GSNC

Subchapter 10. Local Option County Taxes.

SUBCHAPTER I. LEVY OF TAXES.

§ 105-1. Title and purpose of Subchapter.

The title of this Subchapter shall be "The Revenue Act." The purpose of this Subchapter shall be to raise and provide revenue for the necessary uses and purposes of the government and State of North Carolina during the next biennium and each biennium thereafter, and the provisions of this Subchapter shall be and remain in full force and effect until changed by law. It is the policy of this State that as many State taxes as possible be structured so that they are deductible for federal income tax purposes under the Internal Revenue Code.

History

(1939, c. 158, ss. A, B; 1941, c. 50, s. 1; 1983 (Reg. Sess., 1984), c. 1097, s. 1.)

Cross References. - As to the Department of Revenue, see G.S. 143B-217 through 143B-220.

Editor's Note. - Session Laws 2016-23, s. 2(a), provides: "Taxes. - The following provisions apply to taxes affected by boundary certification:

"(1) Neither the State nor a subdivision of the State may assess a tax on a person for activities occurring prior to the date of certification where the basis of the assessment is the certification.

"(2) The State and its subdivisions may assess a tax for activities occurring on or after the date of certification subject to the following conditions:

"a. For taxes imposed for a taxable period, the tax may not be imposed for a period beginning prior to the date of certification.

"b. For sales and use taxes for an item that is provided and billed on a monthly or other periodic basis, the tax may not be assessed for periods beginning prior to the date of certification.

"c. For a person subject to taxes levied under Article 2A of Chapter 105 of the General Statutes who, on the date of the certification, has on hand any tobacco products, the person must file a complete inventory of the tobacco products within 20 days after date of certification and must pay an additional tax to the Secretary of Revenue when filing the inventory. The amount of the tax due is the amount due based on the current tax rate less any tax paid on the inventory to another state.

"d. For installments and carryforwards of tax benefits allowed by this State at the time of boundary certification for activities with a situs in South Carolina, a person may claim remaining installments and carryforwards against State tax liability.

"e. For land that is classified under G.S. 105-277.3 at the time of boundary certification and that fails to meet the size requirements of G.S. 105-277.3 solely because of boundary certification, (i) no deferred taxes are due as a result of boundary certification, (ii) the deferred taxes remain a lien on the land located in this State, and (iii) the deferred taxes for the land in this State are otherwise payable in accordance with G.S. 105-277.3. The tax benefit provided in this sub-subdivision is forfeited if any portion of the land located in this State is sold.

"f. For land receiving a property tax benefit other than classification under G.S. 105-277.3 at the time of boundary certification that fails to meet the requirements for the property tax benefit solely because of boundary certification, the land is not entitled to receive the property tax benefit after the time of boundary certification unless it meets the statutory requirements, but the lien on the land for the deferred taxes is extinguished as if it has been paid in full.

"(3) A person may not seek a refund for activities occurring prior to the date of certification where the basis of the refund is the certification."

Session Laws 2016-23, s. 12(a) is a severability clause.

Legal Periodicals. - For article discussing this Subchapter, see 15 N.C.L. Rev. 387 (1937).

For survey of 1980 constitutional law, see 59 N.C.L. Rev. 1116 (1981).

For note surveying tax relief enacted by the 1985 General Assembly, see 64 N.C.L. Rev. 1508 (1986).

For article, "Causation, Science and Taxation," see 10 Elon L. Rev. 1 (2018).

For article, "Crises and Tax," see 67 Duke L.J. 1155 (2018).

CASE NOTES

Taxing Power of General Assembly. - The General Assembly has an unlimited right to tax all persons domiciled within the State, and all property within the State, except so far as this right has been limited by the provisions of the Constitution, either expressly or by necessary implication. Pullen v. Commissioners of Wake County, 66 N.C. 361 (1872).

Uniformity Required. - Under N.C. Const., Art. V, § 2(1), (2) and (6), the same rule of uniformity applies to the taxing of "trades, professions, franchises and incomes" as to the other species of property therein named, and there must also be uniformity in the mode of assessment. Worth v. Petersburg R.R., 89 N.C. 301 (1883).

Uniformity, in its legal and proper sense, is inseparably incident to the power of taxation, whether applied to taxes on property or to those imposed on trades, professions, etc. State v. Moore, 113 N.C. 697, 18 S.E. 342 (1893), overruled on other grounds, State v. Hunt, 129 N.C. 686, 40 S.E. 216 (1901).

Statement of Object in Levying Taxes. - The N.C. Const., Art. V, § 5, requires that every act levying taxes shall state the objects to which they shall be appropriated. This provision, however, has no application to taxes levied by county authorities for county purposes. Parker v. Board of Comm'rs, 104 N.C. 166, 10 S.E. 137 (1889).

Abortion Funding as Necessary Use and Purpose. - The funding of elective abortions constitutes a "necessary use and purpose of government" within the meaning of this section, and the appropriation and expenditure of State tax moneys for elective abortions does not violate N.C. Const., Art. V, § 5. Stam v. State, 47 N.C. App. 209, 267 S.E.2d 335 (1980), aff'd, 302 N.C. 357, 275 S.E.2d 439 (1981).

Legislative Delegation of Power to Municipal Corporation. - The legislature may authorize a municipal corporation to lay taxes on the town property, the persons, and the subject of taxation incident to the persons, of those who have a business residence in town though they have a residence also out of town. Worth v. Commissioners of Fayetteville, 60 N.C. 617 (1864).

Applied in Great Am. Ins. Co. v. Gold, 254 N.C. 168, 118 S.E.2d 792 (1961).

Cited in Robert E. Harris Evangelistic Ass'n v. Board of Tax Supervision, 3 N.C. App. 479, 165 S.E.2d 67 (1969); In re Estate of Kapoor, 303 N.C. 102, 277 S.E.2d 403 (1981); County of Lenoir v. Moore, 114 N.C. App. 110, 441 S.E.2d 589 (1994), aff'd, 340 N.C. 104, 455 S.E.2d 158 (1995); County of Carteret v. Long, 128 N.C. App. 477, 495 S.E.2d 391 (1998); Midrex Techs. v. N.C. Dep't of Revenue, 369 N.C. 250, 794 S.E.2d 785 (2016).

§ 105-1.1. Supremacy of State Constitution.

The State's power of taxation is vested in the General Assembly. Under Article V, Section 2(1), of the North Carolina Constitution, this power cannot be surrendered, suspended, or contracted away. In the exercise of this power, the General Assembly may amend or repeal any provision of this Subchapter in its discretion. No provision of this Subchapter constitutes a contract that the provision will remain in effect in future years, and any representation made to the contrary is of no effect.

History

(2003-416, s. 12.)

ARTICLE 1. Inheritance Tax.

§§ 105-2 through 105-32: Repealed by Session Laws 1998-212, s. 29A.2(a), effective January 1, 1999, and applicable to the estates of decedents dying on or after that date.

ARTICLE 1A. Estate Taxes.

§§ 105-32.1 through 105-32.8: Repealed by Session Laws 2013-316, s. 7(a), effective January 1, 2013, and applicable to the estates of decedents dying on or after that date.

History

(§§ 105-32.1, 105-32.3 - 105-32.7: 1998-212, s. 29A.2(b); repealed by 2013-316, s. 7(a), effective January 1, 2013. § 105-32.2: 1998-212, s. 29A.2(b); 2002-87, s. 9; 2002-126, ss. 30C.3(a), 30C.3(b); 2003-284, ss. 37A.4, 37A.5; 2003-416, s. 1; 2004-170, ss. 1, 4(a), (b); 2005-144, ss. 8.1, 8.2; 2006-162, s. 26; 2008-107, s. 28.17(a); repealed by 2013-316, s. 7(a), effective January 1, 2013. § 105-32.8: 1998-212, s. 29A.2(b); 1999-337, s. 13; 2005-435, s. 24; 2006-18, s. 3; 2007-491, s. 6; repealed by 2013-316, s. 7(a), effective January 1, 2013.)

Editor's Note. - Former G.S. 105-32.1 pertained to definitions. Former G.S. 105-32.2 pertained to estate tax imposed in amount equal to federal state death tax credit. Former G.S. 105-32.3 pertained to liability for estate tax. Former G.S. 105-32.4 pertained to payment of estate tax. Former G.S. 105-32.5 pertained to making installment payments of tax due when federal estate tax is payable in installments. Former G.S. 105-32.6 pertained to estate tax is a lien on real property in the estate. Former G.S. 105-32.7 pertained to generation-skipping transfer tax. Former G.S. 105-32.8 pertained to federal determination that changes the amount of tax payable to the State.

ARTICLE 2. Privilege Taxes.

Sec.

§ 105-33. Taxes under this Article.

General. - Taxes in this Article are imposed for the privilege of carrying on the business, exercising the privilege, or doing the act named.
License Taxes. - A license tax imposed by this Article is an annual tax. The tax is due by July 1 of each year. The tax is imposed for the privilege of engaging in a specified activity during the fiscal year that begins on the July 1 due date of the tax. The full amount of a license tax applies to a person who, during a fiscal year, begins to engage in an activity for which this Article requires a license. Before a person engages in an activity for which this Article requires a license, the person must obtain the required license.
Other Taxes. - The taxes imposed by this Article on a percentage basis or another basis are due as specified in this Article.
Repealed by Session Laws 1998-95, s. 2, effective July 1, 1999.
Repealed by Session Laws 1989, c. 584, s. 1.
, (g) Repealed by Session Laws 1998-95, s. 2, effective July 1, 1999.
Liability Upon Transfer. - A grantee, transferee, or purchaser of any business or property subject to the State taxes imposed in this Article must make diligent inquiry as to whether the State tax has been paid. If the business or property has been granted, sold, transferred, or conveyed to an innocent purchaser for value and without notice that the vendor owed or is liable for any of the State taxes imposed under this Article, the property, while in the possession of the innocent purchaser, is not subject to any lien for the taxes.
, (j) Repealed by Session Laws 1998-95, s. 2, effective July 1, 1999.
Repealed by Session Laws 1987, c. 190.

History

(1939, c. 158, s. 100; 1943, c. 400, s. 2; 1951, c. 643, s. 2; 1953, c. 981, s. 1; 1963, c. 294, s. 3; 1973, c. 476, s. 193; 1977, c. 657, s. 1; 1981, c. 83, ss. 1, 2; 1985, c. 114, s. 10; 1985 (Reg. Sess., 1986), c. 826, ss. 1, 2; c. 934, s. 3; 1987, c. 190; 1989, c. 584, s. 1; 1989 (Reg. Sess., 1990), c. 814, s. 1; 1991 (Reg. Sess., 1992), c. 981, s. 1; 1993, c. 539, s. 688; 1994, Ex. Sess., c. 24, s. 14(c); 1996, 2nd Ex. Sess., c. 14, ss. 18, 19; 1998-95, ss. 1, 2.)

Local Modification. - Town of Pittsboro: 1993, c. 358, s. 9(a).

Cross References. - As to power of county to levy license taxes as authorized by this Article, see G.S. 153A-152.

For deletion of Division I designation for G.S. 105-103 through 105-113 of this Article, see the Editor's note under G.S. 105-103.

Editor's Note. - Effective July 1, 1999, Session Laws 1998-95, s. 1 rewrote the catchline of this Article to read "Privilege Taxes."

Session Laws 1996, Second Extra Session, c. 13, s. 1, provides that this act shall be known as the William S. Lee Quality Jobs and Business Expansion Act.

Session Laws 1996, Second Extra Session, c. 13, s. 4.2, effective July 1, 1999, provided: "Effective July 1, 1999, Article 2B of Chapter 105 of the General Statutes, as amended by this act, is repealed. The Secretary shall retain from collections under Article 2 of Chapter 105 of the General Statutes the cost of refunding the taxes levied in Article 2B of Chapter 105 of the General Statutes."

Session Laws 1996, Second Extra Session, c. 13, s. 10.1, provides: "This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this act before its amendment or repeal; nor does it affect the right to any refund or credit of a tax that would otherwise have been available under the amended or repealed statute before its amendment or repeal."

Legal Periodicals. - For comment on 1943 amendment which made additions to the section, see 21 N.C.L. Rev. 368 (1943).

CASE NOTES

Several Occupations Conducted by Individual. - Where several occupations are conducted in a town by the same individual, a privilege tax on one does not prevent a similar tax on another. Guano Co. v. Town of Tarboro, 126 N.C. 68, 35 S.E. 231 (1900).

Goods Manufactured in Another State. - The right of a state to tax traders, professions and avocations within the borders of the state is unquestionable, though the goods dealt in are manufactured in another state. State v. Gorham, 115 N.C. 721, 20 S.E. 179 (1894).

Peddling. - A State license issued under G.S. 105-53 authorizes the licensee to engage in the business of peddling. State v. Byrd, 259 N.C. 141, 130 S.E.2d 55 (1963).

Applied in Eastern Carolina Tastee-Freez, Inc. v. City of Raleigh, 256 N.C. 208, 123 S.E.2d 632 (1962).

Cited in State v. Warren, 211 N.C. 75, 189 S.E. 108 (1937); Duke Power Co. v. Bowles, 229 N.C. 143, 48 S.E.2d 287 (1948); Northcutt v. Clayton, 269 N.C. 428, 152 S.E.2d 471 (1967); Greene v. City of Winston-Salem, 287 N.C. 66, 213 S.E.2d 231 (1975); Chrysler Fin. Co., L.L.C. v. Offerman, 138 N.C. App. 268, 531 S.E.2d 223 (2000).

§ 105-33.1. Definitions.

The following definitions apply in this Article:

City. - Defined in G.S. 105-228.90.
Code. - Defined in G.S. 105-228.90.
Repealed by Session Laws 1998-95, s. 3, effective July 1, 1999.
Person. - Defined in G.S. 105-228.90.
Secretary. - Defined in G.S. 105-228.90.

History

(1991, c. 45, s. 1; 1991 (Reg. Sess., 1992), c. 922, s. 2; 1993, c. 12, s. 3; c. 354, s. 6; 1998-95, s. 3.)

§ 105-34: Repealed by Session Laws 1979, c. 63.

§ 105-35: Repealed by Session Laws 1979, c. 72.

§§ 105-36 through 105-37: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-37.1: Repealed by Session Laws 2013-316, s. 5(a), effective January 1, 2014, and applicable to gross receipts derived from an admission charge sold at retail on or after that date.

History

(1939, c. 158, ss. 105, 106; 1943, c. 400, s. 2; 1945, c. 708, s. 2; 1947, c. 501, s. 2; 1963, c. 1231; 1967, c. 865; 1973, c. 476, s. 193; c. 476, s. 193; 1977, c. 657, s. 1; 1981, c. 2; c. 83, s. 3; c. 977; 1985, c. 376; 1985 (Reg. Sess., 1986), c. 819, s. 3; 1987 (Reg. Sess., 1988), c. 1082, s. 1.1; 1989, c. 584, ss. 5, 6; 1989 (Reg. Sess., 1990), c. 814, s. 2; 1991, c. 45, s. 2; 1996, 2nd Ex. Sess., c. 14, s. 20; 1998-95, ss. 4, 5; 1999-337, s. 14(a); 1999-456, s. 26; 2010-31, s. 31.7(a); 2011-330, s. 1; repealed by 2013-316, s. 5(a), effective January 1, 2014.)

