Senate committee substitute makes the following changes to the 1st edition. Amends provisions from the 1st edition and adds sections, as follows.

Part I.

Repeals GS 105-121.1 (setting the annual franchise or privilege tax on domestic mutual burial associations) effective for taxes due on or after April 1, 2016.

Amends GS 105-129.26 to provide that a recycling facility meeting all of the specified conditions is eligible for the tax benefits in GS Chapter 105, Article 5F, concerning certain machinery and equipment (was, Article 5 concerning sales and use tax).

Deletes proposed GS 105-130.4(s2), concerning the apportionable income of a business in couriers and express delivery services industry group 4921. Amends GS 105-103.4(s) to clarify that all apportionable income of an air transportation corporation is to be apportioned by the specified fraction. Adds that a qualified air freight forwarder must use the revenue ton mile fraction of its affiliated airline. Adds definitions for the terms air transportation corporation and qualified air freight forwarder. Effective for taxable years beginning on or after January 1, 2015.

Repeals the following deductions from federal taxable income when determining state net income under GS 105-130.5(b): (1) amortization in excess of depreciation allowed under the Code on the cost of any sewage or waste treatment plant, and facilities or equipment used for purposes of recycling or resource recovery of or from solid waste, or for purposes of reducing the volume of hazardous waste generated; (2) depreciation of emergency facilities acquired prior to January 1, 1955; (3) reasonable expenses, in excess of deductions allowed under the Code, paid for reforestation and cultivation of commercially grown trees; (4) eligible income of an international banking facility to the extent included in determining federal taxable income; (5) amount paid during the income year as marketing assessments on tobacco grown by the corporation in North Carolina; (6) interest, investment earnings, and gains of a trust, the settlors of which are two or more manufacturers that signed a settlement agreement with this State to settle existing and potential claims of the State against the manufacturers for damages attributable to a product of the manufacturers, for trusts meeting the specified conditions; (7) the amount paid to the taxpayer during the taxable year from the Hurricane Floyd Reserve Fund in the Office of State Budget and Management for hurricane relief or assistance; and (8) the amount paid to the taxpayer during the taxable year from the Disaster Relief Reserve Fund in the Office of State Budget and Management for hurricane relief or assistance. Repeals the following other adjustments to federal taxable income when determining state net income: (1) the addition to federal taxable income of the amount of any recovery during the taxable year not included in federal taxable income, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by this Part but, due to differences between the Code and this Part, did not reduce the amount of the taxpayer's tax imposed by the Code and (2) the savings and loan association deduction of interest earned on deposits at the Federal Home Loan Bank of Atlanta. Effective for taxable years beginning on or after January 1, 2016.

Amends GS 105-130.5(b)(11) to amend the deduction from federal taxable income in determining state net income; that is, for an ordinary and necessary business expense required to be reduced or not allowed because the corporation claimed a federal tax credit against its federal tax liability instead of a deduction, by removing the provision allowing the deduction only to the extent that a similar credit is not allowed by GS Chapter 105 for the amount. Effective for taxable years beginning on or after January 1, 2016.

Repeals from the provisions in GS 105-122(b) for the determination of capital base by corporations subject to the franchise or privilege tax the following allowable reservations or allocation from surplus or undivided profits: (1) reserves for the cost of any air-cleaning device or sewage or waste treatment plant and pollution abatement equipment purchased or constructed and installed which reduces the amount of air or water pollution resulting from the emission of air contaminants or the discharge of sewage and industrial wastes or other polluting materials or substances into the outdoor atmosphere or streams, lakes, or rivers upon condition that the corporation give the Secretary a certificate certifying specified conditions have been met; (2) reserves for the cost of purchasing and installing equipment or constructing facilities for the purpose of recycling or resource recovering of or from solid waste or for the purpose of reducing the volume of hazardous waste generated is to be treated as deductible for the purposes of this section upon certification that specified conditions have been met; (3) reserves for the cost of constructing facilities of any private or public utility built for the purpose of providing sewer service to residential and outlying areas shall be treated as deductible for the purposes of this section with respect to abatement plants or equipment constructed or installed on or after January 1, 1955; (4) in the case of an international banking facility, the capital base must be reduced by the excess of the amount as of the end of the taxable year of all assets of an international banking facility employed outside the United States over liabilities of the international banking facility owed to foreign persons. Effective for taxable years beginning on or after January 1, 2017.

Amends GS 105-122(d) to provide that the term total actual investment in tangible property means the total original purchase price or consideration to the reporting taxpayer of its tangible property in this state plus additions and improvements less reserve for depreciation as permitted for income tax purposes (was, also less any indebtedness incurred and existing by virtue of the purchase of any real estate and any permanent improvements made). Deletes the provision concerning computing the “total actual investment in tangible personal property.” Effective for taxable years beginning on or after January 1, 2017.

