Bill Summaries: S628 VARIOUS CHANGES TO THE REVENUE LAWS.

Tracking:
  • Summary date: Aug 22 2017 - More information

    AN ACT TO MAKE VARIOUS CHANGES TO THE REVENUE LAWS. Enacted August 11, 2017. Effective August 11, 2017, except as otherwise provided.


  • Summary date: Aug 3 2017 - More information

    Conference report makes the following changes to the 5th edition.

    Deletes Section 1.10(a), which would have amended GS 105-228.4A, related to taxes imposed on captive insurance companies. 

    Deletes language in Section 11 requiring a study related to gross premiums on insurance contracts for property coverage. Replaces it with three new subsections. Subsection (a) amends GS 105-228.5(d)(3) to provide that the additional tax imposed on property coverage contracts is a special purpose assessment based on gross premiums and not a gross premiums tax. Subsection (b) provides that if a taxpayer elected to take a business energy and tax credit against the gross premiums tax for a taxable year beginning before January 1, 2017, that taxpayer may take an installment or carryforward of the credit in certain circumstances. The taxpayer may also, for a limited period of time, apply to the Department of Revenue for a refund of excess tax paid related to this clarification of law. Subsection (c) explains the legislative intent behind the changes in Section 11, which includes clarification of the law and avoiding potential litigation. 

    Revises Section 2.8A, which adds a new GS 105-244.4, related to reduction of certain sales tax assessments. Amends new GS 105-244.4(a)(5) to extend the period of time a taxpayer has to submit to the Secretary of Revenue either a request for a reduction in the amount of a tax assessed or a statement disagreeing with the assessment. The time period is extended from 45 to 120 days. 

    Adds Section 4.1(e), which amends GS 105-241.16, to provide that any aggrieved party (was, taxpayer) may seek judicial review of a decision in a contested case hearing. 

    Revises Section 4.8, which previously included several changes to GS 143B-1325(d) related to consolidation of information technology under the Department of Information Technology. Most of those changes were included in SL 2017-57, Section 37.4(b).  This conference report retains amendments to GS 143B-1325(d), as amended by SL 2017-57, which require reports on transition planning to be made to the Department of Revenue, as well as other state agencies. The changes also provide that the information technology transfers and consolidation from Revenue to Information Technology may not take place until the system complies with federal security standards related to federal taxpayer information.

    Revises Section 4.9 to change the effective dates applicable to Part 4.  Provides that Section 4.1(e), which governs judicial review of contested cases, is effective retroactively to January 1, 2012. Provides that the remainder of the part is effective when it becomes law.

    Revises Section 5.4(b) to change the effective date for Part 5 from July 1, 2017, to July 1, 2018. Part 5 includes several changes related to property tax.

    Revises Section 6.1(a), which amends GS 159-32, related to daily deposits by local governments. Increases the amount a local governing board may authorize the local government to retain before depositing from $250 to $500.  

    Enacts new GS 105-269.8 to allow an individual entitled to a refund of income taxes under Part 2 of Article 4 of GS Chapter 105 to elect to contribute all or part of the refund to be used for early detection of breast and cervical cancer at the Cancer Prevention and Control Branch of the Division of Public Health of the Department of Health and Human Services. Directs the Secretary of Revenue to provide appropriate language and space on the individual income tax form with an explanation that the contribution is irrevocable and will be used for early detection of breast and cervical cancer only. Directs the Secretary of Revenue to transmit contributions made pursuant to this statute to the State Treasurer, and directs the State Treasurer to distribute the contributions to the Cancer Prevention and Control Branch to be used in accordance with North Carolina's Breast and Cervical Cancer Control Program's policies and procedures. Expires for taxable years beginning on or after January 1, 2021. Clarifies that funds generated by this act are not intended to replace current appropriations for early detection of breast and cervical cancer. Effective for taxable years beginning on or after January 1, 2017.

    Amends GS 105-449.81, as amended, to impose an excise tax at the motor fuel rate on motor fuel that is fuel grade ethanol or biodiesel fuel if it is imported to the State by a transport truck, a railroad tank car, a tank wagon, or a marine vessel where ethanol or biodiesel from the vessel is not delivered to a terminal that has been assigned a terminal control number by the IRS (previously had no requirement related to the terminal). Directs the Department of Revenue to notify taxpayers impacted by this change within 15 days of the legislation being enacted into law that motor fuel tax is not due at the time of importation when that fuel is delivered to a terminal that has been assigned a terminal control number by the IRS.


  • Summary date: Jun 28 2017 - More information

    House amendment #1 makes the following changes to the 4th edition.

    Part I. Business Tax Changes

    Moves part of the proposed changes to GS 105-122(d)(3) in current Section 1.3(a) to Section 1.3(b), concerning the calculation of a corporation's total actual investment in tangible property. Maintains the proposed changes providing that the calculation of the corporation's total actual investment in tangible property in this State includes the total original purchase price or consideration to the reporting taxpayer of its tangible properties and additions and improvements thereto, less reserve for depreciation as permitted for income tax purposes, and any indebtedness specifically incurred and existing solely for and as the result of the purchase of any real estate and any permanent improvements made on the real estate from. Provides that these changes, now set out in Section 1.3(b), are effective for taxable years beginning on or after January 1, 2020, and are applicable to the calculation of franchise tax reported on the 2019 and later corporate income tax returns. Further provides that the remaining proposed changes to GS 105-122(a) and (d), and proposed subsection (d2), set forth in Section 1.3(a), are effective when the act becomes law (previously, all changes to GS 105-122 were effective for taxable years beginning on or after January 1, 2020, and applicable to the calculation of franchise tax reported on the 2019 and later income tax returns). Makes conforming changes.

    Adds new Section 1.3(c), amending Section 38.6(a) of SB 257 of the 2017 Regular Session, which amends GS 105-122, if SB 257 becomes law. Deletes the proposed changes to GS 105-122. Instead amends GS 105-122(d2), as enacted by this act, providing that the enacted tax rate of $1.50 per $1,000 of the corporation's tax base applies to C corporations, as defined in GS 105-130.2. Adds that for an S corporation, as defined in GS 105-130.2, the tax rate is $200 for the first $1 million of the corporation's tax base and $1.50 per $1,000 of its tax base that exceeds $1 million. Makes technical changes to clarify that in no event is the tax imposed to exceed $200. As currently provided in Section 38.6(b) of SB 257, these changes are effective for taxable years beginning on or after January 1, 2019, and are applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax returns. 