Local Modification. - Prior to the repeal of G.S. 105-37.1 by Session Laws 2013-316, s. 5(a), there were local modifications to this section in the following localities: Cabarrus: 1961, c. 1032; city of Greensboro: 1989, c. 383, s. 1; Forsyth-Guilford Metropolitan Baseball Park Authority: 1997-380, s. 1.

Editor's Note. - The historical citation for this section incorporates the history of repealed G.S. 105-38, which was combined into this section by Session Law 1999-337.

Session Laws 2013-316, s. 5(f), as amended by Session Laws 2014-3, s. 5.1(f), provides: "This section becomes effective January 1, 2014, and applies to gross receipts derived from an admission charge sold at retail on or after that date. For admissions to a live event, the tax applies to the initial sale or resale of tickets occurring on or after that date; gross receipts received on or after January 1, 2014, 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 G.S. 105-37.1. Gross receipts derived from an admission charge sold at retail to a live event occurring on or after January 1, 2015, are taxable under G.S. 105-164.4G, regardless of when the initial sale of a ticket to the event occurred."

Former G.S. 105-37.1 pertained to live entertainment and ticket resales.

Effect of Amendments. - Session Laws 2010-31, s. 31.7(a), in the section heading, substituted "Live entertainment and ticket resales" for "Dances, athletic events, shows, exhibitions, and other entertainments"; in subsection (a), in the introductory language, deleted "gross receipts of a person who is engaged in any of the" preceding "following"; rewrote subdivision (a)(1), which formerly read: "Giving, offering, or managing a dance or an athletic contest for which an admission fee in excess of fifty cents (50 › ) is charged."; rewrote subdivision (a)(2), which formerly read: "Giving, offering, or managing a form of amusement or entertainment that is not taxed by another provision of this Article and for which an admission fee is charged."; in subsection (b), in the first sentence, substituted "tax imposed by this section is three percent (3%)" for "tax is three percent (3%) of the gross receipts from the activities described in subsection (a) of this section"; in subsection (c), in the first sentence, substituted "a live entertainment performance" for "a performance, show, or exhibition," and "performance" for "performance, show, or exhibition" in the first and last sentences; and rewrote subsection (d). For effective dates, see editor's note.

§§ 105-37.2 : Repealed pursuant to Session Law 1998-96, s. 3, effective July 1, 1999.

Editor's Note. - Session Laws 1998-96, s. 3, made this section, relating to tax exemptions for arts festivals and community festivals, effective August 14, 1998. Section 3 further stated that s. 1 of that act would be repealed effective July 1, 1999, only if Senate Bill 1252, An Act To Simplify And Modify Privilege And Excise Taxes And Related Permit Fees, was enacted by the 1998 General Assembly. Senate Bill 1252 was enacted as Session Laws 1998-95.

§ 105-38: Repealed by Session Laws 1999-337, s. 14(b), effective July 22, 1999.

§ 105-38.1: Repealed by Session Laws 2013-316, s. 5(a), effective January 1, 2014, and applicable to gross receipts derived from an admission charge sold at retail on or after that date.

History

(1998-95, s. 5.1; 1999-337, s. 15(a); repealed by 2013-316, s. 5(a), effective January 1, 2014.)

Editor's Note. - Session Laws 2013-316, s. 5(f), as amended by Session Laws 2014-3, s. 5.1(f), provides: "This section becomes effective January 1, 2014, and applies to gross receipts derived from an admission charge sold at retail on or after that date. For admissions to a live event, the tax applies to the initial sale or resale of tickets occurring on or after that date; gross receipts received on or after January 1, 2014, 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 G.S. 105-37.1. Gross receipts derived from an admission charge sold at retail to a live event occurring on or after January 1, 2015, are taxable under G.S. 105-164.4G, regardless of when the initial sale of a ticket to the event occurred."

Former G.S. 105-38.1 pertained to motion picture shows.

§ 105-39: Repealed by Session Laws 1987 (Regular Session, 1988), c. 1082, s. 1.

§ 105-40: Repealed by Session Laws 2013-316, s. 5(a), effective January 1, 2014, and applicable to gross receipts derived from an admission charge sold at retail on or after that date.

History

(1939, c. 158, s. 108; 1998-95, ss. 5.1, 6; 1998-96, s. 2; 1999-337, s. 15(b); 2000-140, s. 61; 2004-84, s. 1; 2006-216, s. 1; 2007-527, ss. 2, 3(a), (b); 2009-550, s. 5.1; repealed by 2013-316, s. 5(a), effective January 1, 2014.)

Editor's Note. - The historical citation for this section incorporates the history of repealed G.S. 105-38.1(b), which was combined into this section by Session Laws 1999-337.

§ 105-41. Attorneys-at-law and other professionals.

Every individual in this State who practices a profession or engages in a business and is included in the list below must obtain from the Secretary a statewide license for the privilege of practicing the profession or engaging in the business. A license required by this section is not transferable to another person. The tax for each license is fifty dollars ($50.00).
1. An attorney-at-law.
2. (Applicable to taxable years beginning before July 1, 2018) A physician, a veterinarian, a surgeon, an osteopath, a chiropractor, a chiropodist, a dentist, an ophthalmologist, an optician, an optometrist, or another person who practices a professional art of healing.
3. A professional engineer, as defined in G.S. 89C-3.
4. A registered land surveyor, as defined in G.S. 89C-3.
5. An architect.
6. A landscape architect.
7. A photographer, a canvasser for any photographer, or an agent of a photographer in transmitting photographs to be copied, enlarged, or colored.
8. A real estate broker as defined in G.S. 93A-2. A real estate broker who is also a real estate appraiser is required to obtain only one license under this section to cover both activities.
9. A real estate appraiser, as defined in G.S. 93E-1-4. A real estate appraiser who is also a real estate broker is required to obtain only one license under this section to cover both activities.
10. A person who solicits or negotiates loans on real estate as agent for another for a commission, brokerage, or other compensation.
11. A funeral director, an embalmer, or a funeral service licensee licensed under G.S. 90-210.25.
12. An individual licensed under Article 9F of Chapter 143 of the General Statutes, the Home Inspector Licensure Act.
The following persons are exempt from the tax:
1. A person who is at least 75 years old.
2. A person practicing the professional art of healing for a fee or reward, if the person is an adherent of an established church or religious organization and confines the healing practice to prayer or spiritual means.
3. A blind person engaging in a trade or profession as a sole proprietor. A "blind person" means any person who is totally blind or whose central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or where the widest diameter of visual field subtends an angle no greater than 20 degrees. This exemption shall not extend to any sole proprietor who permits more than one person other than the proprietor to work regularly in connection with the trade or profession for remuneration or recompense of any kind, unless the other person in excess of one so remunerated is a blind person.
Every person engaged in the public practice of accounting as a principal, or as a manager of the business of public accountant, shall pay for such license fifty dollars ($50.00), and in addition shall pay a license of twelve dollars and fifty cents ($12.50) for each person employed who is engaged in the capacity of supervising or handling the work of auditing, devising or installing systems of accounts.
Repealed by Session Laws 1998-95, s. 7, effective July 1, 1999.
Licenses issued under this section are issued as personal privilege licenses and shall not be issued in the name of a firm or corporation. A licensed photographer having a located place of business in this State is liable for a license tax on each agent or solicitor employed by the photographer for soliciting business. If any person engages in more than one of the activities for which a privilege tax is levied by this section, the person is liable for a privilege tax with respect to each activity engaged in.
Repealed by Session Laws 1981, c. 17.
Repealed by Session Laws 1998-95, s. 7, effective July 1, 1999.
Counties and cities may not levy any license tax on the business or professions taxed under this section.
Obtaining a license required by this Article does not of itself authorize the practice of a profession, business, or trade for which a State qualification license is required.

(2) (Applicable to taxable years beginning on or after July 1, 2018) A physician, a veterinarian, a surgeon, an osteopath, a chiropractor, a chiropodist, a dentist, an ophthalmologist, an optician, an optometrist, a massage and bodywork therapist, or another person who practices a professional art of healing.

History

(1939, c. 158, s. 109; 1941, c. 50, s. 3; 1943, c. 400, s. 2; 1949, c. 683; 1953, c. 1306; 1957, c. 1064; 1973, c. 476, s. 193; 1981, c. 17; c. 83, ss. 4, 5; 1989, c. 584, s. 7; 1991 (Reg. Sess., 1992), c. 974, s. 1; 1993, c. 419, s. 13.2; 1998-95, s. 7; 2002-158, s. 3; 2005-276, s. 23A.1(b); 2008-206, s. 1; 2009-445, s. 1; 2011-330, s. 6; 2017-39, s. 9; 2017-151, s. 4; 2018-5, s. 38.2(h).)

Subdivision (a)(2) Set Out Twice. - The first version of subdivision (a)(2) set out above is applicable to taxable years beginning before July 1, 2018. The second version of subdivision (a)(2) set out above is applicable to taxable years beginning on or after July 1, 2018.

Editor's Note. - Session Laws 2002-158, s. 15.1, provides that nothing in the act obligates the General Assembly to appropriate funds to implement the act now or in the future.

Session Laws 2008-206, s. 2, provides: "Notwithstanding G.S. 105-41(h), a city that imposed a license tax on a home inspector licensed under Article 9F of Chapter 143 of the General Statutes for fiscal year 2008-2009 may impose and collect that tax for fiscal year 2008-2009. A city may not levy a license tax on this business or profession for taxable years beginning on or after July 1, 2009."

Session Laws 2017-151, s. 6, made the amendment to subdivision (a)(2) by Session Laws 2017-151, s. 4, effective July 20, 2017, and applicable to taxable years beginning on or after July 1, 2018.

Session Laws 2018-5, s. 38.2(h), effective June 12, 2018, provides: "Section 4 of S.L. 2017-151 is reenacted." Session Laws 2017-151, s. 4, amended G.S. 105-41(a)(2).

Session Laws 2018-5, s. 38.2(j), provides, in part: "Subsection (h) of this section [which reenacted Session Laws 2017-151, s. 4] is effective when it becomes law and applies to taxable years beginning on or after July 1, 2018."

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2005-276, s. 23A.1(b), effective January 1, 2006, and applicable to the membership fees due for 2006, deleted the former last two sentences of subdivision (a)(1), which read: "In addition to the tax, whenever an attorney pays the tax, the Department must give that attorney an opportunity to make a contribution of fifty dollars ($50.00) to support the North Carolina Public Campaign Financing Fund established by G.S. 163-278.63. Payment of the contribution is not required and is not considered part of the tax owed."

Session Laws 2008-206, s. 1, effective August 9, 2008, and applicable to taxable years beginning on or after July 1, 2008, added subdivision (a)(12).

Session Laws 2009-445, s. 1, effective August 7, 2009, in subdivision (a)(12), substituted "An individual" for "A home inspector" and added "the Home Inspector Licensure Act."

Session Laws 2011-330, s. 6, effective June 27, 2011, throughout subdivisions (a)(8) and (a)(9), deleted "or a real estate salesman" following "broker."

Session Laws 2017-39, s. 9, effective June 21, 2017, substituted "funeral director, an embalmer, or a funeral service licensee" for "mortician or embalmer" in subdivision (a)(11).

Session Laws 2017-151, s. 4, as reenacted by Session Laws 2018-5, s. 38.2(h), inserted ", a massage and bodywork therapist," following "an optometrist" in subdivision (a)(2). For effective date and applicability, see editor's note.

Legal Periodicals. - For comment on the 1943 amendment which added the last sentence of subsection (e), see 21 N.C.L. Rev. 367 (1943).

For survey of 1976 case law on taxation, see 55 N.C.L. Rev. 1083 (1977).

CASE NOTES

A "professional" art is one requiring knowledge of advanced type in a given field of science or learning gained by a prolonged course of specialized instruction and study. Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

A "professional" act or service is one arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual. Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

The word "healing" in this section is ordinarily understood to mean the curing of diseases or injuries. Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

Rulings by Secretary of Revenue Not Binding on Courts. - Rulings made by the Secretary of Revenue setting forth his interpretations of this section are not binding upon the courts. Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

Masseurs are not persons "practicing any professional art of healing" within the meaning of subsection (a). Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

Masseurs are not required to obtain a privilege license from the State, and they are subject to regulation by local governments. Smith v. Keator, 21 N.C. App. 102, 203 S.E.2d 411, aff'd, 285 N.C. 530, 206 S.E.2d 203, appeal dismissed, 419 U.S. 1043, 95 S. Ct. 613, 42 L. Ed. 2d 636 (1974).

Persons Making "Negatives" Are Photographers Subject to License Tax. - To solicit persons to have their photographs taken, arrange for the sitting and actually have the camera present and take what is popularly called a picture, but in fact is a "negative," which is the outline of the subject on glass is engaging within the State in the profession or business of photography within the meaning of this section. Lucas v. City of Charlotte, 14 F. Supp. 163 (W.D.N.C. 1936), aff'd, 86 F.2d 394 (4th Cir. 1936).

Although the "negatives" are sent to another state for development the assessment of the tax under this section on photographers does not constitute an interference with or burden upon interstate commerce. Lucas v. City of Charlotte, 14 F. Supp. 163 (W.D.N.C. 1936), aff'd, 86 F.2d 394 (4th Cir. 1936).

Discriminatory Statute Applying to Real Estate Brokers Is Unconstitutional. - Public-Local Laws of 1927, c. 241, requiring real estate brokers and salesmen in certain designated counties to be licensed by a real estate commission on the basis of moral character and proficiency in the public interest and requiring the payment of a license fee in addition to the license required by this section, was held unconstitutional as discriminatory. State v. Warren, 211 N.C. 75, 189 S.E. 108 (1937).

Cited in State v. Dixon, 215 N.C. 161, 1 S.E.2d 521 (1939); Northcutt v. Clayton, 269 N.C. 428, 152 S.E.2d 471 (1967).

Opinions of Attorney General

Faith healers are "persons practicing any professional art of healing for fee or reward" within the purview of this section. See opinion of Attorney General to Mr. John R. Parker, 42 N.C.A.G. 286 (1973).

Exemption Under Subsection (b) Does Not Revive the Right of a County to Levy a Tax. - See opinion of Attorney General to Mr. John R. Parker, 42 N.C.A.G. 286 (1973).

§§ 105-41.1 : Repealed by Session Laws 1975, c. 619, s. 2.

Cross References. - For present provisions as to license fees for professional bondsmen and runners, see G.S. 58-71-55, 58-71-75.

