A BILL TO BE ENTITLED AN ACT TO SIMPLIFY THE NORTH CAROLINA TAX STRUCTURE AND TO REDUCE INDIVIDUAL AND BUSINESS TAX RATES.
House committee substitute makes the following changes to the 1st edition.
Changes the short and long titles.
Part I. General Findings and Intent
Includes four findings in regards to North Carolina's tax structure. Establishes the intent of the legislation, including to initiate comprehensive tax reform and simplify the process of tax preparation and administration. Provides that the NC General Assembly seeks to phase out the state's reliance on income taxes, increase the state's reliance on consumption taxes, and evaluate the changes made by this act and their impact on the state's revenue structure.
Part II. Simple, Flat Tax Rate for Individual Income Tax
Amends GS 105-134.6(b)(22), regarding permissible deductions from taxable income, providing that taxpayers can only deduct an amount not to exceed $25,000 of net business income. In regards to a married couple filing a joint return, where both spouses receive or incur net business income, the maximum deduction applies separately to each spouse's net business income, providing that the couple cannot deduct any amount that exceeds $50,000 of net business income. These changes are effective for taxable years beginning on or after January 1, 2013.
Amends GS 105-134.2, Individual income tax imposed, abolishing the tiered individual income taxes imposed on NC taxable income in lieu of a flat 5.9% tax on the NC taxable income of every individual payable each year. Makes conforming changes.
Amends GS 105-134.6, Modifications to adjusted gross income, repealing GS 105-134.6(a1), dealing with Personal Exemptions, and providing that a taxpayer can deduct either the NC standard deduction; (as amended to $12,000 for married, filing jointly; $9,600 for head of household; $6,000 for single individuals; and $6,000 for married, filing separately) or the itemized deductions allowed for under new subsection GS 105-134.6(a3) for interest paid or accrued with respect to any qualified residence, for property taxes paid on real estate, and for charitable contributions. Provides that in the case of a married couple filing separate returns, a taxpayer may not deduct the standard deduction if the taxpayer or the taxpayer's spouse claims the itemized deductions. Enacts new GS 105-134.6(a3) providing that the allowable itemized deduction is the sum of (1) the amount the taxpayer claims as a deduction for interest paid or accrued during the taxable year with respect to any qualified residence, (2) the amount the taxpayer claimed for charitable contributions deductible for that taxable year, and (3) the amount the taxpayer claimed for state and local property taxes paid on real estate for that taxable year. Repeals GS 105-134.6(b)(11), regarding the deduction of specified severance wages, and GS 105-134.6(b)(22), regarding net business income deductions.
Amends proposed GS 105-134.6A to require for taxable years before 2012 (was, 2013) that the taxpayer add the required amount (for taking a special accelerated depreciation deduction or for a deduction for a section 179 expense) to the taxpayer's federal taxable income, and for years 2012 (was, 2013) and after, the taxpayer must add the amount to the taxpayer's adjusted gross income. Makes clarifying changes.
Repeals GS 105-134.6(b)(11), regarding the deduction of specified severance wages, and GS 105-134.6(b)(22), regarding net business income deductions.
Repeals GS 105-151.26, Credit for charitable contributions by nonitemizers.
Amends GS 105-151.24(a), providing that taxpayers who are allowed a federal child tax credit under section 24 of the Code will be allowed a credit against state income tax based on the taxpayers adjusted gross income, as amended and set out in table form in the act, in the amount of $125 or $250.
Amends GS 105-160.2 to provide that the income tax is computed on the amount of the taxable income of the estate or trust that is for the benefit of a resident of this state or for the benefit of a nonresident to the extent that the income is (1) from North Carolina sources and attributable to the ownership of any interest in real or tangible personal property in the state or (2) derived from a business, trade, profession, or occupation carried on in the state. Provides that the itemized deductions amount allowed under GS 105-134.6(a3) is not limited when computing income tax on estates, trusts, and beneficiaries.