    Adds to the proposed changes to GS 105-228.4A(f), set out in Section 1.10(a), concerning total tax liability for a captive insurance company. Adds that the maximum tax liability attributed to any one cell or series of the insurance company is limited to $100,000, while a $500,000 maximum tax liability applies to any one cell or series that acts as a direct-writing, risk-pooling mechanism for other cells, series, or captive insurers. 

    Amends Section 1.14, directing the Department of Revenue (Department) to study the feasibility and cost of allowing the pass-through of a federal extension of time for filing a federal income tax return (previously, for filing a federal corporate income or individual income tax return) to serve as an application for a State extension of time for filing a corporate franchise and other income tax returns (previously, for filing a corporate franchise and income tax return or an individual income tax return). Directs the Department to report its findings, along with any legislative recommendations, to the Revenue Laws Study Committee on or before January 1, 2018 (previously, on or before March 1, 2018), specifically regarding options to eliminate the mandatory State extension time filing for corporate franchise and other income tax returns beginning January 1, 2019, for the tax year 2018 (previously, did not specify content of the report).

    Part II. Sales and Use Tax

    Adds to proposed GS 105-164.4G(f)(6), set out in Section 2.10(a), exempting from sales and use tax an event sponsored by a farmer that takes place on farmland and is related to farming activities (previously, did not require the event to be related to farming activities). Adds that examples of the events under the new exemption include a corn maze or a tutorial on raising crops or animals. 

    Part IV. Administrative Changes

    Further amends GS 105-259(b) set out in Section 4.7, to refer to GS 143B-1385 instead of GS 143B-1381 in subdivision (45), concerning disclosure of tax information to the State Chief Information Officer.

    Makes technical change to the introductory language in Section 4.8.


  • Summary date: Jun 22 2017 - More information

    House committee substitute makes the following changes to the 3rd edition.

    Part I. Business Tax Changes

    Section 1.3

    Changes the application provision for Section 1.3, which amends  GS 105-122, now providing that the provisions are effective for taxable years beginning on or after January 1, 2020 (previously, January 1, 2018), and are applicable to the calculation of franchise tax reported on the 2019 (previously, 2017) and later corporate income tax returns. 

    Section 1.5

    Deletes the previous provisions of Sections 1.5(b), amending GS 105-130.4(s2) as enacted by the act. Makes conforming changes to the effective date provisions, and makes conforming organizational changes. 

    Section 1.9

    Deletes the proposed changes to GS 105-153.4(d) that were to be effective January 1, 2015, regarding taxable income of S Corporations and Partnerships. Makes conforming changes to the effective date provisions.

    Adds language specifying that the General Assembly finds that the amendments made in Section 1.9 clarify the intent of existing law and do not represent a change in the law.

    Section 1.10

    Makes technical and clarifying changes to the proposed changes to GS 105-228.4A (Tax on captive insurance companies).

    Section 1.11

    Deletes Section 1.11(a) and (b), proposing changes in GS 105-228.5(d)(3) to clarify a tax imposed on property coverage contracts is in additional to and separate from a gross premium tax.

    Directs the Revenue Laws Study Committee (Committee) to study the additional rate of 0.74% applicable to gross premiums on insurance contracts for property coverage and determine whether the additional rate is part of the gross premiums tax imposition. Directs the Committee to review the history of the additional rate, the use of the proceeds from the additional rate, and the applicability of the additional rate to the determination of the retaliatory premium tax imposed under GS 105-228.8. Requires the Committee to report its findings and recommendations to the 2018 Session of the General Assembly.

    Section 1.12

    Adds new Section 1.12. Makes a clarifying change in GS 105-160.2 (Imposition of tax), specifying that the tax on the amount computed pursuant to the statute is at the rate (currently, rates) levied in GS 105-153.7.

    Section 1.13

    Adds new Section 1.13. Amends GS 55-16-22, concerning annual reports of all domestic corporations and foreign corporations authorized to transact business in the State. Adds clarifying descriptors to subsections (a), (a2), (a3), (b), (d), and (h). Requires the report to be delivered directly to the Secretary of State (currently, can be delivered to the Secretary of Revenue in paper form or alternatively directly to the Secretary of State in electronic form). Makes conforming changes. Permits the report to be delivered in electronic form or in paper form as prescribed by the Secretary of State. Exempts corporations governed by GS Chapter 55B from the statute (currently, more specifically exempts domestic corporations governed by GS Chapter 55B). Provides that a report is deemed timely filed if corrected to contain the required information after being returned by the Secretary of State for correction, if the corrected report is submitted (currently, delivered) to the Secretary of State within 30 days after the effective date of the notice that the report is incomplete. Reduces the time by which the Secretary of State can presume an annual report delinquent from 120 to 60 days from the date the report is due. Makes technical and clarifying changes. 

    Section 1.14

    Adds new Section 1.14. Directs the Department of Revenue (Department) to study the feasibility and cost of allowing the pass-through of a federal extension of time for filing a federal corporate income or individual income tax return to serve as an application for a State extension of time for filing a corporate franchise and income tax return or an individual income tax return. Directs the Department to work with the IRS and consult with or identify other states that use the federal extension to serve as the application for a state extension. Directs the Department to report its findings and recommendations to the Revenue Laws Study Committee by March 1, 2018.

    Part II. Sales and Use Tax

    Section 2.1

    Modifies the proposed changes to GS 105-164.3, setting forth the definitions that apply to the Article.

    Amends the proposed definition of capital improvement to now define the term to mean one or more of the 11 specified actions. Modifies and adds to the specified actions that constitute capital improvement, now including (1) the installation of equipment or a fixture attached to real property and capitalized and depreciated under Generally Accepted Accounting Principals or International Financial Reporting, is depreciated under the Revenue Code, and/or is expensed under Section 170 of the Revenue Code; (2) the replacement or installation of a heating or air conditioning unit or a heating, ventilation, or air conditioning system; and (3) the addition or alteration to real property that is permanently affixed or installed to real property and is not an activity listed in subdivision (33l) of the statute as a repair, maintenance, and installation service.

    Modifies the proposed definition of free-standing appliance, defining the term to mean a machine commonly thought of as an appliance operated by gas or electric current.

    Modifies the proposed definition of remodeling, defining the term to mean a transaction comprised of multiple services performed by one or more persons to restore, improve, alter, or update real property that can otherwise be subject to tax as repair, maintenance, and installation services if separately performed. Further provides that the term includes a transaction where the internal structure or design of one or more rooms or areas within a room or building are substantially changed (previously, went on to include tangible personal property or digital property that is installed or applied and becomes part of real property). Deletes the examples of single repair, maintenance, and installation services that the term does not include.