§ 105-42: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-43: Repealed by Session Laws 1973, c. 1195, s. 8.

Cross References. - For present provisions as to license fees for auctioneers, see G.S. 85B-6.

§ 105-44: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1228.

§§ 105-45, 105-46: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-47: Repealed by Session Laws 1979, c. 69.

§ 105-48: Repealed by Session Laws 1979, c. 67.

§ 105-48.1: Repealed by Session Laws 1981, c. 7.

§ 105-49: Repealed by Session Laws 1989, c. 584, s. 10.

§ 105-50: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-51: Repealed by Session Laws 1989, c. 584, s. 12.

§ 105-51.1: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-52: Repealed by Session Laws 1979, c. 16, s. 1.

§§ 105-53 through 105-55: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

Cross References. - For provisions dealing with peddlers, itinerant merchants, and specialty markets, see G.S. 66-250 et seq.

§ 105-56: Repealed by Session Laws 1981, c. 5.

§ 105-57: Repealed by Session Laws 1987 (Regular Session, 1988), c. 1081, s. 1.

§ 105-58: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-59: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1282, s. 44.

§§ 105-60, 105-61: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-61.1: Repealed by Session Laws 1989, c. 584, s. 17.

§ 105-62: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-63: Repealed by Session Laws 1979, c. 65.

§ 105-64: Repealed by Session Laws 1989, c. 584, s. 19.

§ 105-64.1: Repealed by Laws 1989, c. 584, s. 19.

§ 105-65: Repealed by Session Laws, 1996, Second Extra Session, c. 14, s. 17.

§ 105-65.2: Repealed by Session Laws 1989, c. 584, s. 19.

§ 105-66: Repealed by Session Laws 1989, c. 584, s. 19.

§ 105-66.1: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-67: Repealed by Session Laws 1991 (Reg. Sess., 1992), c. 965, s. 1.

§ 105-68: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1229.

§ 105-69: Repealed by Session Laws 1973, c. 1200, s. 1.

§ 105-70: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-71: Repealed by Session Laws 1979, c. 70.

§ 105-72: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-73: Repealed by Session Laws 1957, c. 1340, ss. 2, 9.

§ 105-74: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-75: Repealed by Session Laws 1979, 2nd Session, c. 1304, s. 1.

§ 105-75.1: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-76: Repealed by Session Laws 1979, c. 62.

§ 105-77: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-78: Repealed by Session Laws 1979, c. 66.

§ 105-79: Repealed by Session Laws 1979, c. 150, s. 4.

§ 105-80: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-81: Repealed by Session Laws 1947, c. 501, s. 2.

§ 105-82: Repealed by Session Laws 1989, c. 584, s. 24.

§ 105-83. Installment paper dealers.

Every person engaged in the business of dealing in, buying, or discounting installment paper, notes, bonds, contracts, or evidences of debt for which, at the time of or in connection with the execution of the instruments, a lien is reserved or taken upon personal property located in this State to secure the payment of the obligations, shall submit to the Secretary quarterly no later than the twentieth day of January, April, July, and October of each year, upon forms prescribed by the Secretary, a full, accurate, and complete statement, verified by the officer, agent, or person making the statement, of the total face value of the obligations dealt in, bought, or discounted within the preceding three calendar months and, at the same time, shall pay a tax of two hundred seventy-seven thousandths of one percent (.277%) of the face value of these obligations.
Repealed by Session Laws 1998-95, s. 9, effective July 1, 1999.
If any person deals in, buys, or discounts any obligations described in this section without paying a tax imposed by this section, the person may not bring an action in a State court to enforce collection of an obligation dealt in, bought, or discounted during the period of noncompliance with this section until the person pays the amount of tax, penalties, and interest due.
This section does not apply to corporations liable for the tax levied under G.S. 105-102.3 or to savings and loan associations.
Counties and cities shall not levy any license tax on the business taxed under this section.

History

(1939, c. 158, s. 148; 1957, c. 1340, s. 2; 1973, c. 476, s. 193; 1981, c. 83, ss. 8, 9; 1991, c. 45, s. 3; 1991 (Reg. Sess., 1992), c. 965, s. 3; 1998-95, s. 9; 1998-98, s. 1(f).)

CASE NOTES

Constitutionality. - The imposition of taxes on installment paper dealers is not rendered discriminatory by the exemption from the tax of corporations organized under the State or national banking laws, even though banks, in addition to their regular banking business, carry on the identical business of discounting commercial paper, since the two businesses are distinct in fact, and the one is subject to regulations and controls which are not applicable to the other. Lenoir Fin. Co. v. Currie, 254 N.C. 129, 118 S.E.2d 543, appeal dismissed, 368 U.S. 289, 82 S. Ct. 375, 7 L. Ed. 336 (1961).

The defendant/finance corporation was not subject to tax assessment under this section for its wholesale installment paper business where the buying and selling of the installment paper took place entirely within a foreign state and its other activities were not incident to the buying and selling of the paper. The defendant's retail installment paper business in North Carolina had no relation to its wholesale installment paper business; and the record contained no evidence that the defendant engaged in the promotion or solicitation of the buying or selling of installment paper in North Carolina. Chrysler Fin. Co., L.L.C. v. Offerman, 138 N.C. App. 268, 531 S.E.2d 223 (2000).

Bank Distinguished from Installment Paper Dealer. - See Lenoir Fin. Co. v. Currie, 254 N.C. 129, 118 S.E.2d 543, appeal dismissed, 368 U.S. 289, 82 S. Ct. 375, 7 L. Ed. 336 (1961).

"Engaged in the Business." - The defendant/finance corporation was "engaged in the business of dealing in . . . installment paper" where it purchased credit sale agreements from another corporation although it did so in order to provide dealerships with financing under a wholesale finance plan and not for the purpose of making a profit. Chrysler Fin. Co., L.L.C. v. Offerman, 138 N.C. App. 268, 531 S.E.2d 223 (2000).

§§ 105-84 : Repealed by Session Laws 1979, c. 150, s. 5.

§§ 105-85, 105-86: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-87: Repealed by Session Laws 1981, c. 6.

§ 105-88. Loan agencies.

Every person, firm, or corporation engaged in any of the following businesses must pay for the privilege of engaging in that business an annual tax of two hundred fifty dollars ($250.00) for each location at which the business is conducted:
1. The business of making loans or lending money, accepting liens on, or contracts of assignments of, salaries or wages, or any part thereof, or other security or evidence of debt for repayment of such loans in installment payment or otherwise.
2. The business of check cashing regulated under Article 22 of Chapter 53 of the General Statutes.
3. The business of pawnbroker regulated under Part 1 of Article 45 of Chapter 66 of the General Statutes.
This section does not apply to banks, industrial banks, trust companies, savings and loan associations, cooperative credit unions, the business of negotiating loans on real estate as described in G.S. 105-41, or insurance premium finance companies licensed under Article 35 of Chapter 58 of the General Statutes. This section applies to those persons or concerns operating what are commonly known as loan companies or finance companies and whose business is as hereinbefore described, and those persons, firms, or corporations pursuing the business of lending money and taking as security for the payment of the loan and interest an assignment of wages or an assignment of wages with power of attorney to collect the amount due, or other order or chattel mortgage or bill of sale upon household or kitchen furniture. No real estate mortgage broker is required to obtain a privilege license under this section merely because the broker advances the broker's own funds and takes a security interest in real estate to secure the advances and when, at the time of the advance, the broker has already made arrangements with others for the sale or discount of the obligation at a later date and does so sell or discount the obligation within the period specified in the arrangement or extensions thereof; or when, at the time of the advance the broker intends to sell the obligation to others at a later date and does, within 12 months from date of initial advance, make arrangements with others for the sale of the obligation and does sell the obligation within the period specified in the arrangement or extensions thereof; or because the broker advances the broker's own funds in temporary financing directly involved in the production of permanent-type loans for sale to others; and no real estate mortgage broker whose mortgage lending operations are essentially as described above is required to obtain a privilege license under this section.
At the time of making any such loan, the person, or officer of the firm or corporation making the loan, shall give to the borrower in writing in convenient form a statement showing the amount received by the borrower, the amount to be paid back by the borrower, the time in which the amount is to be paid, and the rate of interest and discount agreed upon.
A loan made by a person who does not comply with this section is not collectible at law under G.S. 105-269.13.
Repealed by Session Laws 2014-3, s. 12.3(b), effective July 1, 2015. See note for applicability.

History

(1939, c. 158, s. 152; 1967, c. 1080; c. 1232, s. 2; 1973, c. 476, s. 193; 1991, c. 45, s. 4; 1993, c. 539, s. 695; 1994, Ex. Sess., c. 24, s. 14(c); 1998-98, s. 1(g); 1999-438, s. 2; 2000-120, s. 3; 2000-173, s. 2; 2012-46, s. 25; 2014-3, s. 12.3(b).)

Cross References. - For the Consumer Finance Act, see G.S. 53-164 through 53-191.

Editor's Note. - Session Laws 2012-46, s. 33, provides: "This act becomes effective October 1, 2012, and applies to offenses committed on or after that date. Prosecutions for offenses committed before the effective date of this act are not abated or affected by this act, and the statutes that would be applicable but for this act remain applicable to those prosecutions."

Session Laws 2014-3, s. 12.3(f), provides: "Except as otherwise provided, this section becomes effective July 1, 2015. This section [which, in s. 12.3(b), repealed subsection (e)] does not affect the rights or liabilities of a county or city, a taxpayer, or other person arising under a statute amended or repealed by this section before its amendment or repeal, nor does it affect the right to any refund or credit of a tax that would otherwise have been available under the amended or repealed statute before its amendment or repeal."

Effect of Amendments. - Session Laws 2012-46, s. 25, substituted "Part 1 of Article 45 of Chapter 66" for "Chapter 91A" in subdivision (a)(3). For effective date and applicability, see editor's note.

Session Laws 2014-3, s. 12.3(b), repealed subsection (e). For effective date and applicability, see Editor's note.

CASE NOTES

Purpose of Section Is to Raise Revenue. - The tax imposed on loan agencies or brokers by this section is merely one of the Section B license taxes imposed by this Article for the privilege of carrying on a particular business, and its purpose is to raise revenue. Northcutt v. Clayton, 269 N.C. 428, 152 S.E.2d 471 (1967).

This Section Applies to Loan Agencies Irrespective of the Amounts Loaned. - All loan agencies subject to the provisions of this section are not subject to the provisions of the Consumer Finance Act, G.S. 53-164 et seq. This section applies to all the loan agencies specified therein, irrespective of the amounts which they loan or the interest they charge. Northcutt v. Clayton, 269 N.C. 428, 152 S.E.2d 471 (1967).

Cited in Lenoir Fin. Co. v. Currie, 254 N.C. 129, 118 S.E.2d 543 (1961).

§§ 105-89 through 105-90: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-90.1: Repealed by Session Laws 1989 (Regular Session, 1990), c. 814, s. 4.

§ 105-91: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-92: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1227.

§ 105-93: Repealed by Session Laws 1979, c. 68.

§ 105-94: Repealed by Session Laws 1947, c. 501, s. 2.

§ 105-95: Repealed by Session Laws 1947, c. 831, s. 2.

§ 105-96: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1231.

§§ 105-97 through 105-99: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-100: Repealed by Session Laws 1979, c. 64.

§ 105-101: Repealed by Session Laws 1979, c. 85, s. 1.

§ 105-102: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1230.

§ 105-102.1: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-102.2: Repealed by Session Laws 1981 (Regular Session, 1982), c. 1213.

§ 105-102.3: Repealed by Session Laws 2015-241, s. 32.13(g), as amended by Session Laws 2015-268, s. 10.1(h), effective June 30, 2016.

History

(1973, c. 1053, s. 7; 1981, c. 855, s. 2; 1985 (Reg. Sess., 1986), c. 985, s. 4; 1995, c. 322, s. 2; 1998-95, s. 10; 1998-98, s. 1(h); repealed by 2015-241, s. 32.13(g); 2015-268, s. 10.1(h), effective June 30, 2016.)

Editor's Note. - Former G.S. 105-102.3 pertained to banks.

§§ 105-102.4 : Repealed by Session Laws 1989, c. 584, s. 35.

§ 105-102.5: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 17.

§ 105-102.6: Repealed by Session Laws 2015-286, s. 4.11(a), effective October 22, 2015.

History

(1991, c. 539, s. 2; c. 761, s. 18; 1991 (Reg. Sess., 1992), c. 1007, s. 1; 1995, c. 459, s. 1; 1997-456, s. 27; 1998-95, s. 11; 1999-346, s. 1; repealed by 2015-286, s. 4.11(a), effective October 22, 2015.)

Editor's Note. - Former G.S. 105-102.6 pertained to publishers of newsprint publications.

§ 105-103. Unlawful to operate without license.

When a license tax is required by law, and whenever the General Assembly shall levy a license tax on any business, trade, employment, or profession, or for doing any act, it shall be unlawful for any person, firm, or corporation without a license to engage in such business, trade, employment, profession, or do the act; and when such tax is imposed it shall be lawful to grant a license for the business, trade, employment, or for doing the act; and no person, firm, or corporation shall be allowed the privilege of exercising any business, trade, employment, profession, or the doing of any act taxed in this schedule throughout the State under one license, except under a statewide license.

History

(1939, c. 158, s. 181; 1998-98, s. 41.)

Editor's Note. - Session Laws 1998-98, s. 41, effective August 14, 1998, deleted the former Division I designation from G.S. 105-103 through 105-113, so that Article 2 now contains G.S. 105-33 through 105-113 without any subdivision into Parts.

§ 105-104: Repealed by Session Laws 2007-491, s. 2, effective January 1, 2008.

Editor's Note. - Session Laws 2007-491, s. 47 provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 [repealed] before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

§ 105-105. Persons, firms, and corporations engaged in more than one business to pay tax on each.

Where any person, firm, or corporation is engaged in more than one business, trade, employment, or profession which is made under the provisions of this Article subject to State license taxes, such persons, firms, or corporations shall pay the license tax prescribed in this Article for each separate business, trade, employment, or profession.

History

(1939, c. 158, s. 183.)

§ 105-106. Effect of change in name of firm.

No change in the name of a firm, partnership, or corporation, nor the taking in of a new partner, nor the withdrawal of one or more of the firm, shall be considered as commencing business; but if any one or more of the partners remain in the firm, or if there is change in ownership of less than a majority of the stock, if a corporation, the business shall be regarded as continuing.

History

(1939, c. 158, s. 184.)

§ 105-107: Repealed by Session Laws 1998-95, s. 12, effective July 1, 1999.

§ 105-108. Property used in a licensed business not exempt from taxation.

A State license, issued under any of the provisions of this Article shall not be construed to exempt from other forms of taxation the property employed in such licensed business, trade, employment, or profession.

History

(1939, c. 158, s. 186.)

§ 105-109. Obtaining license and paying tax.

