250. Also clarifies the meaning of the term "combined general rate," altering it to read "combined rate." Effective January 1, 2014.

    Amends GS 105-164.4 to delete subsection (a) and all of its subdivisions, which set out the tax rates on a retailer's net taxable sales of various types of property, and deletes subsections (b), regarding the collection of the tax from the retailer, and (c) requiring a person desiring to be a retailer or a wholesale merchant to obtain a certificate of registration. Enacts new subsections (a) and (b) that provide a simplified application of the privilege tax, imposing a general tax rate of 4.75% on a retailer's net taxable sales of tangible personal property, digital property, tangible personal property services, accommodation rentals, prepaid telephone service, entertainment and recreational activities, and satellite radio. Also includes property care and maintenance services, and security services effective July 1, 2014. Provides that an item that is taxable under subsection (b), which specifies categories to which the general rate applies, is also subject to local sales and use tax. Enacts new subsection (c), which lists items that are subject to the combined tax rate and provides that the combined tax rate applies to a retailer's net taxable sales of telecommunication, video programming, and "spirituous liquor" other than "mixed beverages" as those terms are defined in GS 18B-101. Enacts new subsection (d) to declare that the sale of a manufactured or modular home is to be treated as if it is a sale of real property (was, attached a rate of 2.5% to the retail sale of a modular home and all of its attached accessories). Effective July 1, 2014.

    Repeals the following statutes: (1) GS 105-164.3(8c) definition for Eligible Internet data sender, (2) GS 105-164.13(49) exemption from retail sales due tax for certain installation charges, (3) GS 105-164.13(49a) exemption for tax on delivery charges for direct retail mail delivery, and (4) GS 105-164.44G requiring distribution of part of the tax on modular homes to the county of residence. Effective July 1, 2014.

    Enacts new GS 105-164.4E regarding accommodation rentals. Defines accommodation as meaning a hotel or motel room, a residence, a cottage, or a similar lodging facility for occupancy by an individual. Defines facilitator to mean a person who contracts with a provider of an accommodation to market the accommodation and to accept payment from the consumer for the accommodation but who is not a rental agent.   Defines rental agent to include a real estate broker as defined in GS 93A-2. Declares that the gross receipts received from the rental of an accommodation are taxed at the general rate set in GS 105-164.4, as amended in this act. Provides additional criteria for determining gross receipts, rules governing the actions of a facilitator and those of a rental agent, and the liability of a facilitator or a rental agent for the tax imposed under this section. Effective July 1, 2014.

    Enacts new GS 105-164.4F to provide that the charges for certain entertainment or recreational activities are taxed at the general rate set in GS 105-164.4, as amended in this act.  Provides that charges include those for admission, registration, membership, amenities, and user charges. Provides a list of activities which when offered are considered to be a service. Enables taxing of charges for entertainment or recreational activities in person or online and provides that charges for online play or entertainment include charges to acquire virtual goods or attributes and activities include a game, a sport, or fitness activity. Also provides for taxing of charges for admission to any of the following recreational or entertainment activities: (1) a live performance or event of any type, (2) a movie or other audiovisual work, (3) a museum, cultural sits, garden, exhibit, show, or similar attraction or guided tour at any of these attractions. Excludes any portion of membership charges meeting the following criteria from the tax imposed under this section: (1) a charge that is deductible as a charitable contribution under section 170 of the Code, or (2) a charge that allows access to a dining facility or other property that does not allow the member to play or engage in an entertainment or recreational activity that is listed in subdivision (a)(2) of this section. Additionally, provides criteria for calculating the tax, if any, on an admission ticket that is resold. Effective July 1, 2014.

    Adds additional subdivisions to GS 105-164.13 (as amended by this act), which exempts the sale, use, storage, or consumption of certain tangible personal property, digital property, and services from the sales and use tax imposed by Article 5, GS Chapter 105, to include in the exemption: (1) a service contract or alteration, repair, maintenance, cleaning, or installation services provided for tangible personal property that is exempt from tax under Article 5; (2) a service provided by a self-employed person 17-years-old or younger; (3) admission charges to a specified school sponsored event held at an elementary or secondary school; (4) admission charges to a commercial agricultural fair meeting the requirements of GS 106-520.1; (5) admission charges to a festival or other recreational activity sponsored by a nonprofit that is exempt from tax under Article 4 of GS Chapter 105, lasts no more than seven consecutive days, uses all the proceeds exclusively for the entity's nonprofit purpose and sponsors no more than two such activities during a calendar year. Also provides an exemption for short-term lease or rental of a mini-warehouse or other secure self-storage space by a member of the U.S. Armed Forces. Effective July 1, 2014.

