Part I. Personal Income Tax Changes

Amends GS 105-153.7(a) to reduce the personal income tax rate imposed for each taxable year from 5.499% to 5.35% of the taxpayer's North Carolina taxable income. Amends GS 105-153.5, increasing the standard deduction a taxpayer may deduct from adjusted gross income based on the taxpayer's filing status, providing (1) married, filing jointly/surviving spouse a standard deduction of $20,000 (currently, $17,500); (2) head of household a standard deduction of $15,000 (currently, $14,000); (3) single a standard deduction of $10,000 (currently, $8,750); and (4) married, filing separately a standard deduction of $10,000 (currently, $8,750). Deletes provisions concerning cap amounts for mortgage interest and real estate tax deduction, instead providing (1) married, filing jointly/surviving spouse a cap amount of $22,000 (currently, $20,000); (2) head of household a cap amount of $16,500; (3) single a cap amount of $11,000; and (4) married, filing separately a cap amount of $11,000.

Repeals GS 105-153.10 (Tax credit for children effective for taxable years beginning on or after January 1, 2014), providing for credit amounts up to $125. Instead adds new subsection (a1) to GS 105-153.7, providing for an expanded child deduction amount for a taxpayer who is allowed a federal child tax credit for the taxable year for each dependent child for whom the taxpayer is allowed the federal tax credit. Details the specific child deduction amounts based on the taxpayer's filing status and adjusted gross income, with deduction amounts ranging from $0 up to $2,500.

Effective January 1, 2018.

Part II. Business Tax Changes

Amends GS 105-130.3 to reduce the income tax rate for C Corporations in the state from 3% to 2.75% for taxable years beginning on or after January 1, 2018, and to 2.5% for taxable years beginning on or after January 1, 2019.

Amends GS 105-122 to clarify that the annual franchise or privilege tax imposed on a corporation doing business in the state is for the privilege of doing business in the state and for the continuance of articles of incorporation or domestication of each corporation in this state. Makes organizational change to separate existing provisions concerning the corporate tax base and tax rate, both currently in subsection (d). Places provisions concerning the corporate tax base in subsection (d). Provides that a corporation's tax base is the greater of (1) the proportion of its net worth, (2) 55% of its appraised value as determined for ad valorem taxation of all the real estate and tangible personal property in the state, or (3) its total actual investment in tangible property in the state. Makes further organizational and technical changes to subsection (d). Adds new subsection (d2) providing for the corporate tax rate. Sets the tax rate for a C corporation at $1.50 per $1,000 of the corporation's tax base as determined under subsection (d) (currently, the corporate tax rate provisions do not differentiate between C Corporations and S Corporations). Sets the tax rate for an S Corporation at $200 for the first $1 million of the corporation's tax base as determined by subsection (d), and $1.50 per $1,000 of its tax base that exceeds $1 million. Prohibits the tax imposed to be less than $200. Effective for taxable years beginning on or after January 1, 2019, and is applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax returns.

Part III. Market-Based Sourcing

Establishes that market-based sourcing will be used for multistate income tax apportionment. Amends GS 105-130.4, Allocation and apportionment of income for corporations, by eliminating subsubsections (l)(2) and (l)(3), leaving only the sales factor (was, (l)(1)) under subsection (l). Establishes that recipients are in this state if the taxpayer’s market for the receipts is in this state, and if the market for a receipt cannot be determined, the state or states of assignment are to be reasonably approximated. Provides that when a taxpayer cannot ascertain the state to which the receipts are to be assigned using reasonable approximation, then the receipts must be excluded from the denominator of the sales factor. Provides six criteria, GS 105-130.4(l)(1) through (6), to determine if a taxpayer’s market for receipts is in this state. Adds and defines the term banks. 

Enacts new GS 105-130.4A, Market based sourcing for banks. Establishes GS 105-130.4A(a), which provides definitions that apply to the new statute. Creates a general rule that states the receipts factor of a bank is a fraction, with the numerator being the total receipts of the taxpayer in this state during the income year and the denominator being the total receipts of the taxpayer everywhere during the income year, and lists five receipts that are excluded from both the numerator and denominator of the receipts factor. Sets out provisions for calculations concerning: (1) receipts from the sale, lease, or rental of real property; (2) receipts from the sale, lease, or rental of tangible personal property; (3) interest, fees, and penalties from loans secured by real property; (4) interest, fees, and penalties from loans not secured by real property; (5) net gains from the sale of loans; (6) receipts from interest, fees, and penalties from card holders; (7) receipts from ATM fees; (8) net gains from the sale of credit card receivables; and (9) miscellaneous receipts.

The above provisions are effective for taxable years beginning on or after January 1, 2018.

Directs the Codifer of Rules to enter into the Administrative Code the rules adopted by the Department of Revenue as directed by Section 38.4 of SL 2016-94 regarding the implementation and administration of market-based sourcing principles as set out in the act, which were approved by the Rules Review Commission at its meeting on February 16, 2017.

Requires the Utilities Commission (Commission) to adjust the rates for public utilities, excluding water public utilities with less than $200,000 in annual operating revenues, for the tax changes in Part I (intends Section 3.1) of this act, as directed by Section 38.4(d) of SL 2016-94. Requires each utility to calculate the cumulative net effect of the tax changes and file the calculations with proposed rate changes to reflect the net prospective tax changes in utility customer rates within 60 days of the enactment of this act. Requires any adjustments that are required to existing tax assets or liabilities to be reflected in the utility's books and records by the tax changes are to be deferred and reflected in customer rates in either the utility's next rate case or earlier if deemed appropriate by the Commission.