AN ACT TO INCREASE THE STANDARD DEDUCTION, TO SIMPLIFY THE FRANCHISE TAX BASE, TO LOWER THE FRANCHISE TAX RATE, TO REQUIRE MARKETPLACE FACILITATORS TO COLLECT AND REMIT SALES AND USE TAX ON MARKETPLACE FACILITATED SALES, AND TO MAKE OTHER TAX LAW CHANGES.
Part I. Personal Income Tax Changes
Amends GS 105-153.5(a) to raise the standard income tax deduction from $20,000 to $20,750 for married, filing jointly/surviving spouse taxpayers; from $15,000 to $15,563 for heads of household; and from $10,000 to $10,375 for single and married, filing separately taxpayers. Effective for taxable years beginning on or after January 1, 2021.
Further amends GS 105-153.5(a) and (c2) to allow, for taxable years 2014 through 2018 (was beginning on or after 2014) a taxpayer, who elected to take the income tax exclusion under section 408(d)(8) of the Internal Revenue Code (Code) for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70 and a half, to deduct the amount that would have been allowed as a charitable deduction under section 170 of the Code had the taxpayer not elected to take the income exclusion. Makes conforming changes to require the taxpayer to add such amount excluded from gross income under the decoupling adjustment provisions.
Part II. Franchise Tax Changes
Amends GS 105-120.2 (Franchise or privilege tax on holding companies). Currently provides for the tax to be the higher of the two rates described in GS 105-120.2(b)(1) and GS 105-120.2(b)(2). Eliminates the specified rates. Instead provides for each rate to be set at the rate provided in GS 105-122(d2), as amended, per $1,000. Maintains that the first rate cannot be less than $200 or exceed $150,000. Now provides that the second rate is per $1,000 on the total actual investment in tangible property in the state as computed under GS 105-122(d), eliminating the requirement of using the greater of that option or 55% of the appraised value of all the real and tangible property in the state plus the appraised value of intangible property. Makes conforming repeal of GS 105-122(d)(2) (possibly intends subsection (d)).
Amends GS 105-122 (Franchise or privilege tax on domestic and foreign corporations). Adjusts the tax rate to set the tax rate for an electric power company or a company that is a member of a qualified group at $1.50 per $1,000 of the company's tax base. Defines a qualified group to mean an affiliated group that has one or more members that is an electric company. For all other C Corporations, lowers the rate to $1.30 (was $1.50) per $1,000 of the corporation's tax base. For S Corporations, lowers the rate to $1.30 from $1.50 per $1,000 of its tax based that exceeds $1 million, but maintains the rate of $200 for the first $1 million of the corporation's tax base. 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 corporate income tax returns.
Further amends GS 105-122, effective for taxable years beginning on or after January 1, 2021, and applicable to the calculation of franchise tax reported on the 2020 and later corporate income tax returns. Lowers the tax rate for C corporations, other than electric power companies or companies which are members of a qualified group, from $1.30 to $1.00 per $1,000 of the corporation's tax base. Also lowers the tax rate for S corporations from $1.30 to $1.00 per $1,000 of its base that exceeds the first $1 million.
Further amends GS 105-122, effective for taxable years beginning on or after January 1, 2027, and applicable to the calculation of franchise tax reported on the 2026 and later corporate income tax returns. Eliminates the separate rate for electric power companies or companies that are members of a qualified group and sets a flat rate for all C corporations at $1.00 per $1,000 of the corporation's tax base.
Part III. Market-based Sourcing for Multistate Income Tax Apportionment
Amends GS 105-130.4 (allocation and apportionment of income for corporations). Concerning the sales factor, establishes that receipts are in the state if the taxpayer's market for the receipts is in the state. Provides for reasonable approximation if the market for a receipt cannot be determined, and if that method is not possible, the receipts must be excluded from the denominator of a taxpayer's sales factor. Makes organizational changes to the parameters regarding a taxpayer's market for receipts in the state, and makes clarifying changes concerning the sale, rental, lease, or license of real property; the rental, lease, or license of tangible property; the sale of service; the rental, lease, or license of intangible property; and the sale of tangible property. Distinguishes the meaning of "used in the state" in determining the market for receipts for the rental, lease, or license of intangible property and the sale of intangible property.