    Amends GS 105-187.3(a) to remove the maximum caps of $1,000 on the tax for the retail sale of a commercial motor vehicle as defined in GS 20-4.01, and $1,500 on the tax for the retail sale of a recreational vehicle not subject to the $1,000 tax. Effective July 1, 2014.

    Enacts new GS 105-164.12D to distinguish the tax liability for a person who provides a landscaping service to install tangible personal property such as a tree or shrub, as a performance contractor or an installing retailer. Amends GS 105-164.13 to add subdivisions which include services provided by a farmer to control pests in crops grown for commercial use and property maintenance service as described in GS 105-164.4(a)(6) as exempt from the sales and use tax of Article 5, GS Chapter 105. Effective July 1, 2014.

    Amends GS 105-164.13B to provide that the state tax on food is (1%), (was, exempted food from the tax under Article 5, GS Chapter 105). Maintains the exceptions that provided for tax on specified food items, but provides that those food items are subject to tax at the general rate. Provides that food that is subject to the state food tax of 1% is also subject to a local tax rate of 1%. Amends GS 105-469(a) to direct the Secretary of Revenue (Secretary) to distribute the local taxes collected on food taxable at 1% under GS 105-164B, as amended, to taxing counties, allocating one-half of the net proceeds on a per capita basis according to certified population estimates from the State Budget Office and allocating the remaining net proceeds to each taxing county based on the county of collection.  Effective July 1, 2015.

    Repeals the following subdivisions from GS 105-164.13 to remove the indicated services or products from the exemption from the sales and use tax under Article 5: (1a)b. (sales of a grain, feed, or soybean storage facility, (4c) listed items concerning the housing, raising, or feeding of animals, and (4d) regarding listed tobacco items. Repeals Article 5F which provides for a privilege tax on certain machinery and equipment, and makes a conforming change, deleting Subdivision (5a) of GS 105-164.13. Effective January 1, 2014.

    Makes additional changes to GS 105-164.13 (providing for exemptions from Article 5's sales and use tax) to clarify the exemption as it applies to farm machinery and logging machinery, identifying such machinery as capital equipment. Also identifies equipment sold to a telephone company, a cable device provider, or a radio or television company licensed by the Federal Communications Commission as capital equipment. Adds exemptions for sales of specified equipment to a major recycling facility, sales of mill machinery that is capital equipment and purchased by specified entities, and sales of certain specified capital equipment used in the manufacturing of or research and development of tangible personal property. Includes exemptions for sales to a company at a port facility for use of the facility to unload or process bulk cargo, and datacenter machinery and equipment exempt from sales and use tax under GS 105-164.13E. Identifies laundry and dry-cleaning machinery as capital equipment. Provides that electricity only qualifies for the exemption under this section if it is measured by a separate meter or a separate device. Provides for the exemption from the sales and use tax under Article 5 for forests and mines products  and sales of products of waters in their original state (was, original or unmanufactured state). Effective January 1, 2014.

    Enacts new GS 105-164.13E to provide an exemption from the sales and use tax for datacenter equipment located and used at a datacenter that meets requirements as specified in this section. Provides that the exemptions provided in this section expire for sales occurring on or after July 1, 2015. Effective July 1, 2014.

    Amends GS 105-164.4(a), effective September 1, 2014, to set the general rate of tax for a privilege tax imposed on a retailer for net taxable sales of tangible personal property, digital property, and services at 4.5% (was, 4.75%).

    Enacts new GS 105-164.5B to provide for an automatic rate decrease of one-tenth of one percent (0.1%) in the general rate of tax set in GS 105-164.4 if the amount of sales and use tax collected in the fiscal year exceeds the amount certified by the State Budget Officer by at minimum $160 million. Provides that a rate decrease under this section becomes effective as of October 1 following the fiscal year in which the over collections occurred and requires the Secretary to notify retailers of any rate decrease under this section. Effective July 1, 2016.

    Amends GS 105-467(a) to provide that the sales tax that may be imposed under Article 39, local government sales and use tax, of GS Chapter 105, is limited to a rate of 1%, deleting provision that the sales tax authorized under this Article does not apply to sales that are taxable by the state under GS 105-164.4 but are not specifically included in subsection (a) of GS 105-467. Effective January 1, 2014. Makes changes to GS 105-467(a) as amended by subsection (a) and makes conforming changes to GS 105-467(a). Effective July 1, 2015.

