AN ACT TO MAKE VARIOUS CHANGES TO THE REVENUE LAWS.
Senate committee substitute makes the following changes to the 1st edition.
Part 1 (Business Tax Changes).
Section 1.5(a). Amends GS 105-130.4(s2), regarding allocation and apportionment of income from pipeline companies. No longer applies that subsection to gas pipeline companies.Deletes references to "traffic units," replacing them with "barrel miles." Deletes definition oftraffic unit, and definesbarrel mile. Effective for taxable years beginning on or after January 1, 2017.
Section 1.5(b) substantively reverses Section 1.5(b) of this committee substitute's amendments to proposed GS 105-130.4(s2) to the state found in the 1st edition except: (1) refers to gas pipeline companies subject to rate regulation by the Federal Energy Regulatory Commission, and (2) no longer includes another appropriate measure of product movement in the definition of traffic unit. If Section 38.7(a) of S 257 (2017) (also amending this statute) is enacted, then this section is effective for taxable years beginning on or after January 1, 2018.
Section 1.6(b). Amends the definition ofproportionate share of interest.
Section 1.9(e) is renumbered Section 1.9(f). New Section 1.9(e) amends GS 105-153.4(d), regarding taxable income from S Corporations and Partnerships. Clarifies that the calculation in that subsection applies to partners in partnerships and members of other unincorporated businesses (was, members of partnerships or other unincorporated businesses).
Section 1.9(f). Amends GS 105-154. Makes technical changes.
Section 1.9(g). Section 1.9(a) and (c) are effective for taxable years beginning before January 1, 2014. Section 1.9(b) and (d) are effective for taxable years beginning on or after January 1, 2014. Section 1.9(e) is effective for taxable years beginning on or after January 1, 2015. The remainder of the bill is effective when it becomes law, and Section 1.9(f) applies to all taxable years.
Section 1.10(a). Amends GS 105-228.4A (Tax on captive insurance companies). Amends the aggregate amount of tax payable under this statute, as described, to delete the maximum amount for which a captive insurance company may be liable, including for any one cell or series of the insurance company.
Deletes Section 1.11(a) and (b), which amended GS 105-228.5(d)(3), regarding an additional rate on property coverage contracts.
Part 2 (Sales and Use Tax).
Section 2.1. Amends GS 105-164.3 (Definitions) as follows:
Redefinescapital improvementto refer to an addition or alteration to real property that is permanently affixed or installed to real property, including new construction, reconstruction, or remodeling, and nine other listed things. Excludes activities listed in the definition of repair, maintenance, and installation services.
Amends definition offree-standingapplianceto refer to an appliance commonly thought of as a household machine (was, household device) operated by gas or electric current. Amends list of examples to refer to installation of those appliances, and to include ranges, regardless of whether the range is slide-in or drop-in.
Amendsdefinition oflandscapingto refer to a service that modifies the living elements of an area of land. Amends list of examples to include application of pine straw, and to exclude services to trees, shrubs, flowers, and similar items in pots or in buildings.
Amends definition ofmixed transaction contractto refer to a contract that includes both a real property contract for a capital improvement and a repair, maintenance, and installation service that is not related to the capital improvement.
Amends the definition ofmotor vehicle service contract. Amends the definition ofmotor vehicle service agreement companywithin that definition to refer to a person other than a motor vehicle dealer that is an obligor of a service contract (was, that issues a service contract) for a motor vehicle, or its components, systems, or accessories, and who is not an insurer.
Amends the definition ofreal propertyto include manufactured or modular homes on land (was, placed on a permanent foundation).
Amends the definition ofrepair, maintenance, and installation servicesto exclude services defined as capital improvement to real property taxed under GS 105-164.4H. Includes floor refinishing and certain replacements that do not comprise capital improvement.
Amends definition ofservice contractto include contracts to provide services included in the definition ofrepair, maintenance, and installation service, to currently listed types of property and real property.
Amends the definition of real property contractor to specify that it includes a general contractor, a subcontractor, or a builder for purposes of Article 5, Sales and Use Tax (was, or purposes of GS 105-164.4H).
Definesnew construction, reconstruction,remodeling(definition does not include single repair, maintenance, and installation service, such as installation of carpet, or transactions where the true purpose is a repair, maintenance, or installation service, such as repair of sheetrock that includes applying paint), andrenovation(same asremodeling).
Section 2.2 amends GS 105-164.4(a). Amends the privilege tax imposed on retailers to include the sale of free-standing appliances as retail sales of tangible personal property (deletes language making this the case regardless of whether the property is installed or applied to real property).