Establishes new subsections to provide that a broadcaster's market and a bank's market for receipts in the state are provided in new GS 105-130.4A.
Establishes a new subsection to set forth parameters to determine the fraction for the apportionable income of an electric power company, defined as a company, including any of its wholly owned noncorporate limited liability companies, primarily engaged in the business of supplying electricity for light, heat, current, or power to persons in the state and that is subject to control of the NC Utilities Commission and/or the Federal Energy Regulatory Commission. Details provisions to determine the average value of real and tangible personal property owned or rented by an electric power company for purposes of formulating the apportionable income fraction.
Directs the Utilities Commission (Commission) to adjust the rate for public utilities, excluding water public utilities with less than $200,000 in annual operating revenues, for the above tax changes. Requires each utility to calculate the cumulative net effect of the changes and file the calculation to reflect the net prospective tax changes to customers within 60 days of the enactment of the act. Defers any adjustments required to existing tax assets or liabilities reflected in the utility's books and records required by the changes and instead requires reflection in customer rates in either the utility's next rate case or earlier if the Commission deems it appropriate.
Enacts GS 105-130.4A to set forth provisions concerning market-based sourcing for broadcasters. Sets forth defined terms applicable to the statute. Sets parameters for determining broadcaster assignment of receipts, requiring reasonable approximation based on the ratio of NC subscribers or a ratio of the NC population in the specific geographic area where advertisements or licensed content is materially used, as described. Allows for the Department of Revenue (Department) to authorize an alternate approach where the rules provided do not reflect an accurate approximation of receipts attributable to the state's market. Establishes the fraction for a broadcaster's receipts factor, and specifies parameters for certain types of receipts, including advertising gross receipts and license fees for audio or video programming in release; subscriber fees, sales, or similar charges from audio or visual programming in release; and the sale of audio or video programming on tangible media.
Enacts GS 105-130.4B to set forth provisions concerning market-based sourcing for banks. Sets forth defined terms applicable to the statute. Establishes a general receipts factor fraction for a bank and includes only the receipts described under the statute as apportionable income for the taxable year. Excludes from the receipts factor: receipts from a casual sale of property, receipts exempt from taxation, the portion of receipts realized from the sale or maturity of securities or other obligations that represents a return of principal, receipts in the nature of certain dividends deducted or excluded from tax, and the portion of receipts from financial swaps and other similar financial derivatives that represent the notional principal amount that generates the cash flow traded in the swap agreement. Provides special rules for: receipts from the sale, lease, or rental of real property; the sale, lease, or rental of tangible personal property; interest, fees, and penalties from loans secured by real property; interest, fees, and penalties from loans not secured by real property; net gains from the sale of loans; receipts from interest, fees, and penalties from cardholders; receipts from ATM fees; net gains from the sale of credit card receivables; miscellaneous receipts (including card issuer's reimbursement fees, receipts from merchant's discounts, loan servicing fees, receipts from services, and receipts from investment assets and activity and trading assets). Provides that all other receipts for which no special rules are provided are to be included in the receipt factor fraction's numerator if the payor is located in the state.
Effective for taxable years beginning on or after January 1, 2020.
Directs the Codifier of Rules to enter into the Administrative Code on the effective date of the act the rules adopted by the Department of Revenue on January 4, 2017, pursuant to Section 38.4 of SL 2016-94 (regarding the implementation and administration of market-based sourcing principles) and approved by the Rules Review Commission on February 16, 2017. Provides that the rules apply to taxable years beginning on or after January 1, 2020.
Part IV. Marketplace Facilitators to Collect Sales Tax
Amends GS 105-164.3 to add the terms marketplace, marketplace facilitated sale, marketplace facilitator, and marketplace seller to the defined terms applicable to Article 5, Sales and Use Tax.