Repealed by Session Laws 1998-95, s. 13, effective July 1, 1999.
License Required. - Before a person may engage in a business, trade, or profession for which a license is required under this Article, the person must be licensed by the Department. To obtain a license, a person must submit an application to the Department for the license and pay the required tax. An application for a license is considered a return.
Repealed by Session Laws 1998-212, s. 29A.14(a), effective January 1, 1999.
Penalties. - The penalties in G.S. 105-236 apply to this Article. The Secretary may collect a tax due under this Article in any manner allowed under Article 9 of this Chapter.
Repealed by Session Laws 2014-3, s. 12.3(b), effective July 1, 2015. See note for applicability.

The Department must issue a license to a person who files a completed application and pays the required tax. A license must be displayed conspicuously at the location of the licensed business, trade, or profession.

History

(1939, c. 158, s. 187; 1957, c. 859; 1963, c. 294, s. 5; 1973, c. 108, s. 51; c. 476, s. 193; 1993, c. 539, ss. 698, 699; 1994, Ex. Sess., c. 24, s. 14(c); 1998-95, s. 13; 1998-212, s. 29A.14(a); 2007-491, s. 7; 2014-3, s. 12.3(b).)

Local Modification. - City of Charlotte: 1991, c. 64, s. 1.

Session Laws 2014-3, s. 12.3(f), provides: "Except as otherwise provided, this section [which, in s. 12.3(b), repealed subsection (e)] becomes effective July 1, 2015. This section does not affect the rights or liabilities of a county or city, a taxpayer, or other person arising under a statute amended or repealed by this section before its amendment or repeal, nor does it affect the right to any refund or credit of a tax that would otherwise have been available under the amended or repealed statute before its amendment or repeal."

Effect of Amendments. - Session Laws 2007-491, s. 7, effective January 1, 2008, rewrote subsection (b). For applicability, see Editor's note.

Session Laws 2014-3, s. 12.3(b), repealed subsection (e). For effective date and applicability, see Editor's note.

CASE NOTES

Privilege Tax on Cyber-Gambling Establishments Was Constitutional. - City's privilege license tax on cyber-gambling establishments did not violate N.C. Const., Art. V, § 2(2) because the tax uniformly applied to all persons engaged in the cyber-gambling business. IMT, Inc. v. City of Lumberton, 219 N.C. App. 36, 724 S.E.2d 588 (2012).

Privilege License Tax on "Electronic Gaming Operations" Presumed Valid. - City's privilege license tax on electronic gaming operations was presumed valid because, (1) under the current state of the law, the activity was legal, and (2) the city had the authority to enact an ordinance imposing the tax, pursuant to G.S. 105-109(e) and G.S. 160A-211. Smith v. City of Fayetteville, 220 N.C. App. 249, 725 S.E.2d 405 (2012).

Summary Judgment Properly Upheld Privilege License Tax on "Electronic Gaming Operations." - When businesses contested a city's imposition of a privilege license tax, it was not error to grant the city summary judgment as to some businesses because (1) the tax was presumed valid, since the activity taxed was legal and the city had the authority to enact an ordinance taxing the activity, and (2) the businesses did not present sufficient evidence to rebut that presumption, as the businesses presented no evidence besides non-specific, widespread assertions that the tax would prohibit the businesses' business, did not present specific evidence on how the tax affected those particular businesses' revenues. Smith v. City of Fayetteville, 220 N.C. App. 249, 725 S.E.2d 405 (2012).

Summary Judgment Improperly Upheld Privilege License Tax on "Electronic Gaming Operations." - When businesses contested a city's imposition of a privilege license tax, it was error to grant the city summary judgment as to some businesses because (1) the businesses rebutted a presumption that the tax was valid by submitting affidavits detailing the businesses' gross revenues and net profits and asserting the tax would require the businesses to close, being joined by over 15 similar businesses, and showing the tax was over 9,000 percent greater than a previously imposed tax, and (2) the city presented evidence that the tax was not unreasonable or prohibitory, creating a genuine issue of material fact. Smith v. City of Fayetteville, 220 N.C. App. 249, 725 S.E.2d 405 (2012).

City's license privilege tax adopted pursuant to G.S. 105-109(e) and G.S. 160A-211, which represented a 59,900 percent increase in taxation for cyber-gambling businesses, was unconstitutional under the Just and Equitable Tax Clause, N.C. Const., Art. V, § 2, and as a result, the lower courts erred in granting the city summary judgment. IMT, Inc. v. City of Lumberton, 366 N.C. 456, 738 S.E.2d 156 (2013).

§ 105-109.1: Repealed by Session Laws 1999-337, s. 16, effective July 22, 1999.

§ 105-110: Repealed by Session Laws 1998-212, s. 29A.14(b), effective January 1, 1999.

§ 105-111: Repealed by Session Laws 2001-414, s. 2, effective September 14, 2001.

§ 105-112: Repealed by Session Laws 1998-212, s. 29A.14(c), effective January 1, 1999.

§ 105-113: Repealed by Session Laws 1999-337, s. 17, effective July 22, 1999.

§ 105-113.1: Deleted.

Editor's Note. - This section, which related to privilege taxes payable in advance and provided for the reduction of taxes levied under certain sections, was derived from Session Laws 1943, c. 400, s. 2, and was amended by Session Laws 1945, c. 708, s. 2. As the section expired by limitation on June 1, 1947, it has been deleted.

ARTICLE 2A. Tobacco Products Tax.

Part 1. General Provisions.

Sec.

Part 2. Cigarette Tax.

Part 3. Tax on Other Tobacco Products.

PART 1. GENERAL PROVISIONS.

§ 105-113.2. Short title.

This Article may be cited as the "Tobacco Products Tax Act" or "Tobacco Products Tax Article."

History

(1969, c. 1075, s. 2; 1991, c. 689, s. 266; 1998-98, s. 56.)

Editor's Note. - Session Laws 2015-262, s. 2, provides: "The Department of Revenue may enter into an agreement with the Eastern Band of Cherokee Indians in regards to the excise tax on tobacco products administered under Article 2A of Chapter 105 of the General Statutes. The agreement must be approved by the Tribal Council of the Eastern Band of Cherokee Indians and signed by the Principal Chief of the Eastern Band of Cherokee Indians on behalf of the Eastern Band of Cherokee Indians and must be signed by the Secretary of Revenue on behalf of the Department of Revenue. The agreement may be effective for a definite period of time or an indefinite period, as specified in the agreement."

Session Laws 2016-23, s. 2(a), provides: "Taxes. - The following provisions apply to taxes affected by boundary certification:

"(1) Neither the State nor a subdivision of the State may assess a tax on a person for activities occurring prior to the date of certification where the basis of the assessment is the certification.

"(2) The State and its subdivisions may assess a tax for activities occurring on or after the date of certification subject to the following conditions:

"a. For taxes imposed for a taxable period, the tax may not be imposed for a period beginning prior to the date of certification.

"b. For sales and use taxes for an item that is provided and billed on a monthly or other periodic basis, the tax may not be assessed for periods beginning prior to the date of certification.

"(3) A person may not seek a refund for activities occurring prior to the date of certification where the basis of the refund is the certification."

Session Laws 2016-23, s. 12(a) is a severability clause.

§ 105-113.3. Scope of tax; administration.

Scope. - The taxes imposed by this Article shall be collected only once on the same tobacco product. Except as permitted by Article 2 of this Chapter, a city or county may not levy a privilege license tax on the sale of tobacco products.
Administration. - Article 9 of this Chapter applies to this Article.

History

(1969, c. 1075, s. 2; 1991, c. 689, s. 268; 1998-212, s. 29A.14(d).)

§ 105-113.4. Definitions.

The following definitions apply in this Article:

Affiliate. - A person who directly or indirectly controls, is controlled by, or is under common control with another person.
Affiliated manufacturer. - A manufacturer licensed under G.S. 105-113.12 who is an affiliate of a manufacturer licensed under G.S. 105-113.12.
Cigar. - A roll of tobacco wrapped in a substance that contains tobacco, other than a cigarette.
Cigarette. - Any of the following:
1. A roll of tobacco wrapped in paper or in a substance that does not contain tobacco.
2. A roll of tobacco wrapped in a substance that contains tobacco and that, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to or purchased by a consumer as a cigarette described in subpart a. of this subdivision.
Consumable product. - Any nicotine liquid solution or other material containing nicotine that is depleted as a vapor product is used.
Consumer. - An individual who purchases, receives, or possesses tobacco products for personal consumption and not for resale.
Cost price. - The price a person liable for the tax on tobacco products imposed by Part 3 of this Article paid for the products, before any discount, rebate, or allowance or the tax imposed by that Part.
Delivery sale. - A sale of tobacco products to a consumer in this State in which either of the following apply:
1. The consumer submits the order for the sale by telephone, mail, the Internet or other online service or application, or when the seller is otherwise not in the physical presence of the consumer when the consumer submits the order.
2. The tobacco products are delivered via mail or a delivery service.
Delivery seller. - A person that makes a delivery sale.
Delivery service. - A person engaged in the commercial delivery of letters, packages, or other containers.
Distributor. - Either of the following:
1. A person, wherever resident or located, who purchases non-tax-paid cigarettes directly from the manufacturer of the cigarettes and stores, sells, or otherwise disposes of the cigarettes.
2. A manufacturer of cigarettes.
Repealed by Session Laws 1991, c. 689, s. 267.
Integrated wholesale dealer. - A wholesale dealer who is an affiliate of a manufacturer of tobacco products, other than cigarettes, and is not a retail dealer.
Licensed distributor. - A distributor licensed under Part 2 of this Article.
Manufacturer. - A person who produces tobacco products or a person who contracts with another person to produce tobacco products and is the exclusive purchaser of the products under the contract.
Package. - The individual packet, can, box, or other container used to contain and to convey tobacco products to the consumer.
Person. - Defined in G.S. 105-228.90.
Retail dealer. - A person who sells a tobacco product to the ultimate consumer of the product.
Sale. - A transfer of possession, transfer of ownership, a trade, an exchange, or a barter, in any manner or by any means, with or without consideration.
Secretary. - The Secretary of Revenue.
Repealed by Session Laws 1993, c. 442, s. 1, effective January 1, 1994.
Tobacco product. - A cigarette, a cigar, or any other product that contains tobacco and is intended for inhalation or oral use. The term includes a vapor product.
Repealed by Session Laws 1993, c. 442, s. 1, effective January 1, 1994.
Use. - The exercise of any right or power over cigarettes, incident to the ownership or possession thereof, other than the making of a sale thereof in the course of engaging in a business of selling cigarettes. The term includes the keeping or retention of cigarettes for use.
Vapor product. - Any nonlighted, noncombustible product that employs a mechanical heating element, battery, or electronic circuit regardless of shape or size and that can be used to produce vapor from nicotine in a solution. The term includes any vapor cartridge or other container of nicotine in a solution or other form that is intended to be used with or in an electronic cigarette, electronic cigar, electronic cigarillo, electronic pipe, or similar product or device. The term does not include any product regulated by the United States Food and Drug Administration under Chapter V of the federal Food, Drug, and Cosmetic Act.
Wholesale dealer. - Either of the following:
1. A person who acquires tobacco products other than cigarettes for sale to another wholesale dealer or to a retail dealer.
2. A manufacturer of tobacco products other than cigarettes.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991, c. 689, s. 267; 1993, c. 354, s. 7; c. 442, s. 1; 2007-435, s. 2; 2009-559, s. 1; 2011-330, s. 2(a); 2014-3, s. 15.1(a); 2019-169, s. 4.7(a); 2020-58, s. 2.1.)

Editor's Note. - Session Laws 2014-3, s. 15.1(f), provides: "Nothing in this section shall be construed as circumventing future United States Food and Drug Administration regulation of tobacco products, other tobacco products, or vapor products."

Session Laws 2019-169, s. 4.7(c) made subdivisions (1n), (2d), (2e), and (2f) as added by Session Laws 2019-169, s. 4.7(a) effective October 1, 2019, and applicable to delivery sales occurring on or after that date.

Effect of Amendments. - Session Laws 2007-435, s. 2, effective October 1, 2007, added subdivision (4a).

Session Laws 2009-559, s. 1, effective September 1, 2009, rewrote subdivision (3)b.; deleted "is the only person to whom the manufacturer sells its products" following "other than cigarettes" in subdivision (4a); and, rewrote subdivisions (6) and (14).

Session Laws 2011-330, s. 2(a), effective June 27, 2011, added subdivisions (1) and (1a); redesignated former subdivisions (1) and (1a) as present subdivisions (1b) and (1c); and deleted the last sentence in subdivision (4a), which read: "An 'affiliate' is a person who directly or indirectly controls, is controlled by, or is under common control with another person."

Session Laws 2014-3, s. 15.1(a), effective June 1, 2015, added subdivision (1k); added the last sentence in subdivision (11a); and added subdivision (13a).

Session Laws 2019-169, s. 4.7(a), added subdivisions (1n) and (2d) through (2f). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 2.1, effective June 30, 2020, substituted "A transfer of possession, transfer of ownership" for "A transfer" in subdivision (10).

§ 105-113.4A. Licenses.

General. - To obtain or renew a license required by this Article, an applicant must file an application with the Secretary on a form provided by the Secretary and pay the tax due for the license. An application must include the applicant's name, address, federal employer identification number, and any other information required by the Secretary. A license is not transferable or assignable and must be displayed in a conspicuous place at each place of business for which it is issued.
Requirements. - An applicant for a license must meet the following requirements:
1. If the applicant is a corporation, the applicant must either be incorporated in this State or be authorized to transact business in this State.
2. If the applicant for a license is a limited liability company, the applicant must either be organized in this State or be authorized to transact business in this State.
3. If the applicant for a license is a limited partnership, the applicant must either be formed in this State or be authorized to transact business in this State.
4. If the applicant for a license is an individual or a general partnership, the applicant must designate an agent for service of process and give the agent's name and address.
Denial. - The Secretary may investigate an applicant for a license required under this Article to determine if the information the applicant submits with the application is accurate and if the applicant is eligible to be licensed under this Article. The Secretary may refuse to issue or renew a license to an applicant that has done any of the following:
1. Submitted false or misleading information on its application.
2. Had a license issued under this Article revoked by the Secretary.
3. Had a tobacco products license or registration issued by another state revoked.
4. Been convicted of fraud or misrepresentation.
5. Been convicted of any other offense that indicates the applicant may not comply with this Article if issued a license.
6. Failed to remit payment for a tax debt under this Chapter. The term "tax debt" has the same meaning as defined in G.S. 105-243.1.
7. Failed to file a return due under this Chapter.
8. Failed to meet the requirements set out in subsection (b) of this section.
Refund. - A refund of a license tax is allowed only when the tax was collected or paid in error. No refund is allowed when a licensee cancels a license or the Secretary revokes a license.
Duplicate or Amended License. - Upon application to the Secretary, a licensee may obtain without charge a duplicate or amended license as provided in this subsection. A duplicate or amended license must state that it is a duplicate or amended license, as appropriate:
1. A duplicate license, if the licensee establishes that the original license has been lost, destroyed, or defaced.
2. An amended license, if the licensee establishes that the location of the place of business for which the license was issued has changed.
Information on License. - The Secretary must include the following information on each license required by this Article:
1. The legal name of the licensee.
2. The name under which the licensee conducts business.
3. The physical address of the place of business of the licensee.
4. The account number assigned to the license by the Department.
Records. - The Secretary must keep a record of the following:
1. Applicants for a license under this Article.
2. Persons to whom a license has been issued under this Article.
3. Persons that hold a current license issued under this Article, by license category.
Lists. - The Secretary must make available the list required under subdivision (3) of subsection (g) of this section upon request of a manufacturer that is a licensee under this Article. The list must state the name, account number, and business address of each licensee on the list.