    Further amends the definition of repair, maintenance, and installation services. Sets out that the term does not include services used to fulfill a real property contract (previously, does not include services defined as a capital improvement to real property) taxed in accordance with GS 105-164.4H for any of the purposes specified. Amends the purpose set out in subdivision (33l)d relating to installing, applying, connecting, adjusting, or setting into position tangible personal property, digital property, or a motor vehicle. Adds that the replacement of more than one of a like-kind item, such as replacing one or more windows, is a single repair, maintenance, and installation service. Clarifies that the term does not include an installation defined as a capital improvement under subdivision (2c)d. Makes technical and conforming changes. 

    Modifies the proposed changes to the definition of service contract, providing that the term includes (previously, generally includes) a contract where the obligor can provide (previously, mandatory) a service included in the definition of repair, maintenance, and installation services as a condition of the contract. 

    Section 2.2

    Further amends GS 105-164.4(a), modifying existing subsubdivision (1a)b, setting the tax rate for the sale of a modular home, clarifying that the sale of a modular home to a modular homebuilder is considered a retail sale no matter that the modular home can be used to fulfill a real property contract. 

    Section 2.4

    Amends proposed GS 105-164.4H(a1), providing that a person can substantiate that a transaction is a real property contract or a mixed transaction by records as previously described, or by receipt of an affidavit of capital improvement (previously, also by receipt of an affidavit of a mixed transaction). Amends the proposed changes to subsection (d), concerning mixed transaction contracts, to refer to the allocated sales price (previously, the sales price) of the taxable repair, maintenance, and installation services included in the contract.

    Section 2.5

    Repeals GS 105-164.4D(a)(6), which exempted sales tax for a bundled transaction when the bundle includes a contract for two or more services, one of which is subject to tax under the Article and one of which is not subject to tax under the Article.

    Further amends GS 105-164.4I, providing tax provisions for a service contract for real property that includes two or more services, one of which is subject to tax under the Article and one of which is not subject to tax under the Article. Establishes that tax applies to the sales price of or gross receipts derived from a mixed service contract unless one of two scenarios applies: (1) the person determines an allocated price for the taxable portion of the service contract based on a reasonable allocation of revenue that is supported by the person's business records kept in the ordinary course of business, in which case tax applies to the allocated price of the taxable portion of the service contract or (2) the allocated price of the taxable portion of the service contract does not exceed 10% of the price of the contract.

    Section 2.6

    Makes clarifying changes to the language proposed to be added to GS 105-164.13(61a), setting out tax exemptions for certain repair, maintenance, and installation services and service contracts. Clarifies that property and services used to fulfill a service or contract exempt under subsubdivision (61a)a are also exempt from tax under the Article. Deletes the previous revisions for the inspections exemption to instead include (1) an inspection performed where the results are included in a report for the sale or financing of real property; (2) an inspection of the structural integrity of real property, provided the charge for the inspection is separately stated on the invoice or other documentation given to the purchaser at the time of the sale; and (3) an inspection to a system that is a capital improvement under GS 105-164.3(2c)f, provided the inspection is to fulfill a safety requirement and provided the charge for the inspection is separately stated on the invoice or other documentation given to the purchaser at the time of the sale. Adds to the exemption for pest control service, to define pest control service to mean the application of pesticides to real property. Adds to the exemption for moving services, to define moving services to mean a service for hire to transport or relocate a person's existing belongings to or from any destination. Adds an exemption for funeral-related services, including services for the burial of remains, but adds that this exemption does not apply to the sale of tangible personal property, such as caskets, headstones, and monuments. Adds an exemption for services performed on an animal, such as hoof shoeing and microchipping a pet.

    Further amends GS 105-164.13(62), which exempts an item or repair, maintenance, and installation services purchased or used to fulfill a service contract taxable under the Article if the purchaser of the contract is not charged for the item or services, adding that the exemption does not apply to the purchase of tangible personal property or digital property used to fulfill a service contract for real property where the charge being covered would otherwise be subject to tax as a real property contract.

    Section 2.7

    Amends the proposed changes to GS 105-164.14 to also allow an interstate carrier a sales tax refund on the purchase of service contracts (previously, the purchase of service contracts other than motor vehicle service contracts). Makes conforming changes.

    Section 2.8

    Amends the directive to the Secretary of Revenue, providing that the Secretary will allow the seller who paid sales and use taxes on a product and uses the product as part of a taxable repair, maintenance, and installation service to real property to offset the sales tax liability on the taxable repair, maintenance, and installation service with the sales and use tax paid on the products.

    Enacts GS 105-244.3, prohibiting the Department from taking action to assess any tax due for a filing period beginning on or after March 1, 2016, and ending before January 1, 2018, if one or more of the specified conditions apply and the retailer did not receive specific written advice from the Secretary of Revenue for the transactions at issue for the laws in effect for the applicable periods. Details the nine conditions, including that a retailer failed to charge sales tax due on separately stated installation charges that are part of the sale price of tangible personal property or digital property sold at retail. Adds that the statute does not prohibit: (1) the assessment of tax collected by a person and not remitted to the Department; (2) the assessment of tax due on an amount included in the definition of sales price where a retailer failed to charge or remit the tax, except as allowed under the statute; and (3) the assessment of use tax on purchases as provided in the statute. Effective retroactively to January 1, 2017, and expires on July 1, 2018.

    Enacts GS 105-244.4, authorizing the Secretary of Revenue to reduce an assessment against a taxpayer for State and local sales and use taxes, as specified, and waive any penalties imposed as part of the assessment when the assessment is the result of an audit of the taxpayer by the Department, and all five qualifications, as specified, are met. Sets the maximum reduction at 90% of the total amount of sales and use tax assessed. Provides that a reduction and the waiver of penalties imposed as part of the assessment apply only to the amount of the assessment attributable to the incorrect application of one or both of the areas of law set out in subdivision (a)(4) (concerning linen tax in GS 105-164.4F). Provides that the statute applies to the specified proposed assessments, collectible assessments, or pending request for review, for a tax period ending prior to January 1, 2018. Adds that the statute does not authorize a refund for sales or use taxes that were originally collected and remitted to the Department. Establishes that the statute is not applicable to an assessment attributable to the incorrect application of one or both areas listed in subdivision (a)(4) for a period beginning on or after January 1, 2018.

    Section 2.9

    Further amends GS 105-164.13, exempting from sales and use tax (1) tangible personal property, digital property, and services for a farmer as provided in GS 105-164.13E and (2) the sale of human blood or human tissue, eyes, DNA, or an organ.