Section 2.4(a) repeals GS 105-164.4H(b1) and (e) (regarding joint and several liability under real property contracts, and defining several terms which are redefined in Section 2.1).
Section 2.4(b) amends GS 105-164.4H, as amended by Section 2.4(a). Excludes provision of services from the applicability of this statute (retaining the provision of personal and digital property). Amends proposed subsection (a1), regarding substantiation. Provides that a person may substantiate that a transaction (was, contract) is a real property contract or a mixed transaction by records that establish the transaction is a real property contract or by receipt of an affidavit of capital improvement or mixed transaction (1st edition did not include mixed transactions). Clarifies that the provision that receipt of an affidavit of capital improvement directs the recipient to treat the transaction as a capital improvement applies absent fraud or other egregious activities (was, receipt of an affidavit accepted in good faith directed the recipient). Makes the affiant liable for additional tax on the transaction, in excess of tax paid on related purchases under subsection (a), if the transaction is determined not to be a capital imporvement but rather is subject to tax as a retail sale (was, liable for any tax on the transaction if determined that the transaction is not a capital improvement). Shields the recipient of the affidavit, absent fraud or other egregious activities, from liability for additional tax on the gross receipts from the transaction in that circumstance. Clarifies that the tax on mixed transaction contracts is calculated as follows: if the sales price of the taxable repair, maintenance, and installation services is 25% or less of the contract price, then that portion of the contract and the tangible personal property, digital property, and service used to perform those services are taxable as a real property contract. If greater than 25%, then sales and use tax applies to the sales price of or the gross receipts derived from that portion of the contract. Requires the person to determine an allocated price for the services (was, an allocated price for each service). Excludes purchase of services to fulfill the real property contract from this taxation. Makes conforming changes.
Section 2.4(c) amends GS 105-164.6(b). Provides that if property taxable under this statute becomes a part of real property in the State, the real property contractor, the retailer-contractor, the subcontractor, the lessee, and the owner are jointly and severally liable, except as provided in GS 105-164.4H(a) regarding receipt of an affidavit of capital improvement. The liability of a real property contractor, retailer-contractor, subcontractor, lessee, or owner who did not purchase the property is satisfied by receipt of an affidavit from the purchaser certifying that the tax was paid. (Current law does not include retailer-contractors or lessees, and does not provide for affidavits under GS 105-164.4H(a)).
Section 2.4(d) amends GS 105-164.15A(a)(2). Provides that tax changes for taxable items not billed on a monthly or periodic basis do not apply to amounts received for items purchased to fulfill a real property contract for a capital improvement entered into or awarded before the effective date or entered into or awarded pursuant to a bid made before the effective date. Deletes the provision regarding applicability to items provided under a lump sum or unit price contract.
Section 2.4(e) amends GS 105-468.1 (Certain building materials exempt from sales and use taxes). Exempts tangible personal property or digital property (was, building materials) purchased for the purpose of fulfilling a real property contract for a capital improvement (was, fulfilling any lump sum or unit price contract) entered into or awarded, or which bid was entered before, the effective date of the tax imposed by a taxing county under GS Chapter 105, Article 39 (Local Government Sales and Use Tax).
Section 2.5(b) amends GS 105-164.4I(c). Deletes the provision exempting contracts to provide landscaping, pest control, or moving services from the tax under that statute.
Section 2.6. Amends GS 105-164.13 (Retail sales and use tax). Amends subsection (61a), regarding the exemption for repair, maintenance, and installation services for items other than motor vehicles. Provides that property and services used to fulfill repair, maintenance, or installation services, or service contracts exempt from tax under this subdivision, are taxable, other than property and services used to fulfill a service or contract exempt under sub-subdivision a. (regarding items exempt from tax under GS Chapter 105, Article 5 (Sales and Use Tax). Amends the list of exempt service contracts to include, amongst several other things, window washing, mold remediation services, household and commercial trash collection and removal, and services required to prepare certain inspection reports. Deletes the language requiring a home inspection be performed by a licensed home inspector for the services to be exempt. Deletes the exemption for installation charges for a manufactured home or modular home. Amends subsection (62), exempting items or repairs, maintenance, and installation services purchased or used to fulfill a service contract (was, purchased or used to maintain, monitor, etc., tangible personal property or digital property pursuant to a service contract) taxable under GS Chapter 105, Article 5 (Sales and Use Tax), subject to the current conditions. Amends subsection (65), exempting sales price of or gross receipts derived from a service contract on, or repair, maintenance, and installation services for, currently listed engine parts that are purchased, leased, or rented (1st edition did not specify purchased, leased, or rented) and that are exempt from tax under this subdivision or that are allowed a sales tax refund under GS 105-164.14A(a)(5).