Amends GS 105-164.8 to expand the scope of the tax to a retailer who makes a remote sale in the state by soliciting or transacting business in the state by employees, independent contractors, agents or other representatives, whether the remote sales subject to State tax result from or are related in any other way to the solicitation or transaction of business. Modifies the presumption of solicitation or transacting business by a representative to include if the retailer enters into an agreement with a resident of the state under which the person (was, resident) directly or indirectly refers potential customers to the retailer for a commission or other consideration. Makes conforming changes. Also subjects to the tax a retailer who makes remote sales sourced in the state for the previous or current calendar year with either gross sales over $100,000 or two hundred or more separate transactions (was, for the current calendar year). Adds that this provision include sales as a marketplace seller, as now defined in GS 105-164.3, sourced in the State.
Adds a new provision to subject a retailer who makes remote sales to the State tax if the retailer is a marketplace facilitator, as now defined in GS 105-164.3, that makes sales, including marketplace facilitated sales for all marketplace sellers, as those terms are now defined in GS 105-164.3, sourced to the state for the previous or the current calendar year that either has gross sales in excess of $100,000 or two hundred or more separate transactions. Enacts GS 105-164.4J to establish that a marketplace facilitator meeting this threshold is considered the retailer of each marketplace facilitated sale it makes and is liable for collecting and remitting the sales and use tax on all such sales and treating the sales as a wholesale sale. Requires the marketplace facilitator to comply with the same requirements and procedures as other retailers required to be registered and collect and remits sales and use tax in the state. Clarifies that the requirement applies regardless of whether a marketplace seller for whom the marketplace facilitator makes a marketplace facilitated sale has a physical presence in the state, is required to be registered to collect and remit sales and use tax to the state, would have been required to collect and remit sales and use tax in the state had the sale not been made through a marketplace, and would not have been required to collect and remit sales and use tax in the state had the sale not been made through a marketplace. Requires reporting to each marketplace seller the gross sales sourced to the state and the number of separate transactions sourced to the state on its behalf within 10 days after the end of each calendar month. Provides for instances of refunds on portions of the sales price. Prohibits class actions against a marketplace facilitator related to an overpayment of sales and use tax. Clarifies that a customer's right to seek a refund as provided in GS 105-164.11 is not affected. Allows for a marketplace facilitator and a marketplace seller to enter into an agreement regarding fulfillment of Article 5's requirements, but prohibits a marketplace seller from agreeing to collect and remit sales and use tax on marketplace facilitated sales. Maintains that the use tax obligation of a customer is not affected by a marketplace facilitator's failure to collect and remit sales or use tax. Excludes from the statute an accommodation facilitator, an admission facilitator, or a service contract facilitator whose collection and remittance requirements are set out in specified existing law.
Amends GS 105-237.1 to expand instances in which the Secretary of Revenue (Secretary) can compromise a taxpayer's liability for tax collected under GS 105-241.22 to include when a marketplace facilitator can show to the Secretary's satisfaction that the failure to collect the correct amount of tax was due to incorrect information given to the marketplace facilitator by the marketplace seller.
Further amends GS 105-164.3 to add the terms accommodation and accommodation facilitator. Deletes the definitions subsection from GS 105-164.4F (Accommodation rentals). In calculating the gross receipts derived from the rental of an accommodation, the sales price of the rental of an accommodation made by an accommodation facilitator, which is now defined to include a real estate broker, includes charges designated as facilitation fees, service fees, listing fees, and any other charges necessary to complete the rental (was, previously specified made by a facilitator rather than marketed, and did not include specifically include charges for service fees or listing fees). Now establishes that the liability of an accommodation facilitator for the tax relieves the provider of the accommodation from liability. Defines retailer for purposes of the statute as a provider of the accommodation that meets specified criteria or the accommodation facilitator if it collects payment or a deposit for the accommodation at the time of the reservation. Modifies existing provisions to apply them to a transaction in which the rental of an accommodation is made by an accommodation facilitator but the provider of the accommodation is considered the retailer. Adds a new requirement for the accommodation facilitator to file with the Secretary an annual electronic report by March 31 of each year for the prior calendar year for accommodation rentals for which it is not considered the retailer, including the specified content. Now exempts from the tax a private residence, cottage, or similar accommodation rented for fewer than 15 days in a calendar year unless the accommodation is rented by an accommodation facilitator that is considered the retailer (was, other than that listed with a real estate broker or agent). Makes further conforming changes.