    Amends GS 105-164.10 (Retail tax calculation). Deletes the provision requiring the Secretary of Revenue’s tables to round sales tax to the nearest whole cent. Provides that a retailer is not required to collect tax under GS Chapter 105, Article 5 (Sales and Use Tax). Provides that tax computation must be carried to the third decimal place and round up to the next cent whenever the third decimal place is greater than four. Provides for calculation on a transaction per item or invoice basis, and the rounding rule is applied to the aggregate tax due.

    Provides if H 59 becomes law, amends GS 105-164.3(45a), as amended, to amend the definition of streamlined agreement to refer to the Streamlined Sales and Use Tax Agreement as amended as of May 11, 2017 (was, December 16, 2016). 

    Section 2.10

    Adds new Section 2.10. Amends GS 105-164.4G(f). Exempts admission charges for events sponsored by farmers taking place on farmland from the sales and use tax, effective retroactively to January 1, 2014.

    Section 2.11

    Adds new Section 2.11. Amends GS 105-164.27A(a3). Requires a person who purchases a boat, aircraft, or qualified jet engine, or specific services for such under a direct pay permit, to file a return and pay the tax due to the Secretary in accordance with GS 105-164.14. Authorizes a purchaser, in lieu of a direct pay permit, to elect to have the seller collect and remit the tax on behalf of the purchaser. Provides that a proper invoice reflecting the proper amount of tax extinguishes the purchaser’s liability for the tax on the transaction. Provides that when an invoice that does not separately state installation charges as part of the sales price of the property, the tax is due on the total purchase price.

    Amends GS 105-164.13. Exempts the amount of repair, maintenance, and installation services for a boat, an aircraft, or a qualified jet engine for which the purchaser elects for the seller to collect and remit the tax under GS 105-164.27A(a3), from the retail sales and use tax. 

    Section 2.12

    Adds new Section 2.12. Amends subdivision (61a)m. of GS 105-164.13 (Retail sales and use tax), as amended by Section 2.6 of this act. Amends the list of repair, maintenance, and installation services and service contracts exempt from tax under that subdivision to include an aircraft with a gross take-off weight of more than 2,000 pounds. Effective July 1, 2019.

    Part III. Tax Collection and Enforcement

    Section 3.3

    Modifies proposed amendment to GS 39-23.8(e). Clarifies that a transfer is not voidable if the transfer results from any of the listed reasons (currently, does not specify whether the transfer must meet all three listed reasons or just one).

    Part IV. Administrative Changes

    Section 4.1

    Amends proposed GS 105-241.13A (Taxpayer inaction). Provides that inaction (as defined) by a taxpayer after timely filing a request for review of a proposed denial of a refund or assessment results in the proposed denial or the proposed assessment being final. Clarifies that the Department’s  required notice to the taxpayer under this statute is a notice of inaction. Requires the notice to state that the proposed denial or assessment becomes final 10 days from the date of the notice, unless the taxpayer responds to the department. Provides for the calculation of whether a taxpayer has timely responded to the Department under this statute.

    Modifies proposed amendments to GS 105-241.13 (Action on request for review). Provides that, if a taxpayer makes no response to the Department’s request for additional information by the requested response date, the Department must reissue the request, and give the taxpayer at least 30 days to respond to a request for additional information and to respond to the reissuance of a request for additional information. Nonresponse to the reissuance is governed by GS 105-241.13A. Makes a technical change.

    Deletes Section 4.1(e), which amended GS 105-241.16 (Judicial review of decision after contested case hearing). Makes a conforming change to Section 4.8 (now 4.9), regarding the effective date of Part 4.

    Section 4.8

    Creates new Section 4.8. If S 257 becomes law, amends Section 37.4(b) of that act. Currently, S 257, Section 37.4 (7th edition) amends GS 143B-1325(d), requiring the State Board of Elections or Bipartisan State Board of Elections and Ethic Enforcement or successor entity, but not the Community College System Office, to work with the State CIO to plan its transition to the Department of Information Technology, effective July 1, 2017. As amended by this bill, Section 37.4(b) amends GS 143B-1325 as follows. Amends caption to read “State information technology consolidated under Department of Information Technology.”  Effective July 1, 2018, the consolidation of enterprise information technology functions within the executive branch is completed with the Secretary heading all of the information technology functions under the Department’s purview, including the currently listed aspects of information technology. Amends the list of information technology aspects to refer to the state information technology strategic plan (was, updated state information technology strategic plan), as currently specified. Requires the State CIO to ensure that State agencies’ operations are not adversely impacted under the State agency information technology consolidation. Requires the Community College System Office, the Department of Public Instruction, the Department of Revenue, and the State Board of Elections to work with the State CIO to plan their transition to the Department. Delays the transfer and consolidation from the Department of Revenue to the Department of Information Technology until the system and data security of the Department of Information Technology meets the heightened security standards required by the federal government for purposes of sharing taxpayer information.

    Part V. Property Tax

    Section 5.4

    Adds new Section 5.4. Amends GS 105-275 (Property classified and excluded from the tax base). Designates mobile classrooms and modular units occupied by a school (as defined) and wholly and exclusively used for educational purposes, regardless of the ownership of the property, as a special class, excluded from tax. Effective for taxes imposed for taxable years beginning on or after July 1, 2017.

    Part VI. Other Changes

    Section 6.1

    Amends GS 159-32 (Daily deposits). Requires all taxes and other moneys collected or received by an officer or employee of a local government or public authority to be deposited or submitted to a properly licensed and recognized cash collection service on a daily basis. Requires all moneys to be maintained in a secure location until deposited or officially submitted. Makes conforming changes.


  • Summary date: Jun 12 2017 - More information

    Senate amendment makes the following changes to the 2nd edition.

    Amends GS 105-228.5(d)(3), setting forth an additional tax on property coverage contracts, to clarify that the additional tax imposed on property coverage contracts is a special purpose assessment based on gross premiums and not a gross premiums tax.

    Provides the following clarifications: the gross premiums tax is a tax imposed on the gross premiums of insurers, Article 65 corporations, health maintenance organizations, and selfäóïinsurers; entities subject to the gross premiums tax are not subject to franchise or income taxes; and in SL 2009äóï548, the General Assembly broadened the taxes against which the business and energy tax credits could be taken from income and franchise taxes to income, franchise, and gross premiums taxes.

