TO PROMOTE ECONOMIC DEVELOPMENT IN NORTH CAROLINA BY ESTABLISHING A SOUND STATE TAX STRUCTURE THAT REVISES THE EXISTING STRUCTURE ON A REVENUE-NEUTRAL BASIS, LOWERS ALL MAJOR TAX RATES, AND MAKES THE STRUCTURE SIMPLER, FAIRER, AND CONSISTENT WITH THE MODERN ECONOMY, AS RECOMMENDED BY PAST TAX STUDIES.
Revises the existing state tax structure as the title indicates.
General Findings and Purpose. Notes general findings of the General Assembly including the finding that North Carolina’s current tax structure has not been comprehensively revised since the Great Depression. Makes additional findings as to the basis for revising the current tax structure. Declares that the general purpose of this legislation is to promote economic development by adopting the comprehensive tax reform recommendations from numerous study committees with the tasks of developing a 21st Century tax policy for the state. Lists the objectives that will be achieved with the modernization of the tax structure.
Personal Tax Changes. Effective for taxable years beginning on or after January 1, 2012. Indicates specific findings and purpose supporting changes to the state’s individual income tax system. Provides that it is the intent of Part II of this act, Personal Tax Changes, to promote economic development by establishing a broader individual income tax base and lowering individual income tax rates.
Recodifies the following statutes as indicated:
Current Statute Recodified Statute
GS 105 133 GS 105 153.1
GS 105 134 GS 105 153.2
GS 105 134.1 GS 105 153.3
GS 105 134.5 GS 105 153.4
GS 105 151 GS 105 153.8
GS 105 152 GS 105 153.7
GS 105 151.11 GS 105 153.10
GS 105 151.29 GS 105 153.12
GS 105 151.31 GS 105 153.9
Repeals the following statutes: GS 105 134.2 through GS 105-134.4, GS 105 134.6 through GS 105-134.8, GS 105 151.1, GS 105 151.12 through GS 105-151.14, GS 105 151.18, GS 105 151.20, GS 105 151.21, GS 105 151.24 through GS 105-151.26, GS 105 151.28, and GS 105 151.32.
Amends the definitions listed in GS 105-134.1, recodified in this act as GS 105-153.3, to add a definition for adjusted gross income, as defined in section 62 of the Internal Revenue Code (Code, defined in GS 105-228.90). Deletes definitions for educational institutions, retirement benefits, taxable income, and this state. Makes technical and conforming changes.
Amends GS 105-134.5, recodified by this act as GS 105-153.4, to make conforming changes reflecting the deletion of GS 105-134.6 and 105-134.7 in this act and identifying North Carolina taxable income as meaning adjusted gross income (AGI) as modified in GS 105-153.5. Adds provision that a taxpayer must compute North Carolina taxable income based on the taxable year used in computing the taxpayer’s income tax liability under the Code. Makes technical changes.
Amends Part 2 of GS Chapter 105, Article 4. Adds new GS 105-153.5 regarding modifications to AGI. Specifies required deductions and additions that a taxpayer must apply in calculating North Carolina taxable income. Adds new GS 105-153.6 to provide for imposing an individual income tax for each taxable year on the North Carolina taxable income of an individual. Indicates the tax rate brackets for computing the percentages of the taxpayer’s North Carolina taxable income. Provides that for taxable years beginning on or after January 1, 2013, the over and up to rate bracket minimum and maximum as set out in subsection (a) of proposed GS 105-153.6 and that are a dollar amount above zero are to be indexed for the taxable year in accordance with the cost-of-living adjustment used under section 1 of the Code to index federal rate brackets for that taxable year. Directs the Secretary of Revenue to publish the rate brackets set under this subsection. Also provides that the Secretary may provide tables to compute the amount of tax due for a taxable year under this Part.
Amends GS 105-152, recodified in this act as GS 105-153.7, regarding who must file an income tax return. Requires every resident whose North Carolina taxable income is more than the amount subject to the zero tax rate under GS 105-153.6 to file a return (was, every resident required to file an income tax return under the Code). Adds requirement that every nonresident individual receiving gross income during the taxable year derived from gambling activities in this state must file an income tax return. Makes additional technical and conforming changes. Amends: (1) GS 105-151, recodified in this act as GS 105-153.8 (tax credits for income taxes paid to other states by individuals); (2) GS 105-151.31, recodified in this act as GS 105-153.9 (earned income tax credit); and (3) GS 105-151.11, recodified in this act as GS 105-153.10 (credit for child care and certain employment-related expenses) to make technical and conforming changes. Amends subsection (c) of GS 105-153.10 to delete prohibition that there is no credit allowed under this section for the amount deducted from gross income in calculating taxable income under the Code.
