A BILL TO BE ENTITLED AN ACT TO SIMPLIFY THE NORTH CAROLINA TAX STRUCTURE AND TO REDUCE INDIVIDUAL AND BUSINESS TAX RATES.
The conference report makes the following changes to the 6th edition.
Part I. Individual Income Tax Changes
Amends new GS 105-153.3 (previously codified as GS 105-134.1 and recodified by PartI of this act), to define North Carolina taxable income as defined in newGS 105-153.5 (was, defined in GS 105-134.5). Makes an organizational change, removing the repeal of statutes providing business tax credits from this Part, and instead indicating their repeal under Part II, as amended in this edition, which reflects corporate income tax changes. Makes additional organizational changes, technical corrections, and conforming changes to reflect the repeal of statutes by this act and the recodification of statutes under this act.
Amends GS 105-153.5 to make clarifying changes as to a taxpayer's options in determining the deduction amount a taxpayer may deduct from adjusted gross income. Clarifies that the itemized deduction amount is the amount equal to the sum of the listed items in GS 105-153.5(a)(2). Additionally, provides that the amounts allowed under subdivision(a)(2) are not subject to the overall limitation on itemized deductions under section 68 of the Internal Revenue Code (Code). Clarifies that the itemized deduction amount is the amount allowed as a deduction (was, the amount claimed by the taxpayer). Prohibits the amount allowed as a deduction for interest that is paid or accrued during the taxable year for any qualified residence, plus the amount claimedas a deduction for property taxes paid or accrued on real estate, from exceeding $20,000 for that taxable year.
Adds a new subsection (d) to GS 105-153.5 to provide that each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in GS 105-153.5 (Modifications to adjusted gross income) and new GS 105-153.6 (Adjustments when state decouples from federal accelerated depreciation and expensing).
Amends new GS 105-153.7 to set the individual annualincome tax imposed on the NorthCarolina taxable income of every individual at 5.8%, effective for taxable years beginning on or after January 1, 2014. Also amends GS 105-153.7 to set the individual tax rate at 5.75%, effective for taxable years beginning on or after January 1, 2015.
RecodifiesGS 105-151.24(a) as GS 105-153.10(a), and amends this section to provide that a taxpayer is allowed a credit against the tax imposed by Part I of this act for each dependent child for whom the taxpayer is allowed a federal child tax credit under section 24 of the Code. Provides a table that calculatesthe amount of the credit allowed under this section for the taxable year based on the taxpayer's filing status and adjusted gross income (was, set a fixed amount for the credit of $100, provided that the taxpayer's adjusted gross income (AGI) was within specified parameters for the taxpayer's filing stats). Provides that the amount of the allowed credit ranges from $0 to $125 depending upon the taxpayer's filing status and AGI. Effective for taxable years beginning on or after January 1, 2014.
Amends GS 105-153.4 to define North Carolina taxable income to mean the taxpayer's adjusted gross income as modified in GS 105-153.5 and GS 105-153.6.
Makes conforming changes toGS 105-131.2(a) and GS 105-131.7(c) to correct references to statutes repealed by this act. Makes a conforming change to GS 105-154(d).
Part II. Corporate Income Tax Changes
Deletes all of the prior content of this Part which enacted a new Article 31, Business Privilege Tax, in GS Chapter 105.
Amend GS 105-130.3 to impose a tax on the state net income of every C Corporation doing business in North Carolina at the rate of 6% (was, imposed a tax on the net income of every C Corporation doing business in this state as a percentage of the taxpayer's net income computed annually at a rate as specified for each year). Effective for taxable years beginning on or after January 1, 2014. Reduces the rate to 5% effective January 1, 2015.
Repeals GS 105-139.39 and GS 105-130.43, effective January 1, 2014.
Enacts new GS 105-130.3A to provide that a rate deduction in the tax imposed on a C Corporation under GS 105-130.3 is triggered if the amount of net General Fund tax collected in fiscal years 2014-15or 2015-16 exceeds the anticipated General Fund tax collection for that fiscal year. Details amounts that will trigger such a rate reduction and sets the percentage amount of the reduction. Provides that effective January 1, 2017, the tax rate set in GS 105-130.3 is the rate determined in accordance with this section.