    Further provides: that the gross premiums tax rate is set in GS 105äóï228.5(d)(1) and (2); separate and apart from the gross premiums taxes, GS 105äóï228.5(d)(3) imposes an additional tax that is calculated using a person's gross premiums but is not considered part of the gross premiums tax imposition; the Department of Revenue has historically administered the gross premiums tax and the additional tax imposed under GS 105äóï228.5 as two separate and distinct taxes and, satisfied with this administration, the General Assembly did not address the separate treatment of the two taxes in SL 2009äóï548; and it is the intent of this provision to further clarify for taxpayers the accuracy and to endorse the Department's interpretation of the current and continuing state of the law by expressly codifying the longäóïstanding interpretation of the additional tax imposed by GS 105äóï228.5(d)(3) as a separate and distinct tax that is based upon gross premiums but is not a gross premiums tax.


  • Summary date: May 24 2017 - More information

    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.


  • Summary date: Apr 5 2017 - More information

    Part I. Business Tax Changes

    Amends GS 105-114, deleting subsection (a), which provides that taxes levied upon persons and partnerships in Article 3 are for the privilege of engaging in business or doing the act named. Modifies subsection (a1) setting out the scope of the tax levied under Article 3, providing that the tax levied under the Article upon corporations is a privilege tax (currently, a privilege or excise tax) levied upon corporations organized under the laws of North Carolina and corporations not organized under the laws of North Carolina, as described. Makes conforming changes to subsections (a2), (a3), and (a4). Amends subsection (a3) to provide that the tax levied in Article 3 is for the income year of the corporation in which the taxes become due (currently, for the fiscal year of the State in which taxes become due, except that the taxes levied in GS 105-122 are for the income year of the corporation in which the taxes become due). Amends subsection (a4), prohibiting double taxation of holding companies under GS 105-122 and GS 105-202.2, to remove the provision limiting the application of GS 105-122 only to the extent those taxes levied exceed the taxes levied in other sections of Article 3 on the corporation or on a limited liability company whose assets must be included in the corporations's tax base under GS 105-114.1.

    Amends GS 105-120.2(c), describing a holding company as a corporation that satisfies at least one of the specified conditions, to amend the second condition that constitutes a holding company to be that the corporation receives during a taxable year more than 80% of its gross income from corporations in which it owns directly or indirectly more than 50% of the outstanding stock, voting capital interests, or ownership interests (currently, owning ownership interests is not included).

    Expands GS 105-122(a), providing that an annual franchise or privilege tax is imposed on a corporation doing business in North Carolina for the privilege of doing business in North Carolina and for the continuance of articles of incorporation or domestication of each corporation in North Carolina. 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, substantively identical to the current tax rate. Sets the tax rate at $1.50 per $1,000 of the corporation's tax base as determined in subsection (d), and prohibits the tax imposed to be less than $200. Effective for taxable years beginning on or after January 1, 2018, and is applicable to the calculation of franchise tax reported on the 2017 and later corporate income tax returns.

    Amends GS 105-129.106(b), concerning the tax credit for rehabilitating a non-income-producing historic structure, clarifying that in the event that the taxpayer is a transferee of a State-certified historic structure for which rehabilitation expenses were made, the taxpayer is allowed a credit for the rehabilitation expenses made by the transferor if the transfer takes place before the structure is placed in service. Adds requirement for the transferor to provide the transferee with documentation detailing the amount of rehabilitation expenses and credit. Effective for taxable years beginning on or after January 1, 2017.

    Amends GS 105-130.4(a), containing the definitions for terms pertaining to the allocation and apportionment of income for corporations. Amends the definition provided for apportionable income to now define the term to mean all income that is apportionable under the US Constitution, including income that arises from transactions and activities in the regular course of the taxpayer's trade or business, or tangible and intangible property if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer's trade or business. Adds the term "business activity" (previously provided in subsection (b)). Makes technical and organizational changes.

    Makes further clarifying, conforming and technical changes to GS 105-130.4 concerning the allocation and apportionment of income for corporations. Amends subsection (m), pertaining to apportionable income of a railroad company, to provide that the records from which the company is to apportion NC income must be kept in accordance with generally accepted accounting principles (previously, in accordance with the standard classification of accounts prescribed by the Interstate Commerce Commission). Makes organizational changes to subsection (m)'s defined terms. Deletes subsections (n) and (q), setting out provisions for the apportionable income of telephone and telegraph companies. Consolidates subsection (p), concerning approtionable income of a motor carrier of passengers (now referred to as a motor carrier of people) into subsection (o), concerning apportionable income of a motor carrier of property. Now provides that vehicle miles in amended subsection (o) means miles traveled by vehicles owned or operated by the company based on (1) miles on a scheduled route, (2) miles hauling property for a charge, or (3) miles carrying passengers for a fare. Amends subsection (r), concerning the apportionable income of an excluded corporation and of all other public utilities, to set out the definitions of excluded corporation and public utility (previously provided in subsection (a)). Adds new subsection (s2), establishing that receipts from transportation of a petroleum-based liquids pipeline company or gas pipeline company are to be apportioned by multiplying the income by a fraction, the numerator being the number of traffic units in North Carolina during the tax year, and the denominator being the total number of traffic units everywhere during the tax year. Provides that traffic unit means (1) barrel mile, (2) cubic foot mile, and/or (3) another appropriate measure of product movement. Effective for taxable years beginning on or after January 1, 2017.

    Amends GS 105-130.7B, concerning limitations on qualified interest for certain indebtedness, to modify the definition of qualified interest expense as the amount of net interest expense paid or accrued to a related member in a taxable year with the amount limited to the taxpayer's proportionate share of interest paid or accrued to a person who is not a related member during the same taxable year (previously, limited the amount to the greater of 15% of the taxpayer's adjusted taxable income or the taxpayer's described proportionate share). Makes conforming change to repeal GS 105-130.7B(b)(1), defining adjusted taxable income for purposes of the statute. Effective for taxable years beginning on or after January 1, 2017. 

    Amends GS 105-131.5, pertaining to prorating a part-year resident shareholder of an S corporation's attributable income to the State, to refer to GS 105-153.4 (provisions for calculating NC taxable income for taxable years beginning on or after January 1, 2014, and before January 1, 2015) instead of GS 105-134.5 for determining the pro rata share. Effective for taxable years beginning on or after January 1, 2014.

    Amends GS 105-131.7 to make technical corrections to the statutory references concerning income attributable to the State and income not attributable to the State of an S corporation.

    Amends GS 105-134.1 and GS 105-153.3, the definitions applicable to individual income tax provisions, to add a new subsection (5a) to each statute defining guaranteed payments as the term is defined in section 707(c) of the Internal Revenue Code.