Enacts new GS 105-153.11 (other tax credits) to provide the following tax credits: (1) allows a taxpayer eligible for the federal child tax credit under section 24 of the Code to take a credit against the tax imposed under Part 2 of GS Chapter 105, Article 4; (2) allows a tax credit for charitable contributions; (3) permits a tax credit for mortgage interest; and (4) allows a tax credit for medical expenses. Provides criteria for taking the specified credits and sets limitations on the amount of credit that may be taken.
Makes conforming changes to GS 105-154(d) (payment of tax on behalf of nonresident owner or partner), and GS 105-159 (federal corrections). Provides that despite the provisions of GS 105-163.15, no addition to tax may be made under that statute for a taxable year beginning on or after January 1, 2012, and before January 1, 2013, with regards to any underpayment of individual income tax to the extent that the underpayment was created or increased by this section.
Makes conforming changes to GS 105-160.2 and 105-160.3 regarding the taxable income of estates and trusts; and to GS 105-163.1 and 105-163.22 regarding withholding tax.
Effective January 1, 2012, makes additional conforming changes to GS 105-259(b), 105-277.3(d1), 105-309(d), 110-130.1(a), 113-77.9(d), 113A-231, 113A-232, 113A-233, and repeals GS 105-320(a)(16) and 113A-256(g).
Sales and Use Tax Changes. Except as otherwise provided, effective October 1, 2013. Provides specific findings by the General Assembly analyzing the state’s retail sales and use tax. Provides that the intent of this Part is to establish a broader sales and use tax base and to lower the state general sales tax rate in order to promote economic development in the state. Makes substantial organizational changes to GS 105-164.4. Amends GS 105-164.4 to lower the state general sales tax rate from 4.75% to 4%, effective October 1, 2013, and to 3.5% effective October 1, 2014. Provides that the motor vehicle tax rate imposed under GS 105-187.3 applies to a retailer’s net taxable sales of an aircraft or a boat, inclusive of all attached accessories and caps the tax at $1,500 per article. Treats the sale of a manufactured or a modular home as if it were the sale of real property. Provides that a privilege tax is imposed on a retailer at the previously indicated percentage rates of the retailer’s net taxable sales of tangible personal property, digital property, and services (was, retailer’s net taxable sales or gross receipts, as appropriate). Identifies exemptions for tangible personal property, digital property, and services that are specifically exempted from the retail sales and use tax imposed under Article 5 of GS Chapter 105.
Repeals the following statutes: GS 106 507, GS 106 516 through GS 106 520, and GS 140 10.1.
Also expands the sales and use tax base by (1) including items commonly taxed in other states (including specified services), (2) including amusements as well as other entertainments currently subject to the privilege license tax, and (3) eliminating special interest exemptions.
Repeals GS 105-37.1, 105-38.1, and 105-40, referencing various provisions dealing with the privilege tax on entertainment. Organizes the provisions regarding accommodation rentals into new GS 105-164.4E. Eliminates the machinery and equipment tax.
Amends GS 105-164.13 to make changes and additions concerning commercial logging; sales to phone, radio, or television companies; sales to cable providers; sales to recycling facilities; and sales of specified mill machinery that is capital equipment; and sales of capital equipment. Enacts new GS 105-164.13E to provide an exemption for sales and use taxes paid by a datacenter that meets specified requirements. Provides that this section expires for sales occurring on or after July 1, 2015. Repeals Article 5F of GS Chapter 105 and GS 105-164.13(5a).
Repeals GS 105-164.9 and makes conforming changes to GS 105-164.10, effective when the act becomes law. Also makes conforming changes to GS 105-164.44F and 105-164.44I effective October 1, 2013, regarding the percentages of the net proceeds of quarterly taxes collected to be distributed by the Secretary and amends those percentages again effective October 1, 2014.
Business Tax Changes. Provides specific findings by the General Assembly analyzing the state’s corporate income and franchise tax. Provides that the intent of this Part is to promote economic development in the state by establishing a broader business tax base and lowering business tax rates. Amends GS 105-130.3 to phase down the corporate income tax (a percentage of the taxpayer’s state net income) to 4% in 2013, to 3% in 2014, to 2% in 2015, and 1% in 2016. Repeals Part 1 of GS Chapter 105, Article 4, effective January 1, 2017. Adds new subdivision (2a) to GS 105-130.5(a) to provide that the portion of a financial institution’s interest expense that is allocable to interest income exempt from taxation under Part 1 of GS 105, Article 4, is an addition to federal income to be used in determining state net income, effective January 1, 2013.
Amends GS 105-130.7A to include interest expense and royalty income reporting options (was, royalty income). Amends subsection (b) of this statute to add a definition for interest expense, effective for taxable years beginning on or after January 1, 2013.