History

(1991 (Reg. Sess., 1992), c. 955, s. 3; 2013-414, s. 22(a); 2017-204, s. 4.3(a); 2019-169, ss. 4.1(a), 4.2(a); 2020-58, s. 2.2(a).)

Editor's Note. - Session Laws 2017-204, s. 4.9, provides, in part: "The remainder of this part is effective when it becomes law [August 11, 2017] and applies to requests for review filed on or after that date and to requests for review pending on that date for which the Department reissues a request for additional information, allows the taxpayer time to respond by the requested response date, and provides notification to the taxpayer that failure to timely respond to the request will result in the request for review being subject to the provisions of G.S. 105-241.13A."

Session Laws 2017-204, s. 7.1, is a severability clause.

Session Laws 2019-169, s. 4.2(e), provides: "This section becomes effective January 1, 2020. Any license issued under Article 2A of Chapter 105 of the General Statutes on or before January 1, 2020, shall expire on June 30, 2020. As soon as practicable after the effective date of this section, the Department of Revenue shall notify each licensee that he or she must renew the license by filing an application with the Secretary in accordance with G.S. 105-113.4A before June 30, 2020."

Effect of Amendments. - Session Laws 2013-414, s. 22(a), effective September 1, 2013, in subsection (a), substituted "file an application with the Secretary on a form provided by the Secretary" for "apply to the Secretary," and added the second sentence; redesignated former subsections (b) and (c) as present subsections (d) and (e); added subsections (b), (c), (f), (g), and (h); and, in subsection (e), substituted "a duplicate or amended license as provided in this subsection" for "one of the following," added the second sentence, and deleted the second paragraph, which formerly read "A duplicate or amended license shall state that it is a duplicate or amended license, as appropriate."

Session Laws 2017-204, s. 4.3(a), effective August 11, 2017, substituted "licensee" for "license holder" throughout subsections (e) through (h); substituted "revoked by the Secretary" for "cancelled by the Secretary for cause" in subdivision (c)(2); and substituted "revoked" for "cancelled for cause" in subdivision (c)(3). For applicability, see editor's note.

Session Laws 2019-169, s. 4.1(a), effective July 26, 2019, substituted "cancels" for "surrenders" in subsection (d); and inserted "subdivision (3) of" in subsection (h).

Session Laws 2019-169, s. 4.2(a), inserted "or renew" in the first sentence of subsection (a) and in the second sentence of the introductory paragraph of subsection (c); and added subdivision (c)(8). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 2.2(a), effective June 30, 2020, substituted "in a conspicuous place at each place" for "the place" in the last sentence of subsection (a); and substituted "must make available" for "must provide" in the first sentence of subsection (h).

§ 105-113.4B. Cancellation or revocation of license.

Cancellation. - The Secretary may cancel a license issued under this Article upon the written request of the licensee. The licensee's request must include a proposed effective date of cancellation. The licensee must return the license to the Secretary on or before the proposed effective date. If the licensee's request does not include a proposed effective date of cancellation, the license is cancelled 15 days after the Department receives the written request. If the license is unable to be returned, the licensee must include a written statement of the reasons, satisfactory to the Secretary, why the license cannot be returned. The Secretary shall notify the licensee when the license is cancelled.
Revocation. - The Secretary may summarily revoke a license issued under this Article when the Secretary finds that the licensee is incurring liability for the tax imposed under this Article after failing to pay a tax when due under this Article. In addition, the Secretary may revoke the license of a licensee that commits one or more of the following acts after holding a hearing on whether the license should be revoked:
1. Fails to obtain a license in a timely manner or for all places of business as required by this Article.
2. Willfully fails to file a return required by this Article.
3. Willfully fails to pay a tax when due under this Article.
4. Makes a false statement in an application or return required under this Article.
5. Fails to keep records as required by this Article.
6. Refuses to allow the Secretary or a representative of the Secretary to examine the person's books, accounts, and records concerning tobacco product.
7. Fails to disclose the correct amount of tobacco product taxable in this State.
8. Fails to file a replacement bond or an additional bond if required by the Secretary under this Article.
9. Violates G.S. 14-401.18.
10. Fails to meet or maintain the requirements set out in G.S. 105-113.4A(b).
Procedure. - The Secretary must send a person whose license is summarily revoked a notice of the revocation and must give the person an opportunity to have a hearing on the revocation within 10 days after the revocation. The Secretary must give a person whose license may be revoked after a hearing at least 10 days' written notice of the date, time, and place of the hearing. A notice of a summary license revocation and a notice of hearing must be sent by certified mail to the last known address of the licensee. If the person whose license may be revoked fails to attend the noticed hearing, the license revocation is effective 15 days after the noticed hearing.
Release of Bond. - When the Secretary cancels or revokes a license and the licensee has paid all taxes and penalties due under this Article, the Secretary must take one of the following actions concerning a bond or an irrevocable letter of credit filed by the licensee:
1. Return an irrevocable letter of credit to the licensee.
2. Return a bond to the licensee or notify the person liable on the bond and the licensee that the person is released from liability on the bond.

History

(1999-333, s. 6; 2013-414, s. 22(b); 2017-204, s. 4.3(b); 2019-169, ss. 4.1(b), 4.2(b); 2020-58, s. 2.3(a).)

Editor's Note. - Session Laws 2017-204, s. 4.9, provides in part: "The remainder of this part is effective when it becomes law [August 11, 2017] and applies to requests for review filed on or after that date and to requests for review pending on that date for which the Department reissues a request for additional information, allows the taxpayer time to respond by the requested response date, and provides notification to the taxpayer that failure to timely respond to the request will result in the request for review being subject to the provisions of G.S. 105-241.13A."

Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2013-414, s. 22(b), effective September 1, 2013, rewrote subdivision (a)(1), which formerly read "A violation of this Article"; redesignated former subdivision (a)(2) as present (a)(9), and substituted "Violates" for "A violation of"; added subdivisions (a)(2) through (a)(8); and added subsection (c).

Session Laws 2017-204, s. 4.3(b), effective August 11, 2017, rewrote the section heading; substituted "licensee" for "license holder" and "revoked" for "cancelled" and similar language throughout the section; and, in subsection (a), substituted "issued under this Article" for "of a license holder" in the introductory language, and inserted "in a timely manner or for all places of business as" in subdivision (a)(1). For applicability, see editor's note.

Session Laws 2019-169, s. 4.1(b), effective July 26, 2019, inserted "and the immediate return of the license to the Secretary" following "licensee" in the first sentence of the introductory paragraph of subsection (a); and substituted "certified" for "registered" in the third sentence of subsection (b).

Session Laws 2019-169, s. 4.2(b), added subdivision (a)(10). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 2.3(a), effective June 30, 2020, designated the existing provisions of subsection (a) as subsections (a) and (a1); rewrote subsection (a); added the heading in subsection (a1); and added the last sentence in subsection (b).

§ 105-113.4C. Enforcement of Master Settlement Agreement Provisions.

The Master Settlement Agreement between the states and the tobacco product manufacturers, incorporated by reference into the consent decree referred to in G.S. 143-710, requires each state to diligently enforce Article 37 of Chapter 66 of the General Statutes. The Office of the Attorney General and the Secretary of Revenue shall perform the following responsibilities in enforcing Article 37:

The Office of the Attorney General must give to the Secretary of Revenue a list of the nonparticipating manufacturers under the Master Settlement Agreement and the brand names of the products of the nonparticipating manufacturers.
The Office of the Attorney General must update the list provided under subdivision (1) of this section when a nonparticipating manufacturer becomes a participating manufacturer, another nonparticipating manufacturer is identified, or more brands or products of nonparticipating manufacturers are identified.
The Secretary of Revenue must require the taxpayers of the tobacco excise tax to identify the amount of tobacco products of nonparticipating manufacturers sold by the taxpayers, and may impose this requirement as provided in G.S. 66-290(10).
The Secretary of Revenue must determine the amount of State tobacco excise taxes attributable to the products of nonparticipating manufacturers, based on the information provided by the taxpayers, and must report this information to the Office of the Attorney General.

History

(1999-311, s. 2; 2020-78, s. 6.2(c).)

Editor's Note. - The number of this section was assigned by the Revisor of Statutes, the number in Session Laws 1999-311, s. 2 having been G.S. 105-113.4B.

Session Laws 2020-78, s. 22.1, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2019-2021 fiscal biennium, the textual provisions of this act apply only to the 2019-2021 fiscal biennium."

Session Laws 2020-78, s. 22.3, is a severability clause.

Effect of Amendments. - Session Laws 2020-78, s. 6.2(c), effective July 1, 2020, substituted "G.S. 143-710" for "S.L. 1999-2" in the first sentence.

CASE NOTES

Procedures And Standards of Review Not Limited. - Because the General Assembly did not intend, in passing G.S. 105-113.4C, to retroactively limit the procedures and standard for review governing the question of diligent enforcement, a business court's order compelling arbitration did not violate the separation of powers doctrine in N.C. Const., Art. I, § 6 and Art. II, §§ 1 and 20. State v. Philip Morris USA, Inc., 193 N.C. App. 1, 666 S.E.2d 783 (2008), review denied, stay denied, 363 N.C. 136, 676 S.E.2d 54 (2009).

Arbitration. - Order compelling the State to arbitrate a dispute under a master settlement agreement was not barred by sovereign immunity. No provision of G.S. 105-113.4C could have been viewed as supplying a definition for "diligently enforced," as specifying the forum for determination of the issue of diligent enforcement, or as incorporating some unspecified standard of review for the exercise of prosecutorial discretion, and G.S. 105-113.4C did not preclude an order compelling arbitration to determine whether North Carolina diligently enforced its escrow statute. State v. Philip Morris USA, Inc., 193 N.C. App. 1, 666 S.E.2d 783 (2008), review denied, stay denied, 363 N.C. 136, 676 S.E.2d 54 (2009).

§ 105-113.4D. Tax with respect to inventory on effective date of tax increase.

Every person subject to the taxes levied in this Article who, on the effective date of a tax increase under this Article, has on hand any tobacco products must file a complete inventory of the tobacco products within 20 days after the effective date of the increase, and must pay an additional tax to the Secretary when filing the inventory. The amount of tax due is the amount due based on the difference between the former tax rate and the increased tax rate.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991, c. 689, s. 263; 2009-451, s. 27A.5(b).)

Editor's Note. - This section was formerly G.S. 105-113.7. It was recodified in Part 1 of Article 2A as G.S. 105-113.4D and amended by Session Laws 2009-451, s. 27A.5(b), effective September 1, 2009.

Effect of Amendments. - Session Laws 2009-451, s. 27A.5(b), effective September 1, 2009, recodified former G.S. 105-113.7 as this section; and, in the first sentence, substituted "person" for "distributor" near the beginning, "tobacco products must" for "cigarettes shall" and "tobacco products" for "cigarettes" near the middle, and "must pay" for "shall pay" near the end.

§ 105-113.4E. Modified risk tobacco products.

Definition. - The term "modified risk tobacco product" means a tobacco product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products.
Tax Rate Reduction. - The tax imposed under this Article is reduced by the following:
1. Fifty percent (50%) for a modified risk tobacco product issued a risk modification order by the United States Food and Drug Administration under 21 U.S.C. § 387k(g)(1).
2. Twenty-five percent (25%) for a modified risk tobacco product issued an exposure modification order by the United States Food and Drug Administration under 21 U.S.C. § 387k(g)(2).
Substantiation. - Generally, tobacco products are subject to the tax imposed under this Article, unless a manufacturer substantiates that a product qualifies as a modified risk tobacco product and is subject to a reduced rate of tax in accordance with subsection (b) of this section. A manufacturer may substantiate that a product qualifies as a modified risk tobacco product by providing the Department a copy of the order issued by the United States Food and Drug Administration verifying the product as a modified risk tobacco product. Once the manufacturer provides the order to the Department, the Department must reduce the tax due as required under subsection (b) of this section effective on the first day of the next calendar month. If the order indicating a product qualifies as a modified risk tobacco product is renewed, the manufacturer must provide the order renewing the product to the Department within 14 days of receipt.
Forfeiture. - If the product no longer qualifies as a modified risk tobacco product, the rate reduction under subsection (b) of this section is forfeited. A product no longer qualifies when the order qualifying the product as a modified risk tobacco product expires and is not renewed or the order is withdrawn by the United States Food and Drug Administration. The manufacturer must provide notice of such expiration or withdrawal to the Department within 14 days of receipt. Upon determination by the Department that the product no longer qualifies as a modified risk tobacco product, the Department must determine if the taxpayer paid a reduced rate after the order expired or was withdrawn. If the taxpayer did avoid taxes, the taxpayer is liable for all past taxes avoided as a result of the product no longer qualifying plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the rate reduction had not been allowed. The past taxes and interest are due 30 days after the date the rate reduction is forfeited; a taxpayer that fails to pay the past taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

History

(2018-5, s. 38.7(a); 2020-58, s. 2.4.)

Editor's Note. - Session Laws 2018-5, s. 38.7(b), made this section effective June 12, 2018.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2020-58, s. 2.4, effective June 30, 2020, in subsection (c), substituted "manufacturer" for "taxpayer" throughout, and in the last sentence, added "the manufacturer must provide" and deleted "must be provided" following "the product"; and added the subsection (d) designation and heading, and substituted "manufacturer" for "taxpayer" in the third sentence.

§ 105-113.4F. Delivery sales of certain tobacco products; age verification.