    Amends GS 105-134.5(d) and GS 105-153.4(d) to make clarifying changes to the formula used to determine a shareholder's pro rata share of S corporation income. In order to calculate the numerator of the fraction provided in subsection (b) of each statute for a partner in a partnership or a member of another unincorporated business that has one or more nonresident partners or members and operates in one or more other states, the amount of the partner's or member's distributive share of income of the business (as modified by GS 105-153.5 and GS 105-153.6 for the calculation in GS 105-153.4) plus any guaranteed payments made to a partner from the partnership that is includable in the numerator is determined by multiplying the total net income of the business by the ratio ascertained under the provisions of GS 105‑130.4.

    Amends GS 105-154(c), pertaining to information returns of partnerships. Requires the information return filed with the Secretary of Revenue to include each partner's distributive share of the partnership's income (previously, the part of each person's distributive share of the net income that represents corporation dividends). Provides that a partner's distributive share of partnership net income includes any guaranteed payments made to a partner as defined in GS 105-134.1. Amends GS 105-154(d), pertaining to the payment of tax on behalf of a nonresident owner or partner. Requires the manager of the business to report information concerning the earnings of the business in North Carolina (previously, just the earnings of the business in North Carolina), the distributive share of the income of each nonresident owner or partner, and any other information required by the Secretary. Adds that the distributive share of the income of each nonresident partner includes any guaranteed payments made to the partner as defined in GS 105-134.1. In requiring the manager to pay the tax on each nonresident owner or partner's share of the income, permits the business to deduct the payment for each nonresident owner or partner from the owner or partner's distributive share of the income of the business in North Carolina (was, of the profits of the business in North Carolina).

    Amends GS 105-228.4A, concerning tax on captive insurance companies. Provides that two or more captive insurance companies under common ownership and control are taxed under the statute as a single captive insurance company, other than when a protected cell captive insurance company or a special purpose captive insurance company is structured in a manner similar to that of a protected cell captive insurance company. Modifies subsection (f), concerning total tax liability under the statute for a captive insurance company, to now provide the following. Establishes that the aggregate amount of tax payable under the statute for a captive insurance company, which has a cell or series structure similar to that of a protected cell captive insurance company, to be no more than $100,000 and no less than $5,000. Sets the minimum tax under the statute for a protected cell captive insurance company or a special purpose captive insurance company, which has a cell or series structure similar to that of a protected cell captive insurance company, to not be less than $5,000 and applies to the protected cell captive insurance company or special purpose captive insurance company as a whole and not to each cell or series. The maximum tax to be paid by a protected cell captive insurance company or a special purpose captive insurance company, which has a cell or series structure, is to be the greater of either $5,000 or the aggregate of the tax liabilities of the core and each cell or series within the insurance company. The maximum tax liability attributed to any one cell or series of the insurance company is set at $100,000. Adds new subsection (g) to define common ownership and ownership and control. Effective for taxable years beginning on or after January 1, 2017.

    Amends GS 105-228.5(d)(3), setting forth an additional tax on property coverage contracts, to clarify that the additional tax imposed on property coverage contracts is a special purpose assessment based on gross premiums and not a gross premiums tax.

    Provides the following clarifications: The gross premiums tax is a tax imposed on the gross premiums of insurers, Article 65 corporations, health maintenance organizations, and self‑insurers; entities subject to the gross premiums tax are not subject to franchise or income taxes; and in SL 2009‑548, the General Assembly broadened the taxes against which the business and energy tax credits could be taken from income and franchise taxes to income, franchise, and gross premiums taxes.

    Further provides: The gross premiums tax rate is set in GS 105‑228.5(d)(1) and (2); separate and apart from the gross premiums taxes, GS 105‑228.5(d)(3) imposes an additional tax that is calculated using a person's gross premiums but is not considered part of the gross premiums tax imposition; the Department of Revenue has historically administered the gross premiums tax and the additional tax imposed under GS 105‑228.5 as two separate and distinct taxes; satisfied with this administration, the General Assembly did not address the separate treatment of the two taxes in SL 2009‑548; and it is the intent of this provision to further clarify for taxpayers the accuracy of and to endorse the Department's interpretation of the current and continuing state of the law by expressly codifying the long‑standing interpretation of the additional tax imposed by GS 105‑228.5(d)(3) as a separate and distinct tax that is based upon gross premiums but is not a gross premiums tax.

    Part II. Sales and Use Tax

    Amends GS 105-164.3, setting forth the definitions for the sales and use tax provisions. Amends the definitions provided for bundled transaction; landscaping service; motor vehicle service contract; real property; real property contract; repair, maintenance, and installation services; and service contract. Adds and defines the terms capital improvement, free-standing appliance, and mixed transaction contract.

    Amends GS 105-164.4(a), setting forth the percentage rates for the privilege tax imposed on retailers and certain facilitators. Amends subdivision (1), providing that the general rate of tax applies to the sales price of each item or article of tangible personal property sold at retail and not subject to tax under another subdivision of subsection (a). Adds that a sale of a free-standing appliance is a retail sale of tangible personal property, regardless of whether the property is installed or applied to real property. Makes organizational and technical changes to consolidate subdivision (13) into subdivision (16), providing that a mixed transaction contract and real property contract are taxed in accordance with GS 105-164.4H.

    Amends GS 105-164.4B(a) to establish that a service is sourced where the purchase can potentially first make use of the service, except as otherwise provided by the statute.

    Amends GS 105-164.4H, pertaining to taxation of real property contracts.

    Adds new subsection (a1), providing as follows. Generally, services to real property are retail sales of, or the gross receipts derived from, repair, maintenance, and installation services and subject to tax in accordance with GS 105‑164.4(a)(16) (as amended) unless a person substantiates that a transaction is subject to tax as a real property contract in accordance with subsection (a) of this section, subject to tax as a mixed transaction in accordance with subsection (d) of this section, or the transaction is not subject to tax. A person may substantiate that a contract is a real property contract by records that establish the transaction is a real property contract or by receipt of an affidavit of capital improvement. The receipt of an affidavit of capital improvement from another person accepted in good faith establishes that the subcontractor or other person receiving the affidavit should treat the transaction as a capital improvement, and the transaction is subject to tax in accordance with subsection (a) of this section. A person that issues an affidavit of capital improvement is liable for any tax on the transaction if it is determined that the transaction is not a capital improvement. Directs the Secretary to determine when a person must issue an affidavit of capital improvement. The Secretary can establish guidelines for transactions where an affidavit of capital improvement is not required, but rather a person may establish by records that such transactions are subject to tax in accordance with subsection (a) of this section. Adds to subsection (b1), concerning joint and several liability in real property contracts, to provide that a person who receives an affidavit of capital improvement accepted in good faith is not liable for any tax on the gross receipts from the transaction if it is determined that the transaction is not a capital improvement. 