Part II.

Amends GS 105-153.5(a) to add to the items that can be included when calculating the itemized deduction from personal income tax to allow itemizing the amount claimed under section 67(b)(9) of the Code related to when a taxpayer restores a substantial amount held under claim of right, less the limitation produced under 67(a) of the Code minus all other items deductible under section 67(b) of the Code, not to exceed the limitation in section 67(a). Makes a conforming deletion of proposed GS 105-153.5(b)(11), but retains proposed (b)(10). Effective January 1, 2014.

Retains proposed changes to GS 105-153.5(c) and to GS 105-163.1.

Repeals GS 105-269.7 (Contribution of income tax refund or payment to the North Carolina Education Endowment Fund). Effective for taxable years beginning on or after January 1, 2015.

Part III.

Makes Section 2.1 of SL 2014-66, which amended GS 62A-54(c) to add that collection of tax debts apply to the collection of the 911 service charge for prepaid wireless telecommunications service, effective July 1, 2013, instead of July 1, 2014.

Effective when the act becomes law, amends the definitions for use in GS Chapter 105, Article 5, Sales and Use Tax, as found in GS 105-164.3 as follows. Deletes the following terms: clothing, clothing accessories or equipment, Energy Star qualified product, school instructional material, school supply, and sport or recreational equipment. Adds and defines the term operator. Amends the conditions to be met to be considered prepared food to add that a plate does not include a container or packaging used to transport the food when meeting the condition of food being sold with eating utensils provided by the retailer, such as plates and other specified utensils. Amends the term Streamlined Agreement to now mean the Streamlined Sales and Use Tax Agreement as amended as of May 13, 2015 (was, as of October 30, 2013). Effective January 1, 2016, further amends those definitions as follows. Amends the term state agency to also exclude from that term an occupational licensing board as defined in GS 93B-1, and any state governmental entity listed in GS 105-164.14(c) (allowing specified governmental entities an annual refund of sales and use taxes paid by it on direct purchases of tangible personal property and services) or GS 105-521.2 (concerning compliance information requests created in Section 5.3 of this act). Amends the term storage to define it as keep or retaining in North Carolina tangible personal property or digital property, except for the sale in the regular course of business, for any period of time purchased from a person in business; retains the deletion made in the previous edition of specified circumstances under which the term did not include a purchaser’s storage of tangible personal property or digital property.

Amends GS 105-164.4B to make a technical correction, providing that the rental of an accommodation, as defined in GS 105-164.4F (was, GS 105-164.4(a)(3)) is sourced to the accommodation location.

Amends GS 105-164.4G, concerning the tax on gross receipts derived from an admission charge to an entertainment activity, to provide that a retailer is also a person that receives gross receipts derived from an admission charge sold at retail.

Amends GS 105-164.4H to refer to tangible personal property applied to real property, instead of affixed to real property.

Amends GS 105-164.4I to require retailers who receive sales tax due from a facilitator to report for the prior reporting period all tax received from the facilitator on or after the first day of the month but before the tenth day of the month.

Amends GS 105-164.13 to exempt specified car parts leased or rented by a professional motorsports racing team or a related member of a team for use in competition in a sanctioned race series from sales and use tax. Expires January 1, 2020. Amends GS 105-164.4I to provide that the sales and use tax on service contracts does not apply to an item purchased by a related member of a professional motorsports racing team for which the team may receive a sales tax refund. Effective January 1, 2014, and applies to services contracts purchased on or after that date. Amends GS 105-164.14A, concerning sales and use tax refunds, to provide that professional motorsports racing teams or a related member of a team is allowed a refund equal to the applicable percentage of the tax paid (was, refund of 50% of the tax paid) by it in this state on tangible personal property, other than tires or accessories, that comprises any part of a professional motorsports vehicle. Sets out the applicable percentages which start at 50% and reduce to 12.5%, depending on the year in which the item is purchased. Repeals this provision for purchases made on or after January 1, 2020 (was, January 1, 2016).

Amends GS 105-164.4D, GS 105-468, and GS 105-471, replacing the term "retailer’s cost price" with "retailer’s purchase price."

Amends GS 105-164.12B (tangible personal property sold below cost with conditional service contract) to replace the term "conditional service contract" with "conditional contract." Makes sales tax due at the time of the transfer of tangible personal property as part of the conditional contract, on the percentage of the presumed sales price that is equal to the percentage of the service in the contract that is not taxable at the combined general rate, if any part of the service in the contract is not taxable at the combined general rate. Amends GS 105-467 to add that the sales tax is limited to a tax of 1% of the presumed sales price of an item of tangible personal property under GS 105-164.12B.