Unless otherwise provided, the provisions of this Part are effective for taxable years beginning on or after January 1, 2014.
Part III. Reduce Corporate Income and Franchise Tax Rate
Amends GS 105-130.3 (Corporations), reducing the tax imposed on the state net income of a C Corporation doing business in North Carolina over a five year span, beginning in 2014. The rate in 2014 is 6.5%, decreasing the rate over time to 5.4% for years after 2017 (was, set tax rate schedule with a rate of 6.9% in the income year beginning after 1999). Effective for taxable years beginning on or after January 1, 2014.
Amends GS 105-122(d) to set the rate of the franchise or privilege tax required of every corporation taxed under this section at $1.35 per $1,000 (was, $1.50 per $1,000) of the total amount of capital stock, surplus, and undivided profits as provided in this section. Effective for taxable years beginning on or after January 1, 2015 and applies to taxes due in 2015, or a subsequent year.
Makes clarifying changes to proposed GS 105-130.5B.
Changes the title of Article 3E of GS Chapter 105 to Work Force Housing Construction Loan Program (was, Low Income Housing Tax Credits). Amends GS 105-129.42 to define the term development tier as the classification assigned to an area under GS 143B-437.08. Amends GS 105-129.42(b) to allow a credit to a taxpayer who is allocated a federal low-income housing tax credit under section 42 of the Code to construct or substantially rehabilitate a qualified North Carolina low-income housing development that is located in a development tier one or two area (previously did not require that the development be located in a development tier one or two area). Repeals GS 105-129.45, which sunsets the low income housing tax credits on January 1, 2015. Effective for taxable years beginning on or after January 1, 2014.
Amends GS 115C-546.1 to delete requirement that the Secretary of Revenue (Secretary) quarterly remit a specified fraction of the net collections received in the previous quarter by the Department of Revenue, under GS 105-130.3, to the State Treasurer for credit to the Public School Building Capital Fund. Makes a conforming change, repealing GS 115C-546.2(a), which allowed the State Board of Education to allocate annually $1 million of the monies credited to the Public School Building Capital Fund by the Secretary to the Department of Public Instruction. Effective April 1, 2014, and applies to distributions for collections or quarters beginning on or after that date.
Part IV. Expand Sales Tax Base to Include Services Commonly Taxed in Other States
Repeals GS 105-164.13(13c) (exempting nutritional supplements sold at a chiropractic office to patients from the sales and use tax) and GS 105-164.13D (sales and use tax holiday for Energy Star qualified products). Makes conforming changes to GS 105-467(b). Effective July 1, 2013, and applies to sales made on or after that date.
Repeals GS 105-37.1 (privilege tax on live entertainment and ticket resale), GS 105-38.1 (privilege tax on motion picture shows), and GS 105-40 (certain exhibitions, performances, and entertainments exempt from tax).
Amends GS 105-164.4(a), adding a new subdivision specifying that the general rate of tax applies to admission charges for the following activities: (1) a live performance or other live event of any kind; (2) a movie; or (3) a museum, a cultural site, a garden, an exhibit, a show, or a similar attraction or a guided tour at any of these attractions. Clarifies what constitutes an admissions charge and determining the tax on an admission ticket that is resold. Amends GS 105-164.13 by adding a new subdivision (60) to identify exhibitions, performance, entertainments, and other amusements that are exempt from the sales and use tax imposed under GS Chapter 105, Article 5. Moves most of the provisions that were codified in GS 105-40 to new subdivision (60) (excluding provision exempting entertainment or amusements offered or given on the Cherokee Indian reservation and meeting certain specified criteria). Effective October 1, 2013, and applies to admissions purchased on or after that date. Provides that for admissions to a live event, the tax applies to the initial sale or resale of tickets occurring on or after that date; gross receipts received on or after October 1, 2013, for admission to a live event, for which the initial sale of tickets occurred before that date, other than gross receipts received by a ticket reseller, are taxable under GS 105-37.1.