    Amends Section 3 of SL 1965-347 to provide that all property owned by Cape Hatteras Electric Membership Corporation (Cape Hatteras) is exempt from property taxes to the same extent as property owned by any county or municipality of the state as long as Cape Hatteras owns the property uses it solely to provide electric energy to consumers on Hatteras Island and Ocracoke Island. Provides that Cape Hatteras is subject to any other taxes to the same extent as other electric membership corporations established under GS Chapter 117. Effective January 1, 2014.

    Repeals GS 105-41, 105-83, 105-88, 105-102.3, and 105-102.6 to eliminate business privilege taxes deemed archaic under this act. Effective January 1, 2014 and applies as follows: (1) for taxes payable under GS 105-41, 105-88, or 105-102.3, applies to taxes imposed under those statutes for taxable years beginning on or after July 1, 2014; (2) for taxes payable under GS 105-102.6, applies to taxes due on or after January 31, 2014; and (3) for taxes payable under GS 105-83, applies to obligation dealt in, bought, or discontinued on or after Jnaury 1, 2014.

    Rewrites the title of Article 2C of GS Chapter 105 as "Local Alcoholic Beverage Licenses and State Excise Taxes," (was, Alcoholic Beverage License And Excise Taxes). Makes clarifying and conforming changes to the language of GS 105-113.69. Amends GS 105-113.70 to provide for the receipt of a local license upon proper application (was, upon proper application and payment of the prescribed tax).  Makes conforming changes to GS 105-113.77 regarding city beer and wine retail licenses and to GS 105-113.78 regarding county beer and wine retail licenses. Amends GS 105-113.79 (city wholesaler license) to delete provision to allow a city to charge an annual tax of not moer than $37.50 for a city malt beverage or wine wholesaler. Effective January 1, 2014 and applies to taxes for periods beginning on or after May 1, 2014.

    Amends GS 153A-152 to prohibit a county from levying a privilege tax on a trade, occupation, profession, business, or franchise operating within the county unless there is an act or statute of the General Assembly that authorizes the county to do so. Amends GS 160A-211 to apply the same prohibition to a city. Effective July 1, 2014 and applies to taxes for fiscal years beginning on or after that date.

    Deletes subsection (a1) of GS 105-113.21 which allows a distributor filing a timely report under GS 105-113.18 and sends a timely payment to deduct a discount of 2%. Makes conforming changes, including repealing GS 105-113.85. Also amends GS 105-113.39 to delete a discount for wholesale dealers or retail dealers liable for excise taxes, who file timely reports and make timely payments. Makes conforming changes. Effective July 1, 2014 and applies to returns filed for periods beginning on or after that date.

    Repeals GS 105-113.82 regarding distribution of beer and wine taxes. Makes conforming changes to GS 108A-93. Effective July 1, 2014.

    Repeals GS 105-486(b) effective January 1, 2014.

    Provides that the amount of a county's hold harmless payment for the 2013-14 fiscal year is one-half of the amount calculated under GS 105-523, effective July 1, 2013. Repeals GS 105-523 effective July 1, 2014.

    Amends GS 115C-546.1 to delete the distribution provisions for the Public School Building Capital Fund (Capital Fund). Repeals GS 115C-546.2(a) regarding allocations from the Capital Fund. Effective April 1, 2014 and applies to distributions for collections for quarters beginning on or after that date.

    Transitional Provision

    Amends GS 105-237.1(a) to add to the following to the findings which the Secretary may use one or more of to determine that compromise on a taxpayer's liability for a tax collectible under GS 105-241.22: the taxpayer is a retailer or consumer under Article 5 of GS Chapter 105, the assessment is for a sales or use tax that the retailer failed to collect or the consumer failed to pay on an item that first became taxable under Article 5 on or after January 1, 2014, and the retailer or consumer made a good faith effort to comply with the sales and use tax laws. Provides that  this expires on January 1, 2024.

    Directs the Revenue Laws Study Committee (1) to study the fiscal impact of the changes proposed by this act and (2) to recommend any adjustments that are needed to the General Assembly. Specifies that the Committee is to address the following: (1) the application of the business privilege tax on related business entities and recommend to the General Assembly any changes necessary to prevent vertical or horizontal pyramiding of the tax; (2) the additional revenue received by counties and cities as a result of the expansion of the sales tax base in this act and the amount by which the local revenue is reduced by the repeal of local privilege license taxes and other taxes; and (3) the reasons for the remaining distributions of state tax revenue to local governments and ways to eliminate as many of these distributions as possible.

    Declares that this act does not affect the rights or liabilities of the state, a taxpayer, or another person that arise under a statute amended or repealed under this act before the amendment or repeal becomes effective. Also does not affect the right to any refund or credit that accrued under the repealed or amended statute before the effective date of the repeal or amendment.

