AN ACT TO MAKE VARIOUS CHANGES TO THE REVENUE LAWS.
House committee substitute makes the following changes to the 3rd edition.
Part I. Business Tax Changes
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.
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.
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.
Makes technical and clarifying changes to the proposed changes to GS 105-228.4A (Tax on captive insurance companies).
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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
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
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.
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
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
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.
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