Scope. - This section applies to delivery sales of tobacco products, other than cigars, to consumers in this State regardless of whether the delivery seller is located inside or outside this State. For purposes of this section, the term "tobacco product" is as defined in G.S. 105-113.4, except that it does not include cigars.
Delivery Seller Requirements. - A delivery seller shall do all of the following with respect to a delivery sale:
1. Obtain a license from the Secretary pursuant to the requirements of this Article before accepting an order.
2. Comply with the age verification requirements in G.S. 14-313(b2).
3. Report, collect, and remit to the Secretary all taxes levied on tobacco products as set out in this Article and Article 5 of this Chapter.
Filing Requirement. - A delivery seller who has made a delivery sale, or shipped or delivered tobacco products in connection with a delivery sale, during the previous month shall, not later than the tenth day of each month, file with the Secretary a memorandum or a copy of the invoice for every delivery sale made during the previous month. A delivery seller who complies with 15 U.S.C. § 376 with respect to tobacco products covered by that section is considered to have complied with this subsection. The memorandum or invoice shall contain the following information:
1. The name, address, telephone number, and e-mail address of the consumer.
2. The type and the brand, or brands, of tobacco products that were sold.
3. The quantity of tobacco products that were sold.
Penalties. - A person who violates this section is subject to the following penalties:
1. For the first violation, a penalty of one thousand dollars ($1,000).
2. For a subsequent violation, a penalty not to exceed five thousand dollars ($5,000), as determined by the Secretary.
Exception. - This section does not apply to sales of tobacco products by a retail dealer who purchased the tobacco products from a licensed distributor or wholesale dealer.
State Laws Apply. - All State laws that apply to tobacco product retailers in this State shall apply to delivery sellers that sell tobacco products into this State.

History

(2019-169, s. 4.7(b).)

Editor's Note. - Session Laws 2019-169, s. 4.7(c) made this section effective October 1, 2019, and applicable to delivery sales occurring on or after that date.

§ 105-113.4G. Records to be kept.

Every person required to be licensed under this Article and every person required to make reports under this Article shall keep complete and accurate records of all purchases, inventories, sales, shipments, and deliveries of tobacco products, and other information as required under this Article. The records shall be in the form prescribed by the Secretary and shall be open at all times for inspection by the Secretary or an authorized representative of the Secretary.

These records shall be safely preserved for a period of three years in a manner to ensure their security and accessibility for inspection by the Department.

History

(2020-58, s. 2.5(a).)

Editor's Note. - Session Laws 2020-58, s. 10, made this section effective June 30, 2020.

PART 2. CIGARETTE TAX.

§ 105-113.5. Tax on cigarettes.

Rate. - A tax is levied on the sale or possession for sale in this State, by a licensed distributor, of all cigarettes at the rate of two and one-fourth cents (2.25›) per individual cigarette.
Primary Liability. - The licensed distributor who first acquires or otherwise handles cigarettes subject to the tax imposed by this section is liable for the tax imposed by this section. A licensed distributor who brings into this State cigarettes made outside the State is the first person to handle the cigarettes in this State. A licensed distributor who is the original consignee of cigarettes made outside the State and is shipped into the State is the first person to handle the cigarettes in this State.

History

(1969, c. 1075, s. 2; c. 1246, s. 1; 1991, c. 689, s. 262; 2004-170, s. 5; 2005-276, s. 34.1(a), (b); 2009-451, s. 27A.5(a); 2019-169, s. 4.1(e).)

Effect of Amendments. - Session Laws 2004-170, s. 5, effective August 2, 2004, rewrote the section.

Session Laws 2005-276, s. 34.1(a), effective September 1, 2005, substituted "one and one-half cents (1.50 › )" for "two and one-half mills."

Session Laws 2005-276, s. 34.1(b), effective July 1, 2006, substituted "one and three-fourths cents (1.75 › )" for "one and one-half cents (1.50 › )."

Session Laws 2009-451, s. 27A.5(a), effective September 1, 2009, substituted "two and one-fourth cents (2.25 › )" for "one and three-fourths cents (1.75 › )."

Session Laws 2019-169, s. 4.1(e), effective July 26, 2019, designated the first paragraph as subsection (a); in subsection (a), added the subsection heading, and inserted "licensed"; and added subsection (b).

§ 105-113.6. Use tax levied.

A tax is levied upon the sale or possession for sale by a person other than a licensed distributor, and upon the use, consumption, and possession for use or consumption of cigarettes within this State at the rate set in G.S. 105-113.5. This tax does not apply, however, to cigarettes upon which the tax levied in G.S. 105-113.5 has been paid.

History

(1969, c. 1075, s. 2; 1993, c. 442, s. 2; 2019-6, s. 4.1.)

Effect of Amendments. - Session Laws 2019-6, s. 4.1, effective March 20, 2019, inserted "licensed" in the first sentence.

§ 105-113.7: Recodified as G.S. 105-113.4D by Session Laws 2009-451, s. 27A.5(b), effective September 1, 2009.

§ 105-113.8. Federal Constitution and statutes.

Any activities which this Article may purport to tax in violation of the Constitution of the United States or any federal statute are hereby expressly exempted from taxation under this Article.

History

(1969, c. 1075, s. 2.)

§ 105-113.9. Out-of-state shipments.

Any licensed distributor engaged in interstate business shall be permitted to set aside part of the stock as necessary to conduct interstate business without paying the tax otherwise required by this Part, but only if the licensed distributor complies with the requirements prescribed by the Secretary concerning keeping of records, making of reports, posting of bond, and other matters for administration of this Part.

"Interstate business" as used in this section means:

The sale of cigarettes to a nonresident where the cigarettes are delivered by the licensed distributor to the business location of the nonresident purchaser in another state.
The sale of cigarettes to a nonresident purchaser who has no place of business in North Carolina and who purchases the cigarettes for the purposes of resale not within this State and where the cigarettes are delivered to the purchaser at the business location in North Carolina of the licensed distributor who is also licensed as a distributor under the laws of the state of the nonresident purchaser.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1977, c. 874; 1993, c. 442, s. 3; 2018-5, s. 38.6(a); 2019-6, s. 4.2.)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2018-5, s. 38.6(a), effective June 12, 2018, substituted "purchaser" for "wholesaler or retailer registered through the Secretary" near the beginning of subdivision (2).

Session Laws 2019-6, s. 4.2, effective March 20, 2019, inserted "licensed" preceding "distributor" twice in the opening paragraph, once in subdivision (1), and once in subdivision (2); and made minor stylistic changes.

§ 105-113.10. Manufacturers exempt from paying tax.

Shipping to Other Licensed Distributors. - A licensed manufacturer shipping cigarettes to other distributors who are licensed under G.S. 105-113.12 may, upon application to the Secretary and upon compliance with requirements prescribed by the Secretary, be relieved of paying the taxes levied in this Part, but is not relieved from filing a report as required by this Part.
Shipping to Retailers. - No manufacturer may be relieved of the requirement to be licensed as a distributor in order to make shipments, including drop shipments, to a retail dealer or ultimate user.
Shipping for Affiliated Manufacturer. - A manufacturer may, upon application to the Secretary and upon compliance with requirements prescribed by the Secretary, be relieved of paying the taxes levied in this Part on cigarettes that are manufactured by an affiliated manufacturer and temporarily stored at and shipped from its facilities, but is not relieved from filing a report as required by this Part.

History

(1969, c. 1075, s. 2; c. 1246, s. 2; 1973, c. 476, s. 193; 1975, c. 275, s. 2; 1993, c. 442, s. 4; 2011-330, s. 2(b); 2019-169, s. 4.1(d).)

Effect of Amendments. - Session Laws 2011-330, s. 2(b), effective June 27, 2011, rewrote the section catchline, which formerly read: "Manufacturers shipping to distributors exempt"; added the subsection (a) designation and catchline; and added subsection (b).

Session Laws 2019-169, s. 4.1(d), effective July 26, 2019, inserted "but is not relieved from filing a report as required by this Part" at the end of subsections (a) and (b); in subsection (a), added "Licensed" in the heading and substituted "A licensed" for "Any" near the beginning; and added the subsection (a1) designator and heading.

§ 105-113.11. Licenses required.

After the effective date of this Article, no person shall engage in business as a distributor in this State, without having first obtained from the Secretary the appropriate license for that purpose as prescribed herein. Any license required by this Article shall be in addition to any and all other licenses which may be required by law.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193.)

§ 105-113.12. Distributor must obtain license.

A distributor shall obtain for each place of business a distributor's license and shall pay a tax of twenty-five dollars ($25.00) for the license. A license is in effect until June 30 of the year following the second calendar year after the date of issuance or renewal. A license for each place of business is renewable upon signed application with no renewal license tax, unless applied for after the June 30 expiration date.
For the purposes of this section, a "place of business" is a place where a distributor receives or stores non-tax-paid cigarettes.
An out-of-state distributor may obtain a distributor's license upon compliance with the provisions of G.S. 105-113.4A and G.S. 105-113.24 and payment of a tax of twenty-five dollars ($25.00).

History

(1969, c. 1075, s. 2; 1991 (Reg. Sess., 1992), c. 955, s. 4; 1993, c. 442, s. 5; 2019-169, s. 4.2(c).)

Editor's Note. - Session Laws 2019-169, s. 4.2(e), provides: "This section becomes effective January 1, 2020. Any license issued under Article 2A of Chapter 105 of the General Statutes on or before January 1, 2020, shall expire on June 30, 2020. As soon as practicable after the effective date of this section, the Department of Revenue shall notify each licensee that he or she must renew the license by filing an application with the Secretary in accordance with G.S. 105-113.4A before June 30, 2020."

Effect of Amendments. - Session Laws 2019-169, s. 4.2(c), in subsection (a), deleted "continuing" preceding "distributor's" in the first sentence and added the second and third sentences; and inserted "G.S. 105-113.4A and" in subsection (c). For effective date and applicability, see editor's note.

§ 105-113.13. Secretary may require a bond or irrevocable letter of credit.

Repealed by Session Laws 2013-414, s. 22(c), effective September 1, 2013.
The Secretary may require a licensed distributor to furnish a bond in an amount that adequately protects the State from a licensed distributor's failure to pay taxes due under this Part. A bond must be conditioned on compliance with this Part, payable to the State, and in the form required by the Secretary. The amount of the bond is two times the licensed distributor's average expected monthly tax liability under this Article, as determined by the Secretary, provided the amount of the bond may not be less than two thousand dollars ($2,000) and may not be more than two million dollars ($2,000,000). The Secretary should periodically review the sufficiency of bonds required of the licensed distributor and increase the required bond amount if the amount no longer covers the anticipated tax liability of the licensed distributor and decrease the amount if the Secretary finds that a lower bond amount will protect the State adequately from loss.

For purposes of this section, a licensed distributor may substitute an irrevocable letter of credit for the secured bond required by this section. The letter of credit must be issued by a commercial bank acceptable to the Secretary and available to the State as a beneficiary. The letter of credit must be in a form acceptable to the Secretary, conditioned upon compliance with this Article, and in the amounts stipulated in this section.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991 (Reg. Sess., 1992), c. 955, s. 5; 1993, c. 442, s. 6; 2013-414, s. 22(c); 2014-3, s. 9.1(a); 2016-5, s. 4.1(a); 2019-6, s. 4.3; 2020-58, s. 2.6(a).)

Effect of Amendments. - Session Laws 2013-414, s. 22(c), effective September 1, 2013, rewrote the section heading, which formerly read "Secretary may investigate applicant for distributor's license and require a bond"; deleted subsection (a); and, in subsection (b), deleted the subsection heading, and added the last sentence.

Session Laws 2014-3, s. 9.1(a), effective May 29, 2014, rewrote subsection (b).

Session Laws 2016-5, s. 4.1(a), effective May 11, 2016, in subsection (b), deleted the former third sentence, which read "The Secretary must set the bond amount based on the anticipated tax liability of the distributor," and added the present third sentence.

Session Laws 2019-6, s. 4.3, effective March 20, 2019, inserted "licensed" preceding "distributor" throughout subsection (b).

Session Laws 2020-58, s. 2.6(a), effective June 30, 2020, substituted "a licensed distributor's failure" for "loss if the licensed distributor fails" in the first sentence of subsection (b).

§§ 105-113.14 through 105-113.15: Repealed by Session Laws 1991 (Regular Session, 1992), c. 955, § 6.

§ 105-113.16: Repealed by Session Laws 1999-333, s. 7, effective December 1, 1999.

§ 105-113.17. Identification of dispensers.

Each vending machine that dispenses cigarettes must be marked to identify its owner in the manner required by the Secretary.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991 (Reg. Sess., 1992), c. 955, s. 8.)

§ 105-113.18. Payment of tax; reports.

The taxes levied in this Part are payable when a report is required to be filed. The following reports are required to be filed with the Secretary:

Distributor's Report. - A licensed distributor shall file a monthly report in the form prescribed by the Secretary. The report covers cigarettes sold, shipped, delivered, or otherwise disposed of in this State in a calendar month and is due within 20 days after the end of the month covered by the report. The report shall show the quantity of all cigarettes transported or caused to be transported into the State by the licensed distributor or licensed manufacturer in the State for sales in this State and state the amount of tax due and shall identify any transactions to which the tax does not apply.
Repealed by Session Laws 2019-169, s. 4.3(a), effective July 26, 2019.
Use Tax Report. - Every other person who has acquired non-tax-paid cigarettes for sale, use, or consumption subject to the tax imposed by this Part shall, within 96 hours after receipt of the cigarettes, file a report in the form prescribed by the Secretary showing the amount of cigarettes so received and any other information required by the Secretary. The report shall be accompanied by payment of the full amount of the tax.
Shipping Report. - Any person, except a licensed distributor, who transports cigarettes upon the public highways, roads, or streets of this State, upon notice from the Secretary, shall file a report in the form prescribed by the Secretary and containing the information required by the Secretary.
Repealed by Session Laws 1981 (Regular Session, 1982), c. 1209, s. 1.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1981 (Reg. Sess., 1982), c. 1209, s. 1; 1993, c. 442, s. 7; 1993 (Reg. Sess., 1994), c. 745, s. 2; 2019-169, s. 4.3(a).)

Effect of Amendments. - Session Laws 2019-169, s. 4.3(a), effective July 26, 2019, in subdivision (1), inserted "licensed" in the first sentence, substituted "cigarettes sold, shipped, delivered, or otherwise disposed of in this State" for "sales and other activities occurring" in the second sentence, and inserted "show the quantity of all cigarettes transported or caused to be transported into the State by the licensed distributor or licensed manufacturer in the State for sales in this State and" in the last sentence; and deleted subdivision (1a), regarding "Report of Free Cigarettes".

§§ 105-113.19, 105-113.20: Repealed by Session Laws 1993, c. 442, s. 8.

§ 105-113.21. Discount; refund.

Repealed by Session Laws 2003-284, s. 45A.1(a), effective for reporting periods beginning on or after August 1, 2003.
Discount. - A licensed distributor who files a timely report under G.S. 105-113.18 and who sends a timely payment may deduct from the amount due with the report a discount of two percent (2%). This discount covers expenses incurred in preparing the records and reports required by this Part, and the expense of furnishing a bond.
Refund. - A licensed distributor in possession of packages of stale or otherwise unsalable cigarettes upon which the tax has been paid may return the cigarettes to the manufacturer as provided in this subsection and apply to the Secretary for refund of the tax. The application shall be in the form prescribed by the Secretary and shall be accompanied by an affidavit from the manufacturer stating the number of cigarettes returned to the manufacturer by the applicant. The Secretary shall refund the tax paid, less the discount allowed, on the unsalable cigarettes. The licensed distributor must return the cigarettes to the manufacturer of the cigarettes or to the affiliated manufacturer who is contracted by the manufacturer of the cigarettes to serve as the manufacturer's agent for the purposes of validating quantities and disposing of unsalable cigarettes.