Effective for taxable years beginning on or after January 1, 2014. Repeals GS 105-114, 105-114.1, 105-121.1, 105-122, 105-122.1, 105-125, and 105-127 through 105-129. Rewrites the title of Article 3 of GS Chapter 105 as Business Privilege Tax (was, Franchise Tax), replacing the franchise tax with a business privilege tax that includes all limited liability entities. Adds new section to Article 3 of GS Chapter 105. Identifies definitions as they apply in the Article. Provides that Article 3 as amended in this act imposes a privilege tax on a business entity for the privilege of doing business in this state in an organizational form that confers limited liability on one or more owners of the business entity. Imposes a business privilege tax on a business entity doing business in this state at the rate of $1.50 per $1,000 of the higher of the entity’s adjusted net worth tax base, determined according to GS 105-114.5 and the entity’s investment tax base, determined according to GS 105-114.6. Prohibits the tax payable by the business entity from being less than $200 and provides that the tax paid by a holding company may not exceed $75,000. Provides that the tax imposed by this section does not apply to a company subject to tax under GS 105-116 unless the tax imposed under that section is less than the tax imposed under this section. Provides that the business entity is not subject to the tax under this section at the end of the taxable year in which the entity is dissolved unless the Secretary finds that the business entity has engaged in business activities in the state that are not appropriate to winding up and liquidating its business. Provides guidelines regarding the adjusted net worth tax base of a business entity and its investment tax base. Provides for exclusions in calculating a business entity’s tax liability; and provides for the determination of ownership after certain transfers by corporations and receipt of tax-free contribution of assets and the making of a tax-free distribution of assets involving a noncorporate business entity. Also addresses (1) apportionment by multistate business entities, (2) timing for submitting a return and payment of any tax imposed, (3) imposing an annual privilege tax on a seller who is not registered as a retailer and reported gross sales of at least $5 million on the seller’s most recent federal income tax return, and (4) business entities that are exempt from the privilege tax imposed by this Article.
Eliminates business tax credits. Repeals GS 105-129.16H effective for taxable years beginning on or after January 1, 2013. Moves the sunset date for the following provisions to January 1, 2013 (was, January 1, 2014): (1) Article 3D, Historic Rehabilitation Tax Credit, of GS Chapter 105; (2) Article 3H, Mill Rehabilitation Tax Credit; and (3) Credit for North Carolina State Ports Authority wharfage, handling, and throughput charges (GS 105-130.41 and 105-151.22). Repeals the following statutes effective for taxable years beginning on or after January 1, 2012: GS 105-130.22, 105-130.34, 105-130.36, 105-130.37, and 105-130.44.
Effective January 1, 2014, repeals Article 2 of GS Chapter 105, eliminating the state privilege license tax. Repeal of Article 2 applies to taxes payable under GS 105-41, 105-88, or 105-102.3 for taxable years beginning on or after July 1, 2014, and for taxes imposed under GS 105-102.6, applies to taxes imposed for calendar years beginning on or after January 1, 2013. Applies to obligations dealt in, bought, or discounted on or after January 1, 2014, for taxes payable under GS 105-83. Makes conforming changes, repealing GS 93-12(12), and GS 105-259(b)(4) to delete provisions referencing application of the state privilege license tax.
Makes technical and stylistic changes to the definitions that apply in Article 15, North Carolina Consumer Finance Act, of GS Chapter 53. Also adds a definition for installment paper dealer to mean a person who buys or discounts notes or other evidence of debt that is secured at the time the debt is incurred by personal property located in this state. Amends the definition for person to include an individual and a limited liability company (was, any person, a firm, a partnership, association, or corporation).
Amends GS 53-172(a) to provide that the business of making loans includes acting as an installment paper dealer and collecting a loan made by government regulated lender (was, acting as an installment paper dealer and collecting a loan made by government regulated lender were not considered as being any other business within the meaning of this section). Makes conforming changes to GS 53-191.
Amends GS 95-47.2(d)(3)c to provide that a license for the operation of a private personnel service be denied if the employment service will be operated on the same premises as a (1) loan business that takes as security for repayment of the loans an assignment or wages or any other type of security; (2) a check cashing business regulated under Article 22 of GS Chapter 53; (3) a pawnbroker business regulated under GS Chapter 91A; or (4) a collection agency, as defined in GS 58-70-15.
Modifies the definition for bank holding company in GS 105-130.6A to mean a holding company with an affiliate that is engaged in the business of banking (was, that is subject to the privilege tax on banks).
