AN ACT TO INCREASE THE STANDARD DEDUCTION, TO EXPAND THE DEFINITION OF HOLDING COMPANY FOR FRANCHISE TAX PURPOSES, TO IMPLEMENT MARKET-BASED SOURCING FOR MULTISTATE INCOME TAX APPORTIONMENT, TO REQUIRE CERTAIN MARKETPLACE FACILITATORS TO COLLECT SALES TAX, TO DIRECT REVENUE LAWS TO STUDY CERTAIN TAX SUNSET PROVISIONS, AND TO MAKE TECHNICAL CORRECTIONS.
Senate committee substitute deletes the provisions of the 1st edition and now provides the following.
Amends GS 105-153.5(a) to raise the standard income tax deduction from $20,000 to $21,500 for married, filing jointly/surviving spouse taxpayers; from $15,000 to $16,125 for heads of household; and from $10,000 to $10,750 for single and married, filing separately taxpayers. Effective for taxable years beginning on or after January 1, 2020.
Amends GS 105-120.2 (Franchise or privilege tax on holding companies). Adds to the conditions which qualify a corporation as a holding company under the statute to now include ownership of copyrights, patents, or trademarks that represent more than 80% of the corporation's total assets, or receipt of royalties and license fees that represent more than 80% of the corporation's total gross income, when the corporation is owned 100% by a corporation that meets three specified criteria, including generating revenues in excess of $5 billion from goods that it manufactures. 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.
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 wholesale content distributor and a bank's market for receipts in the state are provided in new GS 105-130.4A and GS 105-130.4B. Additionally, establishes a 2% multiplier for wholesale content distributors' gross receipts.
Further amends the statute to provide that, for companies subject to rate regulation by the Federal Energy Regulatory Commission, receipts from the transportation or transmission of petroleum-based liquids or natural gas are to be apportioned using traffic units, defined as barrel miles or cubic foot miles, in the state during the tax year (previously limited to petroleum-based liquids pipeline companies with income apportioned by barrel miles).
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.
Adds a new subsection to allow a corporate taxpayer with a State net loss balance as of the end of its 2019 taxable year, as computed under GS 105-130.8A, to elect to apportion receipts from services based on the percentage of its income-producing activities performed in the state, rather than under the apportionment provisions of subsection (l)(4), as amended. Deems the election binding and irrevocable until the earlier of the tax year in which the existing State net loss balance is fully utilized or has expired. Requires the election to be made on the 2020 tax return. Defines State net loss balance to mean the total amount of State net losses computed under GS 105-130.8A for taxable years beginning before January 1, 2020, and available to carry forward to taxable years beginning on or after January 1, 2020.
Enacts GS 105-130.4A to set forth provisions concerning market-based sourcing for wholesale content distributors. Sets forth defined terms applicable to the statute. Establishes the fraction for a wholesale content distributor's receipts factor, and specifies parameters for determining receipts from transactions and activities in the regular course of business derived from business and individual customers in the state.
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.
Amends GS 105-122(c1) to require a corporate taxpayer electing to apportion its receipts from services based on the percentage of its income-producing activities performed in the state to use the statutory apportionment method under the subsection unless the Department of Revenue authorizes an alternative method. Explicitly prohibits the apportionment fraction for a wholesale content distributor from being less than 2%.
Effective for taxable years beginning on or after January 1, 2020.
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.
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.
Directs the Department of Revenue to adopt and submit to the Rules Review Commission necessary rules regarding the implementation and administration of market-based sourcing principles, as enacted. Sets parameters for their adoption.
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 person (was, 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 includes 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. Requires the marketplace facilitator to comply with the same requirements and procedures as other retailers required to be registered and collect and remit 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, or making available a report, 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. Provides for relief from liability for a marketplace facilitator's failure to collect the correct amount of tax due if two circumstances are met. Details exclusion from the relief provided. 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.
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 any charges or fees charged by the accommodation facilitator to the purchase of the accommodation that are necessary to complete the rental (previously, specified marketed by a facilitator rather than made, and was limited to charges designated as facilitation fees or any other fees necessary to complete the rental). Deems the tax due and payable to the retailer pursuant to GS 105-164.16. Defines retailer for purposes of the statute as a provider of the accommodation or an accommodation facilitator that collects payment or a portion of payment for the rental accommodation. Provides that subsection (c), which concerns accommodation facilitator transactions, applies only to an accommodation facilitator operated by or on behalf of a hotel or a hotel corporation, that facilitates the rental of hotel accommodations solely for the hotel or the hotel corporation’s owned or managed hotels and franchisees, and that collects payment, or a portion thereof, for the accommodation rental. Specifies that an accommodation facilitator subject to (c) is not considered the retailer of the rental of the accommodation. Requires the accommodation facilitator to send the retailer the tax due on the sales price, or the portion of the sales price, the accommodation facilitator collected. Makes the retailer liable for reporting and remitting the tax due on the portion of the gross receipts derived from the rental of the accommodation that the retailer collects. 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. Limits use of the report to the Secretary and any person in receipt of the report for tax compliance purposes. Modifies the exemptions to now exempt 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 (was, other than that listed with a real estate broker or agent). Makes further conforming changes.
Amends GS 160A-215 and GS 153A-155, concerning occupancy taxes, to give an accommodation facilitator, as defined in the act under GS 105-164.3 (was, a rental agent or a facilitator), the same responsibility and liability under the room occupancy tax as the accommodation facilitator has under the State sales tax on accommodations.
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 record-keeping 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 sales 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 and facilitator. 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 section'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 February 1, 2020.
Amends GS 120-70.106 to authorize the Revenue Laws Study Committee to review any tax provision set to sunset within one year of the beginning of the next regular legislative session to determine whether the sunset needs to be extended.
Amends GS 105-164.13(61a) to exempt from sales tax self-service vehicle washes or vacuums (was, self-service car washes or vacuums) and limited-service vehicle washes.
Amends Section 3.9 of SL 2019-169, which modifies and adds to various tax laws, including those applicable to real property management, to strike the provision that deems the section's changes applicable to property management contracts entered into on or after the date the act became law, and instead, provides that the provisions of GS 105-164.15A, which details the administration of certain tax rate changes, apply to the implementation of the changes as if it is a decrease in the tax rate. Applies retroactively to July 16, 2019.
Amends GS 105-164.3 to define gross sales, as the term is used in Article 5 concerning sales and use tax, to mean the sum total of the sales price of all sales of tangible personal property, digital property, and services (was, of all sales of items).
Makes conforming changes to the act's titles.
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