Rewrites the title of Article 3F of GS Chapter 105 as Research and Development (was, Technology Development). Repeals GS 105-129.50(4a) and GS 105-129.56.Amends GS 105-129.51(b) to repeal Article 3F effective for taxable years beginning on or afterJanuary 1, 2016 (was, January 1, 2014). Amends GS 105-129.54 to delete the requirement that the Department ofRevenue must include in required economic incentive reports information regarding taxpayers taking a credit under GS 105-129.55 and regarding the credit allowed under GS 105-129.56. Effective for taxable years beginning on or after January 1, 2014.
Part III. Sales Tax Changes
Deletes all of the prior content of this Part which made changes tolower thefranchise tax rate.Instead,includes changes to the sales tax.
Amends GS 105-467(a) to restore the sales price of bread, rolls, and buns, sold at a bakery thrift store and exempt from state tax under GS 105-164.12(27a), tothe list of items subject to the first1% local government sales and use tax. Effective January 1, 2014, and applies to sales made on orafter that date.
Restores previously repealed subdivision (30), regarding tax on vending machine sales,of GS 105-164.13 (providing for exemptions from the sales and use tax for listed items and services). Deletes changes to subdivision (50) of this section and deletes provision that repealed subdivision (50).Amends subdivision (26) of this section to clarify that the exemption from the sales and use tax for food sold not-for-profit by a school, applies to a public school or a nonpublic school, including a charter school and a regional school.
Amends GS 105-164.15A to make its provisions apply to the effective date of atax change (was, applied to services and items taxed at combined general rates) for personal property, digital property, or services that are taxable under this Article. Makes conforming changes, replacing "service" with "taxable item."
Amends new GS 105-164.13E which exempts qualified farmers from sales and use tax for tangible personal property, digital property, and services purchased by the farmer and used in the planting, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals. Specifies that the exemption for fuel and electricity applies to fuel and electricity that is measured by a separate meter or another separate device and used for purposes other than food preparation, heating dwellings, and other household purposes. Adds an exemption for grain, feed, or soybean storage facility and the parts and accessories attached to the facility. Also adds an exemption for a commercially manufactured facility,commercially manufactured equipment and its parts and accessories, andbuilding materials used in construction, repair, or improvement of enclosures for the housing, raising or feeding of animals. The exemption also includes a bulk tobacco barn or rack, parts, and accessories that are attached and any similar apparatus used to cure or dry tobacco or another crop. Makes a conforming change, deleting GS 105-164.13(4c). Effective July 1, 2014 and applies to sales made on or after that date.
Amends GS 105-164.14(b) to provide that the aggregate amount for an annual refund allowed under this subsection, Nonprofit Entities and Hospital Drugs, for a fiscal year may not exceed $31.7 million.
Makes conforming changes to GS 105-467(b) to provide that theexemptions and exclusionsthat apply to the local sales and use tax are contained in GS 105-164.13 as a result of amendments under this act.Provides that the state 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 this Article. Provides that the aggregate local refund amount allowed an entity under GS 105-164.14(b) for a fiscal year may not be more than $13.3 million. Makes a request for a refund due in the same time and manner as provided in GS 105-164.14 (was, within six months after the end of the entity's fiscal year).
This PartamendsGS 105-467(a),which sets a sales tax rate under Article 39 of GS Chapter 105 at1% for specified categories, to remove the sales price of bread, rolls, and buns sold at a bakery thrift store, and exempt from state tax under GS 105-164.13(27a)from the list of items subject to the first1% local government sales and use tax. Effective July 1, 2014 and applies to purchases made after this date.
Amends GS 105-164.14A(a) to repeal the subdivisions (1), (4) and (5) which allow the followingtaxpayers an annual refund of sales and use tax: passenger air carrier, motor sports team or sanctioning body, and professionalmotor sports team, effective for purchases made on or after January 1, 2016 (was, repealed effective for purchases made on or after January 1, 2014).
Part IV. Electricity and Piped Natural Gas Tax Changes
Deletes the changes to GS 105-164.15A regarding the effective date of a rate change for an item taxable at the combined general rate.