Amends GS 16A-211(c) to prohibit a city from imposing a license, franchise, or privilege tax on a person engaged in an activity that was formally taxed by the state under the following repealed statutes: GS 105-41, attorneys at law and other professionals; GS 105-83, installment paper dealers; and GS 105-102.3, banks.
Effective January 1, 2014, amends GS 55-1-22 to eliminate filing fees for filing paper and electronic annual reports with the Secretary of State (Secretary). Amends GS 55-16-22 to clarify the annual reporting requirements, providing that the following businesses must file an annual report with the Secretary in the manner required by the Secretary: (1) a corporation that is incorporated under GS Chapter 55, (2) a corporation with a certificate of authority under GS Chapter 55 authorizing the corporation to transact business in this state, and (3) a company that is an insurance company regulated under GS Chapter 58. Specifies the content that must be in the annual report, sets a reporting due date, and identifies when an annual report is considered delinquent. Provides guidelines for dealing with an incomplete report. Makes numerous conforming changes in GS Chapter 105 to replace references to franchise tax with privilege tax, and references to franchise or privilege tax with privilege tax.
Effective January 1, 2013, amends GS 105-129.50 to add definitions for development tier and establishments. Amends the definition for related person to conform with the relationships set forth in 276(b) or 707(b) of the Code. Amends the eligibility requirements for the credit allowed a taxpayer under Article 3F, Technology Development, of GS Chapter 105. Repeals Article 3F for taxable years beginning on or after January 1, 2014. Amends GS 105-230 to provide that a business entity’s right to do business may be suspended for noncompliance (was, charter suspended for failure to file a report). Also amends GS 105-232 providing the procedure for a business entity’s authority to do business to be reinstated after a suspension for noncompliance. Adds a new GS 143B-437.08A regarding wage, health insurance and other standards applicable to economic development incentives. Modifies definitions in GS 143B-437.01(a1). Repeals GS 105-130.9(4); 105-259(b)(24), (37), and (38); and 105-269.13.
Balance State and Local Revenues. Provides specific findings by the General Assembly regarding shared taxes and revenues between the state and its local governments. Provides that the purpose of this Part is to reduce and simplify the commingling of revenues as much as practical and to provide better accountability and understanding for citizens by distinguishing state sources of revenue from local revenue sources.
Effective October 1, 2013. Repeals GS 105 -164.4(c)(3) as enacted by this act (provides that combined rate of tax applies to a retailer’s net taxable sales of spirituous liquor other than mixed beverages. Adds new subsection (b) to GS 105-486 to provide that the net proceeds from sales of spirituous liquor cannot be allocated on a per capita basis; instead, requires the Secretary of Revenue to allocate these proceeds to the county from which the proceeds were collected, or if liquor sales are not authorized throughout the county to which the proceeds are allocated, the Secretary must distribute the proceeds on the basis of population only among the cities in that county in which the sale of liquor is authorized. Repeals GS 105-486(b).
Repeals GS 105-113.82, 115C-546.1, and 105-521. Makes technical changes to GS 108A-93 effective July 1, 2014.
Eliminates imposing local privilege license taxes on businesses by counties and cities. Prohibits a city or county from levying a privilege tax on a trade, occupation, profession, business, or franchise carried on within a city or a county unless authorized by the General Assembly to do so. Repeals GS 105-113.68(a)(6), 105-113.69, 105-113.70, 105-113.71, and Part 3 of Article 2C of GS Chapter 105.
Effective July 1, 2014, makes conforming changes to GS 153A-134 and 160A-194. Amends GS 153A-156 (counties) and 160A-215.1 (cities) to provide that motor vehicles subject to gross receipts tax are exempt from property tax under GS 105-275.
Account for Tax Expenditures in Budget. Notes the General Assembly’s specific findings that a tax expenditure and an appropriation have the same effect on state funds but only appropriations are subject to annual review. States its finding that every tax expenditure should also be subject to regular review. Amends GS 143C-5-3 to require that the budget availability statement include tax expenditures and show the anticipated tax revenues that the state’s tax structure would generate if not for the tax expenditures included in the tax structure. Provides for omitting an estimate for a tax expenditure if neither the Department of Revenue nor the Fiscal research Division can provide an estimate for a tax expenditure.
Transitional Provisions and Effective Date. Directs the Revenue Laws Study Committee (Committee) to study the fiscal impact of the changes proposed by this act and to recommend any needed adjustments to the General Assembly. Specifies areas and issues that the Committee must address. Provides that this act does not affect the rights or liabilities of the state, a taxpayer, or another person that arise under a stature amended or repealed by this act before the effective date of the amendment or repeal of the statute. Additionally provides that the amendment or repeal of a statute does not affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal.
Except as otherwise indicated, this act is effective when it becomes law.
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