Section 2.7(a) amends GS 105-164.14 to also allow an interstate carrier a sales tax refund on the purchase of service contracts other than motor vehicle service contracts. Makes conforming changes.
Section 2.7(b). Changes the effective date of Section 2.7(a), amending GS 105-164.14(a), to March 1, 2016 (was, January 1, 2017).
Section 2.8(a). Provides that, if the Secretary of Revenue determines that a seller paid sales and use taxes on a product and the seller uses the product purchased for a taxable repair, maintenance, and installation (RMI) service to real property, the Secretary can allow the seller to offset the sales tax liability on the taxable RMI service with the sales and use tax paid on the products, so long as the retailer can support the amount of tax originally paid (previously, did not require the retailer be able to support the amount of tax originally paid). Adds that a retailer entitled to a credit for tax originally paid under the provision may reduce taxable receipts by the taxable amount of the credit for the period in which the credit occurs.
Section 2.8(b). Adds new section directing the Revenue Laws Study Committee to study the feasibility of providing a seller of taxable repair, maintenance, and installation services to real property the option of paying sales tax on the property used to fulfill the repair, maintenance, and installation service at the time the property is purchased and offsetting the sales tax liability on the taxable repair, maintenance, and installation service with the sales and use tax paid on the products. Adds that Section 2.8(a) provides sellers this option until July 1, 2018. Requires the Revenue Laws Study Committee to recommend to the 2018 Session of the 2017 General Assembly whether this option should be allowed on a permanent basis.
Section 2.8(c). Adds provision establishing that the remainder of Section 2.8 not previously specified is effective when it becomes law.
Section 2.9(a). Amends GS 105-164.13 (Retail sales and use tax). Clarifies that the exemption from sales tax for custom computer software applies to custom computer software and the portion of prewritten software that is modified or enhanced if the modification or enhancement is designed and developed to the specifications of a specific purchaser and the charges for the modification or enhancement are separately stated on the invoice or similar billing document given to the purchaser at the time of sale (currently, did not specify where the separate charges for modification or enhancement must be stated). Also, modifies the exemption in subdivision (57a), now exempting fuel, piped natural gas, and electricity sold to a person subject to tax on certain tangible personal property pursuant to GS 105-187.51B(a)(6) (currently, sold to a secondary metals recycler) for use in recycling at its facility at which the primary activity is recycling.
Section 2.9(b). Makes a clarifying change to GS 105-164.14(b), specifying that the aggregate annual refund amount allowed a nonprofit entity under this subsection for the Stateäó»s fiscal year (currently, for a fiscal year) cannot exceed $31.7 million.
Section 2.9(c). Makes technical changes to GS 105-467(b), concerning exemptions and refunds. Establishes that the State exemptions and exclusions contained in Article 5 of Subchapter I of the Chapter, except for the exemption for food in GS 105-164.13B (currently, the exemptions and exclusions contained in GS 105-164.13 and GS 105-164.27A) apply to the local sales and use tax authorized to be levied and imposed under the Article. Further establishes that the State refund provisions contained in GS 105-164.14 and GS 105-164.14A (currently, the refund provisions contained in GS 105-164.14 through GS 105-164.14B) apply to the local sales and use tax authorized to be levied and imposed under the Article. Makes clarifying change, specifying that the aggregate annual local refund amount allowed an entity under GS 105-164.14(b) for the Stateäó»s fiscal year (currently, for a fiscal year) cannot exceed $13.3 million. Provides that sales and use tax liability indirectly incurred by the entity as part of a real property contract for real property (currently, incurred by the entity on building materials, supplies, fixtures, and equipment that become part of or annexed to any building or structure) that is owned or leased by the entity and is a capital improvement (currently, and is being erected, altered, or repaired) for use by the entity is considered a sales or use tax liability incurred on direct purchases by the entity for purposes of subsection (b). Amends GS 105-467(c), providing that the sourcing principles in Article 5 of Subchapter I of the Chapter (currently, the sourcing principles in GS 105-164.4B) apply in determining whether the local sales tax applies to a transaction.
Section 2.9(d). Amends GS 105-468 (Scope of use tax). Provides that the use tax is a tax at the rate of 1% of the purchase price of an item or transaction (was, or article of tangible personal property) not sold in the taxing county but is for storage, use, or consumption in the taxing county and sourced in accordance with Article 5 of Subchapter I of the Chapter (currently, does not expressly include compliant sourcing). Makes conforming changes.