    Privilege Tax Conforming Changes

    Repeals GS 93-12(12) (requiring the Secretary of Revenue to submit the names of persons who have qualified under this Chapter as certified public accountants and providing that privilege license issued under GS 105‑41 designate whether it was issued to a certified public accountant or an accountant) and GS 105-259(b)(4) (allowing the disclosing to a governmental agency or an officer of an organized association of taxpayers a list of taxpayers who have paid a privilege license tax). Amends GS 53-165 to make clarifying and technical corrections to the definitions.  Adds a definition of installment paper dealer and amends the definition of loanable assets to mean cash, bank deposits, installment loans, or any combination. Expand the definition of person to also include a group acting as a unit. Amends GS 53-172 to provide that the business of making loans includes acting as an installment paper dealer and collecting a loan made by a government regulated lender. Makes conforming changes.  Amends GS 53-191 to make conforming and technical changes. Amends GS 95-47.2 to amend the reasons for denying a license for operating a private personnel service when the employment agency will be operating on the same premises as specified businesses to include, in addition to a collection agency, a business making loans and taking an assignment of wages as security, or any other type of security (was, a loan agency as defined in GS 105-88), check cashing business and a pawnbroker business. Amends GS 105-130A.6A to remove the reference to the privilege tax. These changes are effective January 1, 2014.

    Franchise and Corporate Income Tax Conforming Changes

    Amends GS 105-129.27 (taxes credited), GS 105-129.41 (tax election), and GS 105-129.96 (taxes credited), GS 105-130.6A (limitation on credit) to replaces the references to franchise tax with privilege tax. Amends GS 105-129.50, add a definition of establishment and amend the definition of related person. Amends GS 105-129.51 to provide that a taxpayer is eligible for the technology development credit if it satisfied specified standards for wages, health insurance, environmental impact, and employee safety and health, deleting previous reference to these types of standards in GS 105-129.83. Amends GS 105-130.6A to update statutory references in the definitions.  Repeals GS 105-130.9(4) (concerning disallowing a corporate income tax deduction for a contribution for which the taxpayer has already claimed a specified credit effective for taxes before January 1, 2013). Amend GS 105-230, concerning the suspension of business entity's right to do business for noncompliance (was, charter suspended for failure to report). Applies the statute to a business entity as defined in GS 105-114.2 (was, to a corporation or a limited liability company). Requires the Secretary of State, upon being notified that a business entity's authority to transact business is subject to suspension, to immediately suspend the entity's articles of incorporation or other authority to transact business and notify the entity of the suspension by mail. Makes other technical, clarifying, and conforming changes. Amends GS 105-232 by removing the existing provisions and providing the following. Provides that the suspension of the authority of a business entity to transact business terminates when the entity resolves the noncompliance and pays a $50 fee. Requires the Secretary of Revenue to notify the Secretary of State when an entity resolves the noncompliance. Requires the Secretary to immediately reinstate and notify the business   entity. Reinstatement relates back to and takes effect as of the date of the suspension, subject to the rights of a person who reasonably relied to that person's prejudice on the suspension. Repeals GS 105-259(b)(24) (allowing disclosure of tax information to furnish the Department of Commerce and the Division of Employment Security a copy of the qualifying information required in GS 105‑129.7(b) or GS 105‑129.86(b)), (37 (allowing disclosure of tax information to furnish the Department of Commerce with the information needed to complete the study required under GS 105‑129.82), and (38) (allowing disclosure of tax information to verify with a nonprofit organization or a unit of State or local government information relating to eligibility for a credit under GS 105‑129.16H). Repeals GS 105-269.13 (debts not collectable under North Carolina law). Enacts new GS 143B-437.08A, wage, health insurance, and other standards applicable to economic development incentives. Requires the Department to annually determine the average weekly wage for a calendar year for all insured private employers in each county ad in the state and publish the specified wage standards applicable to economic development incentives. Specifies how an employer meets the health insurance standard. Specifies how the environmental standards and employee safety and health standards are met. Makes conforming changes to GS 143B-437.01. Also amends GS 143B-437.01 to delineate the definitions for air courier services, company headquarters, information technology and services, manufacturing, warehousing, and wholesale trade; adds a definition of NAICS.  Changes are effective January 1, 2014.

