House committee substitute makes the following changes to 1st edition. Deletes the provisions of the 1st edition and replaces them with AN ACT TO STIMULATE ECONOMIC ACTIVITY AND JOB GROWTH BY TEMPORARILY REDUCING THE INCOME TAX BURDEN ON BUSINESS.
Amends GS 105-134.1 to define adjusted gross income as the term is defined in section 62 of the Internal Revenue Code (Code) and deletes definitions for the terms taxable income (as defined in section 63 of the Code) and this state (meaning the state of North Carolina). Amends GS 105-134.5 to define taxable income for (1) residents of this state as adjusted gross income as modified in GS 105-134.6 and for (2) nonresidents as adjustable gross income as modified in GS 105-134.6, multiplied by a fraction based on the taxpayer’s adjusted gross income as modified. Specifies that a taxpayer must compute NC taxable income on the basis of the taxable year used to compute the taxpayer’s tax liability under the code.
Rewrites modifications to adjusted gross income under GS 105-134.6, as amended by SL 2011-5 (updating the reference to the Internal Revenue Code). Allows a taxpayer to deduct an exemption, based on filing status and adjusted gross income, as specified. Allows a taxpayer to take a personal income tax deduction for the first $50,000 of net business income that the taxpayer receives during a taxable year. This deduction expires for taxable years beginning on or after January 1, 2014. Changes the starting point for calculating North Carolina’s taxable income from federal taxable income to federal adjusted gross income. Permits a taxpayer to deduct either the standard deduction as specified in GS 105-134.6 (based on filing status) or the itemized deductions amount under section 63 of the Code. Provides that the term business income does not include income that is considered passive income under the Code (for example, any rental, lease, or business activity in which the taxpayer does not materially participate). Also amends provisions regarding additions to taxable income and other adjustments to taxable income. Makes a conforming change repealing GS 105-134.4. Includes General Assembly findings.
Amends GS 105-151.26 (Credit for charitable contributions by non-itemizers) to allow a taxpayer who elects the standard deduction under GS 105-134.6(a2) (was, under section 63 of the Code for federal tax purposes) a credit equal to 7% of the taxpayer’s excess charitable contributions. Also deletes provision disallowing credit for amounts deducted from gross income in calculating taxable income under the Code. Changes become effective for taxable years beginning on or after January 1, 2012.
Except as otherwise indicated, effective when the act becomes law.