Repeals GS 105-164.13(34), which exempted from retail sales and use tax the sales of items by a nonprofit civic, charitable, educational, scientific, or literary organization when the net proceeds of the sales will be given or contributed to the State or to one or more of its agencies or instrumentalities, or to one or more nonprofit charitable organizations, one of whose purposes is to serve as a conduit through which such net proceeds will flow to the state or to one or more of its agencies or instrumentalities. Further amends GS 105-164.13 to create an exemption for food, prepared food, soft drinks, candy, and other items of tangible personal property sold not for profit for or at an event sponsored by an elementary or secondary school when the proceeds of the sales will be given to the school or nonprofit, one of whose purposes is to serve as a conduit through which the net proceeds will flow to the school. Applies to sales made on or after January 1, 2016.

Amends GS 105-164.13 by adding that the charges for installation, delivery, and interior design services must be separately stated and identified as such on billing given to the purchaser in order to be exempt from the sales and use tax.

Amends GS 105-164.13 to add an exemption from the sales and use tax for piped natural gas sold to a manufacturer for use in the operation of the manufacturing facility; excludes from the exemption fuel or piped natural gas that is not used directly in a manufacturing process. Corrects a statutory reference. Effective January 1, 2016.

Amends GS 105-164.13E to provide that the sales tax exemption for items purchased by a contractor applies to items purchased for the holder of a conditional farmer exemption certificate as well as the holder of a qualifying farmer exemption certificate (was, to an agricultural exemption certificate holder). Amends Section 2.13 of SL 2015-6 to correct a statutory reference.

Provides that an interstate passenger air carrier is allowed a refund of the sales and use tax paid by it on fuel in excess of $1.25 million for the period beginning July 1, 2015, and ending December 31, 2015.

Amends GS 105-164.14 to add that the refund of sales and use taxes allowed on direct purchases of tangible personal property and services for use in carrying on the work of the nonprofit does not apply to purchases of prepared food or accommodation rentals for an employee or other authorized person unless the purchase is made directly by the nonprofit. Effective when the act becomes law. Effective July 1, 2016, further amends the statute to remove the provision stating that the sales and use tax liability indirectly incurred by a nonprofit through reimbursement to an authorized person of the entity for the purchase of tangible personal property and services for use in carrying on the work of the nonprofit is considered a direct purchase by the entity.

Repeals GS 105-164.14A(a)(3), which gave a taxpayer engaged primarily in one of the businesses listed in GS 105-129.83(a) in a development tier one area and that placed machinery and equipment in service in that area, a refund of the sales and use tax paid by it on the machinery and equipment. 

Amends GS 150-164.22 to no longer limit the time period under which retailers, wholesale merchants, and consumers must keep records that establish tax liability to a period of three years.

Amends GS 105-164.30 to make clarifying changes.

Amends GS 105-164.42L to provide that a person who relies on the information provided in specified databases or the taxability matrix is not liable for tax underpayments attributable to errors in the database or matrix until 10 business days after the date of notification by the Secretary of Revenue. Amends GS 105-466 to provide that a local sales and use tax increase may only be effective on the first day of a calendar quarter after a minimum of 60 days’ notice to the sellers by the Secretary (was, in no event may the tax be imposed, or the tax rate changed, earlier than the first day of the second succeeding calendar month after the date of the adoption of the resolution).

Amends GS 105-164.42I to allow a certified service provider to file evidence of a certificate of deposit, in lieu of a bond or an irrevocable letter of credit. Makes conforming changes.

Amends GS 105-187.1, definitions for Article 5A, NC Highway Use Tax, to add that the term recreational vehicle includes a park model RV and adds and defines the term park model RV. Makes technical changes. Amends GS 105-164.13 to make a park model RV exempt from sales and use tax.

Amends GS 105-187.6 to provide that a maximum $150 tax applies when a certificate of title is issued for a motor vehicle that has been titled in the name of the owner of the vehicle in another state for a least 90 days before the date of the application for a certificate of title in this state (was, vehicle is and has been titled in another state for at least 90 days).

Amends GS 105-187.21 to provide that an excise tax is imposed on new white goods purchased (was, purchased outside of the state) for storage, use, or consumption in this state.

Amends GS 105-538 to require the Secretary to allocate monthly the net proceeds of the 1/4¢ county sales and use tax to each taxing county. Specifies the procedure when the Secretary collects taxes in a month and the taxes cannot be identified as being attributable to a particular taxing county.

Part IV.

Creates a formula for bonds that the Secretary of Revenue may require to protect the state from loss by cigarette distributors and cigarette wholesale and retail dealers who fail to pay taxes due. The bond must equal two times the distributor's or dealer's average expected monthly tax liability, but be not less than $2,000 and not more than $2 million. Current law allows the secretary to set the bond based on the anticipated tax liability of the distributor or dealer. 

Makes technical changes to the exemption of cigarette and vapor products from certain excise taxes in GS 105-113.35.