Repeals the following: (1) GS 105-116, franchise or privilege tax on electric power, water, and sewage companies; (2) GS 105-116.1, distribution of gross receipts taxes to cities; (3) GS 105-164.21A, deduction for municipalities that sell electric power; (4) GS 159B-27(b), (c), (d), and (e), regarding certain payments by municipalities in lieu of an annual franchise or privilege tax. Applies to taxes due in the 2014 tax year or a subsequent year. Also repeals GS 105-164.4(a)(1f) and (a)(4a), tax rates on the sale of electricity; GS 105-164.13(44), exempting piped natural gas from the Article sale and use tax; and Article 5E of GS Chapter 105, Piped Natural Gas Tax. Amends GS 105-164.4(a) to provide that the combined general rate applies to the gross receipts derived from sales of electricity and piped natural gas. Effective when the act becomes law, directs the Utilities Commission to diffuse the rate set for the following utilities: (1) electricity, to reflect the repeal of GS 105-116 and the resulting tax liability of electric power companies, and (2) piped natural gas, to reflect the repeal of Article 5E of GS Chapter 105, the repeal of the credit under GS 105-422(d1), and tax liability under GS 105-164.4. Enacts new GS 105-164.44K to require that cities receive 44% of the net proceeds of the tax collected on electricity. Provides that each city's share of the amount is its franchise tax share, as calculated under the statute's provisions, plus its ad valorem share, as calculated under the statute's provisions. Provides that the Department's determination as to a city's franchise tax share is final and not subject to administrative or judicial review. Enacts new GS 105-164.44L requiring that 20% of the net proceeds of the tax on piped natural gas be distributed to the cities. The city's share is its excise tax share, as calculated under the statute's provisions, plus its ad valorem share, as calculated under the statute's provisions. Provides that the Department's determination as to a city's franchise tax share is final and not subject to administrative or judicial review. Amends GS 160A-211 to provide that certain businesses identified as exempt from a city's license, franchise, or privilege tax (1) are subject to a state tax at the combined general rate for which the city receives a share of the tax revenue or (2) are subject to the local sales tax. Authorizes a city to continue to impose and collect the license, franchise, or privilege taxes on an electric power company that the city imposed and collected before January 1, 1947. Prohibits a city from imposing or collecting any greater franchise, privilege, or license taxes that are greater in the aggregate than the taxes imposed or collected on or before January 1, 1947. Effective July 1, 2014, unless otherwise indicated.
Amends GS 105-164.3 to add definitions for the following services on tangible personal property and amends GS 105-164.4(a) to provide that the general rate of tax applies to those services: (1) alteration, repair, maintenance, cleaning, and installation services and (2) service contracts. Repeals GS 105-164.13(49), which provides an exemption from the sales and use tax for certain installation charges. Amends GS 105-164.13 to provide exemptions from sales and use tax for (1) items or services used to maintain or repair tangible personal property under a service agreement if the purchaser is not charged for the item or service and (2) service on tangible personal property described in GS 105-164.4(a)(11) and provided for an item exempt from tax under the Article, a newly constructed building or structure, or a right of way or utility easement. Effective July 1, 2014, and applies to sales made on or after that date.
Makes additional organizational changes to the provisions of this act.
Part V. Effective Date
Provides that this act does not affect the rights of the state, a taxpayer, or another person arising under a statute before the effective date of the amendment or repeal as indicated in this act. Also provides that this act does not affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal.
Amends GS 105-237.1 to allow the Secretary of Revenue to compromise a taxpayer's liability for a tax when it is in the state's best interest and the taxpayer is a retailer or a person under Article 5 of GS Chapter 105, the assessment is for sales or use tax the retailer did not collect or the person did not pay on an item taxable under GS 105-164.4(a)(9) or (a)(11), and the retailer or person made a good faith effort to comply with the tax laws. Expires for assessments issued after July 1, 2020.
Except as otherwise provided, this act is effective when it becomes law.
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