    Amends subsection (d), pertaining to taxation of mixed transaction contracts. Provides that (1) if the price of the taxable repair, maintenance, and installation services included in the contract does not exceed 25% (was, 10%) of the contract price, then the repair, maintenance, and installation services portion of the contract, and the tangible personal property, digital property, or services used to perform that service, are taxable as a real property contract in accordance with this provision and (2) if the price of the taxable repair, maintenance, and installation services included in the contract is equal to or greater than 75% (was, 10%) of the contract price, then the gross receipts derived from the capital improvement portion of the contract are taxable as repair, maintenance, and installation services in accordance with Article 5. Amends subsection (e), setting forth the definitions that apply to the Article. Modifies the definitions for capital improvement and remodeling. Adds and defines the term renovation

    Amends GS 105-164.4I, pertaining to the taxation of service contracts, to delete the exemptions provided in subsection (b). Expands the exceptions set out in subsection (c) to add a contract to provide a certified operator for a wastewater system and a contract to provide landscaping, pest control, or moving services. Makes technical and clarifying changes.

    Amends GS 105-164.13, delineating express exemptions from the retail sale and use tax. Modifies and adds to five subdivisions (subdivision (61), concerning a motor vehicle service contract; subdivision (61a), concerning certain repair, maintenance, and installation services and service contracts; subdivision (61c), concerning installation charges that are part of the sales price of tangible personal property purchased by a real property contractor to fulfill a real property contract for an item installed or applied to real property; subdivision (62), concerning an item or repair, maintenance, and installation services to maintain, monitor, inspect, or repair tangible personal property, real property, or digital property pursuant to a service contract; and subdivision (65), concerning sales of certain items from a professional motorsports racing team). Makes further clarifying, organizational, and technical changes to those subdivisions. 

    Amends GS 105-164.14(a) to authorize a tax refund for an interstate carrier of part of the sales and use taxes paid by it on the purchase in this state of railway cars and locomotives and fuel, lubricants, repair parts, accessories, and repair, maintenance, and installation services of a motor vehicle, railroad car, locomotive, or airplane the carrier operates (previously, did not include in the refund the repair, maintenance, and installation services for the vehicles, cars, locomotives or airplanes). Makes conforming changes to subdivision (1) concerning the information and proof required to be furnished by an applicant to the Secretary for a refund. Effective retroactively to January 1, 2017.

    Establishes that, if the Secretary of Revenue determines that a seller paid sales and use taxes on a product and the seller used the product purchased for a taxable repair, maintenance, and installation service to real property, the Secretary may allow the seller to offset the sales tax liability on the taxable repair, maintenance, and installation service with the sales and use tax paid on the products. Effective retroactively to January 1, 2017, and expires on July 1, 2018.

    Part III. Tax Collection and Enforcement

    Amends GS 105-236(a), setting forth civil penalties and criminal offenses.

    Modifies subdivision (7), making any person who willfully attempts or any person who aids or abets any person to attempt in any manner to evade or defeat a tax or its payment, in addition to other penalties provided by law, guilty of either (1) a Class F felony if violation involves less than $100,000 or (2) a Class C felony for any other violation (currently, guilty of a Class H felony, with no differentiation as to the amount involved in the violation). 

    Modifies subdivision (9) to make the willful failure to file a tax return, supply information, or pay any tax a Class 1 misdemeanor for the first offense and a Class H felony for any second or subsequent offense (currently, Class 1 misdemeanor for any offense).

    Adds new subdivision (9b), providing that a person who commits identity theft in violation of GS 14-113.20 is guilty as provided in GS 14-113.22(a) (punishable as a Class G felony or a Class F felony depending on aggravated factors). Provides that each document filed with identifying information of another can be considered a separate offense. Provides that identifying information can also include legal name, date of birth, taxpayer identification number, and federal identification number. 

    Amends GS 105-235, to permit the Secretary of Revenue, at the Secretary's discretion (previously, mandatory), to consider each day of the described failure, refusal, or neglect to be a separate and distinct offense. 

    Amends GS 105-251.2, pertaining to compliance information requests, to add two new subsections. New subsection (c) requires, for any year in which a payment settlement entity is required to make a return pursuant to Section 6050W of the Internal Revenue Code, the entity to submit the information in the return to the Secretary at the time the return is made. New subsection (d) requires reports made under the statute to be submitted in electronic format as requested by the Secretary, and subjects any report not timely filed under the statute to a $1,000 penalty.

    Amends GS 39-23.1, setting out the definitions that apply to the Uniform Voidable Transactions Act, to define voidable transaction, providing the term does not include payment to the State or a political subdivision of the State of taxes, debts, fines, penalties, or other obligations or amounts. Makes conforming change to GS 39-23.8(e), listing transfers that are not voidable under GS 39-23.4(a)(2) or GS 39-23.5.

    Part IV. Administrative Changes

    Amends GS 105-241.7(d) to provide that a notice of the proposed denial of a request for a refund issued pursuant to subsection (c) and a notice of denial of a request for a refund issued pursuant to subsection (c1) of the statute must contain the specified information. Makes conforming changes to the specified information to be included in the notice under subsection (d). Amends GS 105-241.7(f), establishing that a proposed denial of a refund and a denial of a refund by the Secretary of Revenue are presumed to be correct.

    Amends GS 105-241.11, requiring a taxpayer's request for a Department review of a proposed denial of a refund or a proposed assessment of tax to be in the form prescribed by the Secretary of Revenue and include an explanation for the request for review. Makes clarification in subsection (c) to provide that a taxpayer who does not request a Departmental review of a proposed assessment cannot request a Departmental review of a failure to pay a penalty based on the assessment but is assessed on a subsequent date in another notice. Makes clarifying change to the statute's title.

    Renames GS 105-241.12, as Taxpayer inaction. Expands the statute's provisions to include when a taxpayer fails to respond to the Department's request for additional information under GS 105-241.13(a), resulting in the proposed denial as final and not subject to further administrative or judicial review. Makes conforming change to subsection (b), which requires the Department of Revenue to send the taxpayer a notice of collection before the Department collects a proposed assessment that becomes final under subsection (b).