Amends new GS 105-164-44K regarding the distribution of part of the tax on electricity to the cities less the cost of administering the distribution.Provides for distributing the franchise share of each city on a pro rata basis if the net proceeds of the tax are insufficient to distribute the franchise share to each city. Clarifies that the quarterly franchise tax share is the total amount of electricity gross receipts franchise distributed to the city and provides that the quarterly franchise tax share of a city includes adjustments made for the hold-harmless amounts under repealed GS 105-116. Provides that if the franchise tax share of a city is is less than zero then the amount is zero. Deletes subsection regarding methodology. Effective July 1, 2014.
Amends newGS 105-164.44L regarding the distribution to cities of a share of the net proceeds of the tax collected on piped natural gas less the cost of administering the distribution. Provides that each city's share of the distribution is its excise tax calculated under subsection (b) of this section plus its ad valoremshare calculated under subsection (c) of this section. Provides for the proceeds to be distributed on a pro rata basis if the net proceeds of the tax are insufficient to distribute the excise tax share of each city under subsection (b) of this section.Deletes subsection regarding methodology. Effective July 1, 2014.
Amends Section 3 of SL 1965-347 to declare all property owned by Cape Hatteras Electric Membership Corporation (Corporation)to be exempt from property taxes to the same extent as property owned by a county or municipality of the state as long as the property is owned by the Corporation and is held and used solely for furnishing electricity to consumers on Hatteras Island and Ocracoke Island. Makes the Corporation subject to any other taxes to the same extent as any other electric membership corporations established under GS Chapter 117. Effective July 1, 2014.
Part V. Admission Charges to an Entertainment Activity
Amends new subdivision to GS 105-164.4(a) to provide that admission charges to a museum, a cultural site, a garden, an exhibit, a show, or a similar attraction, or a guided tour at any of these attractions are also subject the general rate of tax of 4.75%.
Deletes therepeal ofGS 105-164.9, which makes it unlawful for any retailer to offerto absorb the tax levied inArticle 5 of GS Chapter 105,or in any manner directly or indirectly to advertise that the sales and use tax imposed is not considered an element in the price to the purchaser.
Amends the catch line for GS 105-164.10 to read, Retail tax calculation (was, Retail bracket system). Makes additional conforming and technical changes to this Part.
Makes the provisions inthis Part,effective January 1, 2014 (was, October 1, 2013), and applies to admissions purchased on or after that date. Provides that gross receipts received on or after January 1, 2014 (was, October 1, 2013) for admission to a live event for which the initial sale of tickets occurred before that date, other than gross receipts received by a ticket reseller, are taxable under GS 105-37.1.
Part VI. Service Contracts
Amends GS 105-164.13 to identify as exempt from the sales and usetax under Article 5 of GS Chapter 105, a service contract for tangible personal property as specified in this section and an item used to maintain or repair tangible personal property under a service contract if the contract purchaser is not charged for the item. Deletes a service contract on tangible personal property that is provided for a newly constructed building or structure from those the list of exemptions. Effective January 1, 2014 (was, July 1, 2014) and applies to sales made on or after that date.
Part VIII. Cap Excise Tax on Motor Fuel
Provides that the motor fuel excise tax rate may not exceed thirty-seven and one-half cents per gallon for the period from October 1, 2013 (was, September 1, 2013) through June 30, 2015.
Part IX. Study and Effective Date
Makes a conforming change to GS 105-237.1(a)(6) to reference the appropriate subdivisions of GS 105-164.4(a) as amended in this act.
Adds the following tax issues to the list of those issues to be studied by the Revenue Laws Study Committee and reported on to the 2014 Regular Session of the 2013 General Assembly upon its convening: (1) the application of the corporate income tax rate reduction trigger formula, (2) the low-income housing credit, and (3) the distribution of the sales tax collected on electricity and piped natural gas to cities.
Deletes all the provisions of Part V. Eliminate Annual Report Filing Fees, Part VII. Sales Tax Refunds, Part XII. Eliminate Earmarks and Credit to General Fund, and Part XIII. Repeal Tobacco Discount.
Except as otherwise indicated, this act is effective when it becomes law.
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