Further amends GS 105-164.3 to define admission charge, admission facilitator, amenity, and entertainment activity (identical to the terms defined in GS 105-164.4G, with the exception of the more specific terminology of admission facilitator rather than facilitator). Makes conforming deletions to GS 105-164.4G (Entertainment activity) and makes changes to refer to an admission facilitator rather than a facilitator throughout.
Further amends GS 105-164.3 to define service contract facilitator (identical to the existing definition of facilitator in GS 105-164.4I). Makes conforming deletions to GS 105-164.4I (Service contracts) and makes changes to refer to a service contract facilitator rather than a facilitator throughout.
Amends GS 105-164.22 regarding recordkeeping requirements, inspection authority, and effect of failure to keep records. Expands the scope of the statute's requirement to keep records that establish their tax liability to include facilitators and real property contractors. Requires a facilitator's records to include records of the facilitator's gross income, gross sales, net taxable sales, all items purchased for resale, any reports or records related to transactions with a retailer with whom it has a contract as provided in Article 5; subjects to liability a facilitator who fails to keep records that establish a sale is exempt. Requires a real property contractor's records to include substantiation that a transaction is a real property contract or a mixed property contract pursuant to specified state law; subjects to liability a real property contractor that fails to keep records that establish a real property contract. Modifies the existing provisions as follows. Requires retailer's records to also include any reports or records related to transactions with a facilitator with whom it has a contract under the Article. Requires a wholesale merchant to maintain records to establish that sale are tax exempt and any reports or records related to transactions with a facilitator with whom it has a contract under the Article. Adds that a consumer's records must include on the invoice any sales and use tax paid on the purchase price of an item purchased from inside or outside the state. Makes further organizational and conforming changes.
Further amends GS 105-164.3 to modify the definitions of advertising and promotional direct mail and bundled transaction to refer to an item rather than a product. Adds the term affiliate. Amends engaged in business to include permanently or temporarily, whether directly or through a subsidiary, having a marketplace facilitator subject to the requirements of GS 105-164.4J, as enacted, or a solicitor transacting business by mobile phone application or other applications in the state; also now includes making marketplace facilitated sales subject to the requirements of GS 105-164.4J, as enacted. Expands remote sale to now include the sale of an item ordered by mail, phone, Internet, or mobile phone application, or another method by a retailer who receives the order in another state and delivers the item or makes the item accessible to a person in the state or causes the item to be delivered or made accessible to a person in the state or performs a service sourced in the state (previously did not include orders by mobile phone apps and limited delivery provisions); presumes a resident who makes an order was in the state at the time the order was made (previously referred to remitting an order). Amends repair, maintenance, and installation services to include activities listed on certain digital property (was digital property). Amends retailer to refer to sales at retail of items (rather than tangible personal property; digital property for storage, use, or consumption in the state; or services) sourced to the state. Now includes a marketplace facilitator subject to the requirements of new GS 105-164.4J or a facilitator required to collect and remit the tax under Article 5 in the term. Makes further organizational, clarifying, and conforming changes.
Specifies that there is no obligation to collect the sales and use tax retroactively. Provides a severability clause for the Part's provisions. Authorizes the Revisor of Statutes to makes technical changes as necessary to GS 105-164.3.
Applies to sales occurring on or after September 1, 2019.
Part V. Other Business Tax Changes
Amends GS 105-130.5 (concerning corporate income tax) and GS 105-153.5 (concerning individual income tax) to provide for an income tax deduction for the amount received by a taxpayer as an economic incentive pursuant to GS 143B-437.012 (Job Maintenance and Capital Development Fund) or Part 2G (Job Development Investment Grant Program) or Part 2H (One North Carolina Fund), Article 10, GS Chapter 143B. Specifies that the corporate deduction is to the extent included in federal taxable income. Applies to amounts received by a taxpayer pursuant to an economic incentive agreement entered into on or after January 1, 2019.