    Modifies the actions the Department of Revenue must take when a taxpayer files a timely request for a Department review of a proposed denial of a refund or a proposed assessment in GS 105-241.13(a). Now provides that the Department must conduct a review of the proposed denial or proposed assessment and (1) grant the refund or remove the assessment, (2) adjust the amount of the tax due or refund owed, or (3) request additional information from the taxpayer concerning the requested refund or proposed assessment. Makes conforming changes providing that a taxpayer's failure to respond to the Department's request for additional information by the requested response date will result in the refund or assessment being subject to the provisions of GS 105‑241.12. Adds new subsection (a1), setting out that if a taxpayer timely requests a Departmental review of a proposed assessment and thereafter pays the amount due or the amount due as adjusted by the Department, the Department may accept payment and take no further action on the request for Departmental review, unless the taxpayer states in writing that the taxpayer wishes to continue the Departmental review. In the case that the review is not continued, the taxpayer may request a refund of taxes paid pursuant to GS 105‑241.7(b).

    Modifies subsection (b) of GS 105-241.13, requiring the Department to schedule a conference with the taxpayer when the actions under subsection (a) or (a1) of the statute do not resolve the Departmental review. Clarifies that the taxpayer is not limited by the explanation set forth in the taxpayer's request for review in presenting any objections to the proposed denial of refund or proposed assessment at the conference. Modifies subsection (c) that sets forth at least one outcome that must occur after the conference, providing that one outcome can be that the Department and the taxpayer agree on a resolution (was, agree on a settlement).

    Makes technical change to GS 105-241.16 (judicial review of decision after contested case hearing) to replace the term "taxpayer" with "party." 

    Makes conforming change to GS 105-241.22 (collection of tax) to reflect changes made to GS 105-241.12 concerning taxpayer inaction.

    Makes technical change to GS 105-113.4A (tobacco product licenses) to reference a licensee instead of a license holder. Renames GS 105-113.4B, Cancellation or revocation of license (was, Reasons why the Secretary can cancel a license). Conforms the language of GS 105-241.22 and GS 105-113.4A to this change. Clarifies that the Secretary can revoke the license of a licensee that fails to obtain a license in a timely manner or for all places of business as required by Article 2A after holding a hearing on whether the license should be revoked.

    Renames GS 105-449.47 Licensure of vehicles (was, Registration of vehicles). Makes conforming changes to the following statutes in Articles 36B: GS 105-449.44(c), GS 105-449.45(b), GS 105-449.47A, GS 105-449.49(a), GS 105-449.51, and GS 105-449.52.

    Makes clarifying change to GS 105-449.44(c), providing how to determine the amount of fuel used in the State for purposes of taxing carriers using fuel purchased outside the State, to provide that the number of qualified motor vehicles of a carrier that is not licensed under Article 36B is the number of qualified motor vehicles licensed or registered by the motor carrier in the carrier's base state under the International Registration Plan.

    Amends GS 105-449.47, renamed Licensure of vehicles, to provide that the statute applies to a motor carrier that operates a recreational vehicle used in connection with any business endeavor (was, that is considered a qualified motor vehicle).

    Renames GS 105-449.47A Denial of license application and decal issuance. Makes change to refer to the Secretary's revocation (instead of cancellation) of a license. Makes conforming changes. 

    Renames GS 105-449.73 Denial of license application, establishing that the Secretary of Revenue can refuse to issue a license if the applicant has done any of the specified actions. Provides for denial when the applicant had a license or registration issued under Article 36C or 36A revoked by the Secretary (was, revoked for cause), or had a motor fuel license or registration issued in another state revoked (was, cancelled for cause). Amends GS 105-449.74 (Issuance of a license for gasoline, diesel, and blends) to refer to a licensee instead of a license holder. Makes conforming changes to reflect the above revisions to: GS 105-449.68, GS 105-449.75, GS 105-449.76, GS 105-449.77(b), GS 105-449.92, GS 105-449.97(a), GS 105-449.98(b), and GS 105-449.104. Makes clarifying changes to GS 105-449.76.

    Amends GS 105-449.110(a) to require the Secretary of Revenue, upon determining that an application for refund is incorrect, to send the applicant a proposed denial of the request for a refund. Establishes that the provisions of Article 9 apply to the procedure for requesting a review of proposed denial of a refund sought under Article 36C.

    Renames GS 105-449.134 Denial, revocation, or cancellation of a license and adds that the Secretary may also revoke a license. Amends GS 105-449.135 (Issuance of license and notification of changes pertaining to alternative fuel in Article 36D) to refer to a "licensee" instead of a "license holder." Makes conforming changes to reflect those revisions to GS 105-449.135 and GS 105-449.139.

    Makes clarifying changes to GS 119-19 (in Article 3, Gasoline and Oil Inspection). Authorizes the Secretary of Revenue to cancel or revoke a license issued under the Article. Changes language to refer to a "licensee" instead of a "license holder." Makes conforming changes.

    Amends GS 105-259(b) to allow tax information to be disclosed for the purpose of providing to the Office of Child Support and Enforcement of the Department of Health and Human Services State tax information that relates to noncustodial parent location information as required under 45 CFR 303.3 and Title IV-D of the Social Security Act.

    Part IV is effective when it becomes law and applies to requests for review filed on or after that date and to requests for review pending on that date for which the Department reissues a request for additional information, allows the taxpayer time to respond by the requested response date, and provides notification to the taxpayer that failure to timely respond to the request will result in the request for review being subject to the provisions of GS 105‑241.12.

    Part V. Property Tax

    Amends GS 105-330.3(a1), pertaining to the listing requirements for unregistered classified motor vehicles. Modifies the provisions that apply to any months for which the applicable vehicle was not taxed between the date the registration expired and the start of the current registered vehicle tax year. Provides that the value of the motor vehicle is determined as of January 1 of the year in which the taxes are computed. Further provides that the taxes are due on September 1 following the date the notice was prepared. Adds that taxes are payable at par or face amount if paid before January 6 following the due date, and taxes paid on or after January 6 following the due date are subject to interest charges. Provides that interest accrues on taxes paid on or after January 6 pursuant to GS 105-360. Eliminates previous interest provisions. Effective for taxes imposed for taxable years beginning on or after July 1, 2017.

    Amends GS 105-330.6(c), concerning the surrendering of plates and applying for a tax release or refund, to apply the statute's provisions to an owner of a classified motor vehicle who pays the tax as required by GS 105-330.4(a) (currently, to the owner of a classified motor vehicle listed pursuant to GS 105-330.3(a)(1)).

    Makes organizational change to GS 105-338, concerning the allocation of the valuations of public service property among local taxing units. 

    Part VI provides a severability clause.


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