History

(1969, c. 1075, s. 2; cc. 1222, 1238; 1973, c. 476, s. 193; 1993, c. 442, s. 9; 2001-414, s. 3; 2003-284, s. 45A.1(a); 2004-84, s. 2(a); 2011-330, s. 2(c); 2019-169, s. 4.1(c).)

Effect of Amendments. - Session Laws 2003-284, s. 45A.1.(a), effective for reporting periods beginning on or after August 1, 2003, deleted "Discount" in the section heading; repealed subsection (a); and in subsection (b), deleted "less the discount allowed, to the applicant" following "paid on the unsalable cigarettes."

Session Laws 2004-84, s. 2.(a), effective for reporting periods beginning on or after August 1, 2004, added subsection (a1); and inserted "less the discount allowed" in the last sentence of subsection (b).

Session Laws 2011-330, s. 2(c), effective June 27, 2011, in subsection (b), inserted "as provided in this subsection" in the first sentence, and added the last sentence.

Session Laws 2019-169, s. 4.1(c), effective July 26, 2019, inserted "licensed" preceding "distributor" in the first sentence of subsection (a) and in the first and last sentences in subsection (b).

§§ 105-113.22, 105-113.23: Repealed by Session Laws 1993, c. 442, s. 8.

§ 105-113.24. Out-of-State distributors to register and remit tax.

The Secretary may authorize any distributor outside this State engaged in the business of selling and shipping cigarettes into the State to obtain a license and report and pay taxes required by this Part.
A nonresident distributor must agree to submit the distributor's books, accounts, and records to reasonable examination by the Secretary or the Secretary's duly authorized agents. The Secretary may require a nonresident distributor to file a bond in accordance with G.S. 105-113.13.
Each such nonresident distributor, other than a foreign corporation which has qualified with the Secretary of State as doing business in this State shall, by a duly executed instrument filed in the office of the Secretary of State, constitute and appoint the Secretary of State his lawful attorney in fact upon whom any original process in any action or legal proceeding against such nonresident distributor arising out of any matter relating to this Article may be served, and therein agree that any original process against him so served shall be of the same force and effect as if served on him within this State, and that the authority thereof shall continue in force irrevocably so long as any such nonresident distributor shall remain liable for any taxes, interest and penalties under this Article.
Any nonresident distributor who shall comply with the provisions of this section may be licensed as a distributor.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991 (Reg. Sess., 1992), c. 955, s. 9; 1993, c. 442, ss. 9.1(a), 9.1(b).)

§ 105-113.25: Repealed by Session Laws 1993, c. 442, s. 8.

§ 105-113.26: Repealed by Session Laws 2020-58, s. 2.5(b), effective June 30, 2020.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1993, c. 442, s. 10; 2019-169, s. 4.4(a); repealed by 2020-58, s. 2.5(b), effective June 30, 2020.)

Editor's Note. - Former G.S. 105-113.26 pertained to the records to be kept.

Effect of Amendments. - Session Laws 2019-169, s. 4.4(a), effective July 26, 2019, in the first paragraph, substituted "purchases, inventories, sales, shipments, deliveries" for "sales" in the first sentence and inserted "and shall be open at all times for inspection by the Secretary or an authorized representative of the Secretary" at the end of the second sentence.

§ 105-113.27. Non-tax-paid cigarettes.

Except as otherwise provided in this Article, licensed distributors shall not sell, borrow, loan, or exchange non-tax-paid cigarettes to, from, or with other licensed distributors.
Except as otherwise provided in this Article, no person shall sell or offer for sale non-tax-paid cigarettes.
The possession of more than six hundred cigarettes on which tax has been paid to another state or country, by any person other than a licensed distributor, is prima facie evidence that the cigarettes are possessed in violation of this Part.

History

(1969, c. 1075, s. 2; 1993, c. 442, s. 11; 1999-337, s. 18; 2020-58, s. 2.7.)

Effect of Amendments. - Session Laws 2020-58, s. 2.7, effective June 30, 2020, added the exception at the beginning of subsection (b).

§ 105-113.28: Repealed by Session Laws 1993, c. 442, s. 8.

§ 105-113.29. (Effective until December 1, 2020) Unlicensed place of business.

It shall be unlawful for any person to maintain a place of business within this State required by this Article to be licensed to engage in the business of selling or offering for sale cigarettes or other tobacco products without first obtaining such licenses.

History

(1969, c. 1075, s. 2; 2017-39, s. 10.)

Section Set Out Twice. - The section above is effective until December 1, 2020. For the section as amended December 1, 2020, see the following section, also numbered G.S. 105-113.29.

Effect of Amendments. - Session Laws 2017-39, s. 10, effective June 21, 2017, inserted "or other tobacco products" and made a stylistic change.

§ 105-113.29. (Effective December 1, 2020) Unlicensed place of business.

It is unlawful for a person to maintain a place of business within this State required by this Article to be licensed to engage in the business of selling, offering for sale, or possessing with the intent to sell cigarettes or other tobacco products without first obtaining the licenses.

History

(1969, c. 1075, s. 2; 2017-39, s. 10; 2019-169, s. 4.14(a).)

Section Set Out Twice. - The section above is effective December 1, 2020. For the section as in effect until December 1, 2020, see the preceding section, also numbered G.S. 105-113.29.

Editor's Note. - Session Laws 2019-169, s. 4.14(b) made this section effective December 1, 2020, and applicable to offenses committed on or after that date.

Effect of Amendments. - Session Laws 2017-39, s. 10, effective June 21, 2017, inserted "or other tobacco products" and made a stylistic change.

Session Laws 2019-169, s. 4.14(a), rewrote the section. For effective date and applicability, see editor's note.

§ 105-113.30. Records and reports.

It shall be unlawful for any person who is required under the provisions of this Article to keep records or make reports, to fail to keep such records, refuse to keep such reports, make false entries in such records, fail to produce such records for inspection by the Secretary or his duly authorized agents, fail to file a report, or make a false or fraudulent report or statement.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193.)

§ 105-113.31. Possession and transportation of non-tax-paid cigarettes; seizure and confiscation of vehicle or vessel.

It shall be unlawful for any person to transport non-tax-paid cigarettes in violation of this Part. The Secretary may adopt rules allowing quantities of non-tax-paid cigarettes, not exceeding six hundred, to be brought into this State by a transient, a tourist, or a person returning to this State after traveling outside this State, for their own use. The possession or transportation of these cigarettes is not subject to the penalties imposed by this section.
1. Every person who transports non-tax-paid cigarettes on the public highways, roads, streets, or waterways of this State must transport with the cigarettes invoices or delivery tickets for the cigarettes showing the true name and complete and exact address of the consignee or purchaser, the quantity and brands of the cigarettes transported, and the true name and complete and exact address of the person who has paid or who will pay the tax imposed by this Part or the tax, if any, of the state or foreign country at the point of ultimate destination. (b) (1) Every person who transports non-tax-paid cigarettes on the public highways, roads, streets, or waterways of this State must transport with the cigarettes invoices or delivery tickets for the cigarettes showing the true name and complete and exact address of the consignee or purchaser, the quantity and brands of the cigarettes transported, and the true name and complete and exact address of the person who has paid or who will pay the tax imposed by this Part or the tax, if any, of the state or foreign country at the point of ultimate destination.
2. A common carrier that has issued a bill of lading for a shipment of cigarettes and is without notice to itself or to any of its agents or employees that the cigarettes are non-tax-paid in violation of this Part is considered to have complied with this Part and the vehicle or vessel in which the cigarettes are being transported is not subject to confiscation under this section. In the absence of the required invoices, delivery tickets, or bills of lading, the cigarettes so transported, the vehicle or vessel in which the cigarettes are being transported, and any paraphernalia or devices used in connection with the non-tax-paid cigarettes are declared to be contraband goods and may be seized by any officer of the law, who shall take possession of the vehicle or vessel and cigarettes and shall arrest any person in charge of the vehicle or vessel and cigarettes.
3. The officer shall at once proceed against the person arrested, under the provisions of this Part, in any court having competent jurisdiction; but the vehicle or vessel shall be returned to the owner upon execution by the owner of a good and valid bond, with sufficient sureties, in a sum double the value of the property, which bond shall be approved by the officer and shall be conditioned to return the property to the custody of the officer on the day of trial to abide the judgment of the court. All non-tax-paid cigarettes seized under this section shall be held and shall, upon the acquittal of the person so charged, be returned to the established owner.
4. Unless the claimant can show that the non-tax-paid cigarettes seized were not transported in violation of this Part and that the property seized belongs to the claimant or that in the case of property other than cigarettes, the property was used in transporting non-tax-paid cigarettes in violation of this Part without the claimant's knowledge or consent, with the right on the part of the claimant to have a jury pass upon this claim, the court shall order a sale by public auction of the property seized, and the officer making the sale, after deducting the cost of the tax due, which the officer shall pay upon sale, expenses of keeping the property, the fee for the seizure, and the costs of the sale, shall pay all liens according to their priorities, which are established, by intervention or otherwise, at the hearing or in another proceeding brought for the purpose as being bona fide and as having been created without the lien or having any notice that the vehicle or vessel was being used for the unlawful transportation of non-tax-paid cigarettes, and shall pay the balance of the proceeds to the State Treasurer for the General Fund.
5. All liens against property sold under the provisions of this section shall be transferred from the property to the proceeds of the sale of the property. If, however, no one is found claiming the cigarettes, or the vehicle or vessel, then the taking of the cigarettes, vehicle, or vessel, along with a description, shall be advertised in a newspaper having circulation in the county where the items were taken, once a week for two weeks and by notices posted in three public places near the place of seizure, and if no claimant appears within ten days after the last publication of the advertisement, the property shall be sold, and the proceeds, after deducting the expenses and costs, shall be paid to the State Treasurer for the General Fund.
6. This section does not authorize an officer to search any vehicle or vessel or baggage of any person without a search warrant duly issued, except where the officer has knowledge that there are non-tax-paid cigarettes in the vehicle or vessel.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1993, c. 442, s. 12.)

CASE NOTES

Cited in Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)).

§ 105-113.32. Non-tax-paid cigarettes subject to confiscation.

All non-tax-paid cigarettes subject to the tax imposed by this Part, together with any container in which they are stored or displayed for sale (including but not limited to vending machines), are declared to be contraband goods and may be seized by any officer of the law. The officer shall arrest any person in charge of the contraband goods and shall at once proceed against the person arrested, under the provisions of this Part, in any court having competent jurisdiction. The disposition of the seized cigarettes and container shall be governed by the provisions of G.S. 105-113.31.

History

(1969, c. 1075, s. 2; 1993, c. 442, s. 13.)

§ 105-113.33. Criminal penalties.

Any person who violates any of the provisions of this Article for which no other punishment is specifically prescribed shall be guilty of a Class 1 misdemeanor.

History

(1969, c. 1075, s. 2; 1993, c. 539, s. 700; 1994, Ex. Sess., c. 24, s. 14(c).)

§ 105-113.34: Repealed by Session Laws 1993, c. 442, s. 8.

PART 3. TAX ON OTHER TOBACCO PRODUCTS.

§ 105-113.35. Tax on tobacco products other than cigarettes.

Tax on Tobacco Products. - An excise tax is levied on tobacco products at the rate of twelve and eight-tenths percent (12.8%) of the cost price of the products. The tax rate does not apply to the following:
1. Cigarettes subject to the tax in G.S. 105-113.5.
2. Vapor products subject to the tax in subsection (a1) of this section.
Tax on Vapor Products. - An excise tax is levied on vapor products at the rate of five cents (5›) per fluid milliliter of consumable product. All invoices for vapor products issued by manufacturers must state the amount of consumable product in milliliters.
Limitation. - The taxes imposed under this section do not apply to the following:
1. A tobacco product sold outside the State.
2. A tobacco product sold to the federal government.
3. A sample tobacco product, other than cigarettes, distributed without charge. A sample tobacco product, other than cigarettes, may only be distributed in a "qualified adult-only facility" as that term is defined in 21 C.F.R. § 1140.16(d)(2).
Primary Liability. - The wholesale dealer or retail dealer who first acquires or otherwise handles tobacco products subject to the tax imposed by this section is liable for the tax imposed by this section. A wholesale dealer or retail dealer who brings into this State a tobacco product made outside the State is the first person to handle the tobacco product in this State. A wholesale dealer or retail dealer who is the original consignee of a tobacco product that is made outside the State and is shipped into the State is the first person to handle the tobacco product in this State.
Secondary Liability. - A retail dealer who acquires non-tax-paid tobacco products subject to the tax imposed by this section from a wholesale dealer is liable for any tax due on the tobacco products. A retail dealer who is liable for tax under this subsection may not deduct a discount from the amount of tax due when reporting the tax.
Manufacturer's Option. - A manufacturer who is not a retail dealer and who ships tobacco products other than cigarettes to either a wholesale dealer or retail dealer licensed under this Part may apply to the Secretary to be relieved of paying the tax imposed by this section on the tobacco products. A manufacturer who is not a retail dealer and who ships vapor products to either a wholesale dealer or retail dealer licensed under this Part may apply to the Secretary to be relieved of paying the tax imposed by this section on the vapor products shipped to either a wholesale dealer or retail dealer. Once granted permission, a manufacturer may choose not to pay the tax until otherwise notified by the Secretary but is not relieved from filing a report as required by this Part. To be relieved of payment of the tax imposed by this section, a manufacturer must comply with the requirements set by the Secretary.
Limitation. - Except as otherwise provided in this Article, a licensed wholesale dealer may not sell, borrow, loan, or exchange non-tax-paid tobacco products other than cigarettes to, from, or with another licensed wholesale dealer, and an integrated wholesale dealer may not sell, borrow, loan, or exchange non-tax-paid tobacco products other than cigarettes to, from, or with another integrated wholesale dealer.
Repealed by Session Laws 2009-451, s. 27A.5(c), effective September 1, 2009.

Permission granted under this subsection to a manufacturer to be relieved of paying the tax imposed by this section applies to an integrated wholesale dealer with whom the manufacturer is an affiliate. A manufacturer must notify the Secretary of any integrated wholesale dealer with whom it is an affiliate when the manufacturer applies to the Secretary for permission to be relieved of paying the tax and when an integrated wholesale dealer becomes an affiliate of the manufacturer after the Secretary has given the manufacturer permission to be relieved of paying the tax.