Amends GS 105-129.110, extending the sunset provisions for Article 3L, Historic Rehabilitation Tax Credits Investment Program, now providing for the Article's expiration for qualified rehabilitation expenditures and expenses incurred on or after January 1, 2024 (was 2020). For qualified rehabilitation expenditures and expenses incurred prior to January 1, 2024, provides for the Article's expiration for property not placed in service by January 1, 2032 (was 2028).
Extends the sunset provisions of the following statutes from January 1, 2020, to January 1, 2024: GS 105-164.13(11b) (sales tax exemption for sales of aviation gasoline and jet fuel to an interstate air business for use in a commercial aircraft); GS 105-164.13(65) and (65a) (sales tax exemption for certain sales to a professional motorsports racing team or a related member of a team for competition use, or an engine or part to build or rebuild an engine under an agreement to a professional motorsports team or related member of a team for competition use); and GS 105-164.14A(a)(4) and (5) (concerning tax refunds for a motorsports team or sanctioning body for taxes paid on aviation gasoline or jet fuel used to travel to or from a motorsports event in, from, or to this state, and taxes paid on certain tangible personal property).
Part VI. Facilitate Response to Disasters
Enacts new GS 166A-19.70A as follows. Defines terms that are used in the statute and sets out the statute's purpose. Provides that an out-of-state business performing disaster-related work in the state during a disaster response period at the request of a critical infrastructure company (a registered public communications provider or a registered public utility, as defined in the statute) is not considered to be conducting business in the state and is therefore exempt from franchise tax, income tax, S-corporation income tax, information returns, unemployment tax, workers' compensation, and registration with the Secretary of State to transact business in the state. These exemptions cease to apply when the disaster response period expires. Disaster-related work is defined as repairing, renovating, installing, building, or performing services on critical infrastructure that has been damaged, impaired, or destroyed as a result of a disaster or emergency in an area covered by the disaster declaration. Provides that an out-of-state employee (meaning a nonresident who is an employee of an out-of-state business entitled to the relief described above or a nonresident employee of a critical infrastructure company temporarily in the state to perform disaster-related work during the disaster response period) is not required to pay state income tax, or file an income tax return, on earnings received for disaster-related work performed during a disaster response period. Provides that the employer of an out-of-state employee is not required to withhold income tax from the wages of the employee. Requires a critical infrastructure company that requests an out-of-state business to perform disaster-related work during the disaster response period to notify the State Emergency Response Team (Team) within 30 business days of the out-of-state business's entry into the state. Sets out information that must be included in the notice. Requires the Team to disseminate the information to the appropriate state agencies. Makes conforming changes to GS 96-9.2, GS 97-13, GS 105-125, GS 105-130.11, GS 105-131.7, GS 105-153.4, GS 105-153.8, GS 105-154, and GS 105-163.2.
Enacts new GS 55-1-51 by providing that an out-of-state business performing disaster-related work in this state during a disaster response period at the request of a critical infrastructure company is not required to obtain a certificate of authority from the Secretary of State. Provides that a person issued a temporary license by the Department of Revenue to import, export, distribute, or transport motor fuel in this state in response to a disaster declaration is not required to obtain a certificate of authority from the Secretary of State to transact business in the state for the duration of the temporary license.
Amends GS 105-130.5 by adding to the required additions to federal taxable income in determining state net income payments made to a related party not subject to tax in accordance with the policy in new GS 166A-19.70A, to the extent the payments are deducted in determining federal taxable income.
Enacts new GS 105-449.69A allowing the issuance of a temporary license to import, export, distribute, or transport motor fuel in the state in response to a disaster declaration, which expires upon the expiration of the disaster declaration. Requires filing an application for a temporary license within seven calendar days from the date of the disaster declaration. Requires the application include specified information. Allows issuance of a temporary license without requiring the applicant to file a bond or irrevocable letter of credit and without requiring the applicant to be authorized to transact business in the state with the Secretary of State.
Applies to taxable years beginning on or after January 1, 2019.
© 2019 School of Government The University of North Carolina at Chapel Hill
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