    Individual Income Tax Conforming Changes

    Updates statutory references in GS 105-131.2, GS 105-131.5, GS 105-131.7, GS 105-131.8, and GS 105-154. Makes clarifying changes. Amends GS 105-159 (federal corrections) to make the statute applicable to corrections to a taxpayer's adjusted gross income or federal tax credit (was, federal taxable income). Makes conforming changes. Amends GS 105-163.1 to update statutory references and remove the amount of severance wages paid to an employee during the taxable year that is exempt from state income tax for that year, to those items excluded from the definition of wages. Amends GS 105-163.22 to update statutory references. Effective January 1, 2014, repeals GS 105-259(b)(34) (allowing disclosure of tax information exchange information concerning a tax credit claimed under GS 105‑130.47 or GS 105‑151.29 with the North Carolina Film Office of the Department of Commerce and with the regional film commissions) and (36)(allowing disclosure of tax information to furnish to a taxpayer claiming a credit under GS 105‑130.47 or GS 105‑151.29 information used by the Secretary to adjust the amount of the credit claimed by the taxpayer). Amends GS 105-277.3(d1) to provide that property that is appraised at its present use value will continue to qualify for appraisal, assessment and taxation as provided in specified statutes, as long as the property is subject to a conservation easement that meets the property eligibility requirements under GS 113A-232. Amends GS 105-309(d) to delete the requirement that personal property be listed to indicate which property is subject to a tax credit under GS 105-151.21 (credit for property tax paid on farm machinery). Repeals GS 105-320(a)(16) to remove the requirement that a tax receipt form show the total assessed value of farm machinery, attachments, and repair parts of individual owners and S corporations engaged in farming subject to the income tax credit in GS 105‑151.21 and the amount of ad valorem taxes due on farm machinery, attachments, and repair parts subject to that credit. Amends GS 110-130.1(a) to update the definition of the term Code. Amends GS 113-77.9 to remove references to GS 105-151.12 and GS 130.34. Amends GS 113A-231, GS 113A-232, and GS 113A-233 to remove references to the conservation tax credits. Further amends GS 113A-232 to add to the eligibility requirements for the Conservation Grant Fund that the property must be (1) useful for one or more of seven specified purposes including public beach access or use, forestland or farmland conservation, or watershed protections, or (2) donated in perpetuity to and accepted by the state local government, or body that is organized to receive and administer lands for conservation purposes and qualified to receive charitable contributions (disqualifies land required to be dedicated under local government regulation or ordinance and dedications made to increase building density levels).  Repeals GS 113A-256(g), deleting the power of the Clean Water Management trustees to determine whether land donated for a tax credit under specified statutes may be certified for a tax credit. Changes are effective January 1, 2015.

    Sales Tax Conforming Changes

    Repeals GS 106-507 (exempting county societies from state and local taxes on exhibits, shows, attractions, and amusements), and GS 106-516 through GS 106-520 (related to licensing and permits for agricultural fair vendors and exhibitors, and carnival permits), GS 140-10.1 (exempting the North Carolina Symphony Society, from all privilege license and gross receipts taxes), and GS 105-164.9 (prohibiting a retailer from offering to absorb the sales tax). Amends GS 105-164.10 to remove provisions concerning rate tables for the general rate, preferential rate and combined state and local rates.  Amends GS 105-164.44F, and GS 105-164.44I to update references to GS 105-164.4. Applicable to a claim for a refund of taxes on motor fuel paid on or after January 1, 2014, amends GS 105-449.106 and GS 105-449.107 to remove references to the privilege tax.  Changes are effective January 1, 2014.

    Effective January 1, 2014, amends GS 105-164.14(c) to also exclude direct purchases of piped natural gas from those items for which a specified local government entity is allowed an annual refund of the sales and use taxes.

    Local Government Distribution Conforming Changes

    Amends GS 153A-134 (county regulation and license of occupations, business, trades, professions and forms of entertainment and prohibition of those that are inimical to the public health, welfare, safety, order, or convenience) to provide that the statute does not authorize a county to levy a privilege license tax on an entity that is subject to regulation and license under the statute (was, the statute did not impair the county's power to levy a privilege tax on occupations, businesses, trades, professions, and other activities).  Amends GS 160A-194 134 (city regulation and license of occupations, business, trades, professions and forms of entertainment and prohibition of those that are inimical to the public health, welfare, safety, order, or convenience) to provide that the statute does not authorize a city to levy a privilege license tax on an entity that is subject to regulation and license under the statute. Amends GS 153A-156 and GS 160A-215.1 (both now captioned, motor vehicle gross receipts tax in lieu of property tax), to exempt motor vehicles that are subject to the gross receipts tax from property tax, and provide that the tax provides an alternative to the property tax on motor vehicles.  Changes are effective July 1, 2014.


  • Summary date: Mar 21 2013 - More information

    To be summarized in the next Daily Bulletin.


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