Section 2.9(e). Amends GS 105-471 (Retailer to collect sales tax). Adds a new provision establishing that a retailer is not required to collect a local use tax on a transaction if a local sales tax does not apply to the transaction in accordance with GS 105-164.8(c). Establishes that a tax to be collected under the Article must be collected as part of the sales price of an item or transaction subject to tax in accordance with GS 105-467 (currently, as a part of the sales price of the item of tangible personal property sold, the purchase price of the item of tangible personal property used, or as part of the charge for the rendering of any services, renting, or leasing of tangible personal property, or the furnishing of any accommodation taxable hereunder; conforms to the modified language of GS 105-468, above).
Section 2.9(f). Amends GS 105-474, providing that the definitions set forth in Article 5 of Subchapter I of the Chapter (currently, set forth in GS 105-164.3) apply to the Article as specified. Makes technical changes.
Section 2.9(g). Amends GS 105-187.31, providing that an excise tax is imposed on dry-cleaning solvent purchased for storage, use, or consumption by a dry-cleaning facility in the State (currently, more specifically imposes the tax on those purchases outside of the State).
Section 2.10. Adds new Section, providing that Sections 2.1 through 2.8 of Part II are effective retroactively to January 1, 2017, and apply to sales and purchases made on or after that date. Further provides that any amendments made in Sections 2.1 through 2.8 of Part II that increase sales or use tax liability become effective when the act becomes law.
Part 3 (Tax Collection and Enforcement).
Section 3.1(a). Deletes proposed changes to GS 105-236(a)(7) and (a)(9).
Deletes the description for the new offense of identity theft set out in new GS 105-236(a)(9b). Instead, provides that a person who knowingly obtains, possesses, or uses identifying information of another person, whether living or dead, with the intent to fraudulently utilize that information in a submission to the Department of Revenue to obtain anything of value, benefit, or advantage for themselves or another is guilty of a class G felony. Adds that if the person whose identifying information is obtained, possessed, or used by another in this manner suffers any adverse financial impact as a proximate results of the offense, then then the offender is guilty of a class F felony. Clarifies that each personäó»s identity obtained, possessed, or used in this manner counts as a separate offense. Defines identifying information to include legal name; date of birth; Social Security Number (previously was not included); Taxpayer Identification Number; Federal Identification Number; bank account numbers; and Federal or State tax or tax return information (previously was not included). Effective December 1, 2107.
Section 3.1(b). Deletes proposed changes to GS 105-235.
Part 4 (Administrative Changes).
Section 4.1(c). Deletes the previous provisions amending GS 105-241.12 (Results when taxpayer does not request a review). Instead, enacts GS 105-241.13A (Taxpayer inaction). Sets out that if a taxpayer makes no response to the Department of Revenueäó»s (Department) request for additional information under GS 105-241.13(a) by the requested date, the proposed denial of a refund or proposed assessment becomes final. Directs the Department to send the taxpayer a notice providing that the proposed denial or assessment becomes final 10 days from the date of the notice of inaction unless the taxpayer responds to the Department. Establishes that a proposed denial or proposed assessment that becomes final is not subject to further administrative or judicial review. Prohibits a taxpayer from filing another amended return or claim for refund to obtain the denied refund. Allows for the taxpayer to request a refund of tax upon payment of the tax. Adds that before the Department collects a proposed assessment that becomes final under this new statute, the Department is required to send the taxpayer a notice of collection containing the information required under GS 105-241.12.
Section 4.1(d). Makes technical and conforming changes to GS 105-241.13(a), providing that when a taxpayer makes no response to the Department of Revenueäó»s request for additional information by the requested response date, the refund or assessment is subject to the provisions of GS 105-241.13A as enacted. Amends subsection (b), adding that when the Department of Revenue and the taxpayer agree that an action taken under subsection (a) or (a1) of the statute resolves the taxpayeräó»s objection to the Departmentäó»s proposed denial of a refund or a proposed assessment, the Department is not required to take any further action on the request for review. Requires the Department of Revenue to schedule a conference with the taxpayer when an action under subsection (a) or (a1) does not resolve the taxpayeräó»s objection to the Departmentäó»s proposed denial of a refund or a proposed assessment.
Section 4.2(a). Amends the proposed changes to GS 105-241.22, permitting the Department of Revenue to collect tax when the Department sends a notice of collection after the taxpayer does not file a timely request for a Departmental review of a proposed assessment of tax or based upon the taxpayeräó»s inaction in accordance with GS 105-241.13A as enacted (previously, deleted portions of existing language).
Section 4.8. Makes Section 4.1(e), amending GS 105-241.16 (Judicial review of decision after contested case hearing), effective retroactively to January 1, 2012, and apply to contested cases commenced on or after that date. Makes conforming changes.
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