Changes the formula for bonds required of wine and malt beverage wholesalers and importers. The bond must equal two times the wholesaler's or importer's expected monthly tax liability (was, proportionate to their anticipated tax liability) and be not less than $2,000 (was, $5,000) and not more than $2 million (was $50,000).

Requires wine shipper permittees to submit verified reports of sales records to the Secretary of Revenue only once a year and on or before the fifteenth day of the first month of the following calendar year. Current law requires wine shipper permittees, like wholesalers and importers, to submit verified reports on a monthly basis.  

Repeals GS 105-187.82 of Article 5I of GS Chapter 105, the tax on severance of energy minerals, which became effective July 1, 2015, that shifts the primary liability for the tax from producers to first purchasers who fail to secure the producer's taxpayer number. Makes one conforming change. 

Requires producers of energy minerals to file a bond or irrevocable letter of credit prior to obtaining a drilling permit under GS 113-395 (the law effective July 1, 2015, requires a bond or irrevocable letter of credit only if the producer fails to file a return) and requires that it be not less than $2,000 and not more than $2 million (current law requires only that it be two times the applicant's average expected monthly tax liability). Further requires that the Secretary of Revenue periodically review the sufficiency of bonds and increase or decrease them as necessary to protect the state from loss. 

Adds two exceptions to GS 105-259(b) to allow an officer, employee, or agent of the state to disclose tax information by (1) providing a list of tobacco licensees to aid in the administration of the tobacco products tax and (2) exchanging information regarding the tax imposed on motor carriers with other jurisdictions that administer the International Fuel Tax Agreement. Makes one conforming change. 

Makes permitting services (was, motor carriers) the recipient of temporary permits under GS 105-449.49 authorizing a motor carrier to operating in the state for three days without registering the vehicle and allows the permitting service to sell the temporary permit to a motor carrier. Makes certain technical changes. 

Makes clarifying changes.

Part V. 

Makes certain changes to the requirement in GS 105-163.7 that employers deducting and withholding from an employee's wages under GS 105-163.2 furnish a report to the employee on an annual basis and makes certain changes to GS Chapter 105, Article 4A, concerning withholding, to bring various types of payments under this reporting requirement, effective for taxable years beginning on or after January 1, 2015. The changes to the reporting requirement include provision of the employee's address along with certain other identifying information already required. Also removes the discretion of the Secretary of Revenue (Secretary) to require additional information on this report or require its provision at a different time than authorized in the subsection. Brings under this reporting requirement (1) pension payers, under GS 105-163.2A; (2) the North Carolina State Lottery Commission, under GS 105-163.2B; and (3) payers of a contractor's compensation, under GS 105-163.3, by substituting this requirement for other reporting requirements and making certain conforming changes.  Changes the date by which employers must submit an annual report to the Secretary under GS 105-163.7 to January 31 of the succeeding year (was, the same date the employer's federal income tax return is due) and requires that the report be submitted in electronic format, though the Secretary is allowed to waive the electronic submission requirement. Provides for penalties for failure to file this report, effective for taxable years beginning on or after January 1, 2016. 

Amends GS 105-237 to provide the Secretary with discretion to reduce or waive any interest on taxes imposed prior to or during a period for which a taxpayer has declared bankruptcy. 

Adds a new GS 105-251.2 to Article 9 of Subchapter I of GS Chapter 105 requiring franchisors, certain licensing boards, and alcohol vendors to give to the Secretary certain information that the Secretary deems necessary to determine the compliance of franchisees, licensees, and permittees with the tax law. The Secretary may not request such information more than once per calendar year. This section becomes effective July 1, 2016. 

Part VI.

Amends the changes made in the previous edition to GS 105-242.2(e) to provide that the period of limitations for assessing a responsible person for unpaid taxes under this section expires one year after the period of limitations for assessing the business entity expires or one year after a tax becomes collectible under GS 105-241.22(3), (4), (5), or (6), whichever comes later. Effective when the act becomes law and applies to a tax that becomes collectible from the business entity under GS 105-241.22(3), (4), (5), or (6) on or after that date.

Repeals GS 105-521,  Transitional local government hold harmless for repealed reimbursements.

Repeals GS 131E-28, concerning hospital authority tax exemptions. Amends GS 105-130.5 to allow a deduction from federal income tax in determining state net income for the interest upon the obligations of a hospital authority. Amends GS 105-153.5 to allow a deduction in calculating state taxable income interest on the obligations of a hospital authority. Amends GS 105-449.88 to exempt motor fuel sold to a hospital authority from the motor fuel tax.

Repeals GS 153A-134(b), which stated that the statute, regulating and licensing businesses, trades, etc., does not impair the county's power to levy privilege license taxes on occupations, businesses, trades, professions, and other activities pursuant to GS 153A-152.

Part VII.

Unless otherwise indicated, effective when the act becomes law.