If a person is both a manufacturer of cigarettes and a wholesale dealer of tobacco products other than cigarettes and the person is granted permission under G.S. 105-113.10 to be relieved of paying the cigarette excise tax, the permission applies to the tax imposed by this section on tobacco products other than cigarettes. A cigarette manufacturer who becomes a wholesale dealer after receiving permission to be relieved of the cigarette excise tax must notify the Secretary of the permission received under G.S. 105-113.10 when applying for a license as a wholesale dealer.

History

(1969, c. 1075, s. 2; 1977, c. 1114, s. 4; 1991, c. 689, s. 269; 1991 (Reg. Sess., 1992), c. 955, s. 10; 2003-284, s. 45A.1(b); 2004-84, s. 2(b); 2005-276, s. 34.1(c); 2007-323, s. 6.23(a); 2007-435, s. 3; 2009-451, s. 27A.5(c); 2009-559, s. 2; 2014-3, s. 15.1(b); 2015-6, s. 2.5(a); 2016-5, s. 4.2; 2019-169, s. 4.5.)

Editor's Note. - Session Laws 2007-323, s. 6.23(d), provides, in part, that: "A wholesale dealer or retail dealer of tobacco products other than cigarettes who has an inventory of these products on hand on the effective date of the tax increase made by subsection (a) of this section must file a report of the inventory with the Secretary and pay an additional tax on the inventory. The report must be filed within 20 days after the effective date of the tax increase. The amount of the additional tax is the difference between the amount of tax payable at the former tax rate and the increased tax rate."

Session Laws 2007-323, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2007'."

Session Laws 2007-323, s. 32.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2007-2009 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2007-2009 fiscal biennium."

Session Laws 2007-323, s. 32.5 is a severability clause.

Session Laws 2014-3, s. 15.1(f), provides: "Nothing in this section shall be construed as circumventing future United States Food and Drug Administration regulation of tobacco products, other tobacco products, or vapor products."

Effect of Amendments. - Session Laws 2003-284, s. 45A.1.(b), effective for reporting periods beginning on or after August 1, 2003, deleted the former last sentence in subsection (c), which read "A retail dealer who is liable for tax under this subsection may not deduct a discount from the amount of tax due when reporting the tax."

Session Laws 2004-84, s. 2(b), effective for reporting periods beginning on or after August 1, 2004, added the last sentence to subsection (c).

Session Laws 2005-276, s. 34.1(c), effective September 1, 2005, substituted "three percent (3%)" for "two percent (2%)" in subdivision (a).

Session Laws 2007-323, s. 6.23(a), effective October 1, 2007, and applicable to products acquired on or after October 1, 2007, and taxes paid on or after October 1, 2007, added "use of proceeds " in the section heading; substituted "ten percent (10%) " for "three percent (3%) " in subsection (a); and added subsection (e).

Session Laws 2007-435, s. 3, effective October 1, 2007, added the second and third paragraphs in subsection (d).

Session Laws 2009-451, s. 27A.5(c), effective September 1, 2009, deleted "use of proceeds" from the end of the section heading; in the introductory language of subsection (a), substituted "twelve and eight-tenths percent (12.8%)" for "ten percent (10%)"; and deleted subsection (e).

Session Laws 2009-559, s. 2, effective September 1, 2009, added subsection (d1).

Session Laws 2014-3, s. 15.1(b), effective June 1, 2015, rewrote subsection (a); and added subsections (a1) and (a2).

Session Laws 2015-6, s. 2.5(a), effective June 1, 2015, inserted the present second sentence in the first paragraph of subsection (d).

Session Laws 2016-5, s. 4.2, effective May 11, 2016, in subsection (a), deleted "other than cigarettes and vapor products" following "on tobacco products" near the beginning, added the last sentence, and added subdivisions (a)(1) and (2).

Session Laws 2019-169, s. 4.5, effective July 26, 2019, rewrote subdivision (a2)(3), which formerly read: "A sample tobacco product distributed without charge."; in the first paragraph of subsection (d), inserted "is not a retail dealer and who" in the second sentence, and inserted "but is not relieved from filing a report as required by this Part" in the penultimate sentence; and rewrote subsection (d1), which formerly read: "Limitation. - Except as otherwise provided in this Article, integrated wholesale dealers may not sell, borrow, loan, or exchange non-tax-paid tobacco products other than cigarettes to, from, or with other integrated wholesale dealers."

§ 105-113.35A. (Effective for taxable years beginning on or after January 1, 2019) Use tax levied.

A tax is levied upon the sale or possession for sale by a person other than a licensed wholesale dealer or licensed retail dealer and upon the use, consumption, and possession for use or consumption of tobacco products other than cigarettes within this State at the rate set in G.S. 105-113.35. This tax does not apply to tobacco products other than cigarettes upon which the tax levied in G.S. 105-113.35 has been paid.

History

(2019-169, s. 4.6(a).)

Editor's Note. - Session Laws 2019-169, s. 4.6(b) made this section effective for taxable years beginning on or after January 1, 2019.

§ 105-113.36. Wholesale dealer and retail dealer must obtain license.

Required Licenses. - The entities listed in this subsection shall obtain for each place of business a tobacco products license and shall pay a license tax in the amounts listed. As used in this section, a "place of business" is a place where a wholesale dealer makes tobacco products other than cigarettes or where a wholesale dealer or a retail dealer receives or stores non-tax-paid tobacco products other than cigarettes. The entities and license tax amounts are as follows:
1. Wholesale dealer $25.00 (2) Retail dealer $10.00.
Term of License. - A license is in effect until June 30 of the year following the second calendar year after the date of issuance or renewal, unless cancelled or revoked prior to expiration. A license for each place of business is renewable upon signed application with no renewal license tax, unless applied for after the June 30 expiration date.
Out-of-State Wholesale Dealers. - An out-of-state wholesale dealer of tobacco products other than cigarettes may obtain a wholesale dealer's license upon compliance with the provisions of G.S. 105-113.4A and payment of a tax of twenty-five dollars ($25.00).

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991, c. 689, s. 270; 1991 (Reg. Sess., 1992), c. 955, s. 11; 2018-5, s. 38.6(b); 2019-169, s. 4.2(d).)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2018-5, s. 38.6(b), effective June 12, 2018, deleted "or where a retail dealer" preceding "makes tobacco products" near the middle of the last sentence.

Session Laws 2019-169, s. 4.2(d), rewrote the section, which formerly read: "A wholesale dealer shall obtain for each place of business a continuing tobacco products license and shall pay a tax of twenty-five dollars ($25.00) for the license. A retail dealer shall obtain for each place of business a continuing tobacco products license and shall pay a tax of ten dollars ($10.00) for the license. A 'place of business' is a place where a wholesale dealer makes tobacco products other than cigarettes or a wholesale dealer or a retail dealer receives or stores non-tax-paid tobacco products other than cigarettes." For effective date and applicability, see editor's note.

§ 105-113.37. Payment of tax.

Monthly Report. - Taxes levied by this Article are payable when a report is required to be filed. A report is due on a monthly basis. A monthly report covers tobacco products sold, shipped, delivered, or otherwise disposed of in this State occurring in a calendar month and is due within 20 days after the end of the month covered by the report. A report shall be filed on a form provided by the Secretary and shall contain the information required by the Secretary.
Repealed by Session Laws 2019-169, s. 4.3(b), effective July 26, 2019.
Repealed by Session Laws 1991 (Regular Session, 1992), c. 955, s. 12.
Shipping Report. - Any person who transports other tobacco products upon the public highways, roads, or streets of this State must, upon notice from the Secretary, file a report in a form prescribed by and containing the information required by the Secretary.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991, c. 689, s. 271; 1991 (Reg. Sess., 1992), c. 955, s. 12; 2009-559, s. 3; 2014-3, s. 15.1(c); 2019-169, s. 4.3(b).)

Effect of Amendments. - Session Laws 2009-559, s. 3, effective September 1, 2009, added subsection (d).

Session Laws 2014-3, s. 15.1(c), effective June 1, 2015, substituted "G.S. 105-113.35(a2)(1) or G.S. 105-113.35(a2)(2)" for "G.S. 105-113.35(a)(1) or (2)" throughout subsection (b).

Session Laws 2019-169, s. 4.3(b), effective July 26, 2019, in subsection (a), substituted "Taxes levied" for "Except for tax on a designated sale under subsection (b), the taxes levied" in the first sentence and substituted "tobacco products sold, shipped, delivered, or otherwise disposed of in this State" for "sales and other activities" in the second sentence; and deleted subsection (b), regarding "Designation of Exempt Sale."

§ 105-113.38. Bond or irrevocable letter of credit.

The Secretary may require a wholesale dealer or a retail dealer to furnish a bond in an amount that adequately protects the State from a wholesale dealer's or a retail dealer's failure to pay taxes due under this Part. A bond must be conditioned on compliance with this Part, payable to the State, and in the form required by the Secretary. The amount of the bond is two times the wholesale or retail dealer's average expected monthly tax liability under this Article, as determined by the Secretary, provided the amount of the bond may not be less than two thousand dollars ($2,000) and may not be more than two million dollars ($2,000,000). The Secretary should periodically review the sufficiency of bonds required of dealers, and increase the amount of a required bond when the amount of the bond furnished no longer covers the anticipated tax liability of the wholesale dealer or retail dealer and decrease the amount when the Secretary determines that a smaller bond amount will adequately protect the State from loss.

For purposes of this section, a wholesale dealer or a retail dealer may substitute an irrevocable letter of credit for the secured bond required by this section. The letter of credit must be issued by a commercial bank acceptable to the Secretary and available to the State as a beneficiary. The letter of credit must be in a form acceptable to the Secretary, conditioned upon compliance with this Article, and in the amounts stipulated in this section.

History

(1969, c. 1075, s. 2; 1991, c. 689, s. 272; 2012-79, s. 2.1; 2014-3, s. 9.1(b); 2016-5, s. 4.1(b); 2020-58, s. 2.6(b).)

Effect of Amendments. - Session Laws 2012-79, s. 2.1, effective June 26, 2012, rewrote the section catchline, which formerly read: "Bond"; and added the last sentence.

Session Laws 2014-3, s. 9.1(b), effective May 29, 2014, rewrote the section.

Session Laws 2016-5, s. 4.1(b), effective May 11, 2016, in the first paragraph, deleted the former third sentence, which read "The bond amount must be proportionate to the anticipated tax liability of the wholesale dealer or retail dealer," and added the present third sentence.

Session Laws 2020-58, s. 2.6(b), effective June 30, 2020, substituted "a wholesale dealer's or a retail dealer's failure" for "loss if the dealer fails" in the first sentence of the first paragraph.

§ 105-113.39. Discount; refund.

Discount. - A wholesale dealer or a retail dealer who is primarily liable under G.S. 105-113.35(b) for the excise taxes imposed by this Part on tobacco products but not including vapor products, who files a timely report under G.S. 105-113.37, and who sends a timely payment may deduct from the amount due with the report a discount of two percent (2%). This discount covers expenses incurred in preparing the records and reports required by this Part and the expense of furnishing a bond.
Refund. - A wholesale dealer or retail dealer who is primarily liable under G.S. 105-113.35(b) for the excise taxes imposed by this Part and is in possession of stale or otherwise unsalable tobacco products upon which the tax has been paid may return the tobacco products to the manufacturer and apply to the Secretary for refund of the tax. The application shall be in the form prescribed by the Secretary and shall be accompanied by a written certificate signed under penalty of perjury or an affidavit from the manufacturer listing the tobacco products returned to the manufacturer by the applicant. The Secretary shall refund the tax paid, less the discount allowed, on the listed products.

History

(1969, c. 1075, s. 2; 1991, c. 689, s. 273; 2001-414, s. 4; 2003-284, s. 45A.1(c); 2004-84, s. 2(c); 2005-406, s. 2; 2008-207, s. 4; 2014-3, ss. 9.2, 15.1(d).)

Editor's Note. - Session Laws 2003-284, s. 48.1, provides: "Parts 32 through 47 of this act do not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by those parts before the effective date of its amendment or repeal; nor do they 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."

This section was repealed by Session Laws 2003-284, s. 45A.1(c), effective for reporting periods beginning on or after August 1, 2003. Session Laws 2004-84, s. 2(c), reenacted and amended the section, effective for reporting periods beginning on or after August 1, 2004.

Effect of Amendments. - Session Laws 2004-84, s. 2(c), effective for reporting periods beginning on or after August 1, 2004, reenacted and amended the section by substituting "two percent (2%)" for "four percent (4%)."

Session Laws 2005-406, s. 2, effective September 1, 2005, added "refund" to the section heading; inserted the subsection (a) designation and "Discount" as the heading; added subsection (b); and made a minor punctuation change.

Session Laws 2008-207, s. 4, effective October 1, 2008, and applicable to products returned on or after that date, in the second sentence of subsection (a), deleted "losses due to damage to tobacco products " following "this discount covers " and made a minor stylistic change; and in subsection (b), in the first sentence, substituted "G.S. 105-113.35(b) " for "G.S. 150-113.35(b), " in the second sentence, substituted "tobacco products " for "cigars " twice, and substituted "listing the tobacco products " for "stating the number of cigars, " and in the third sentence, substituted "listed products " for "unsalable cigars."

Session Laws 2014-3, s. 9.2, effective May 29, 2014, inserted "a written certificate signed under penalty of perjury or" in the second sentence of subsection (b).

Session Laws 2014-3, s. 15.1(d), effective June 1, 2015, inserted "on tobacco products but not including vapor products" following "Part" in the first sentence of subsection (a).

§ 105-113.40: Repealed by Session Laws 2020-58, s. 2.5(b), effective June 30, 2020.

History

(1969, c. 1075, s. 2; 1973, c. 476, s. 193; 1991, c. 689, s. 274; 2019-169, s. 4.4(b); repealed by 2020-58, s. 2.5(b), effective June 30, 2020.)

Editor's Note. - G.S. 105-113.40 pertained to records of sales, inventories, and purchases to be kept.

Effect of Amendments. - Session Laws 2019-169, s. 4.4(b), effective July 26, 2019, rewrote the section, which formerly read: "Every wholesale dealer and retail dealer shall keep accurate records of the dealer's purchases, inventories, and sales of tobacco products. These records shall be open at all times for inspection by the Secretary or an authorized representative of the Secretary."

§ 105-113.40A. Use of tax proceeds.

The Secretary must credit the net proceeds of the tax collected under this Part as follows:

An amount equal to three percent (3%) of the cost price of the products to the General Fund.
An amount equal to the revenue generated by the tax on vapor products under G.S. 105-113.35(a1) to the General Fund.
The remainder to the University Cancer Research Fund established under G.S. 116-29.1.

History

(2009-451, s. 27A.5(d); 2010-95, s. 1; 2014-3, s. 15.1(e).)

Effect of Amendments. - Session Laws 2010-95, s. 1, effective July 17, 2010, substituted "this Part" for "this Article" in the introductory language.

Session Laws 2014-3, s. 15.1(e), effective June 1, 2015, added subdivision (1a).

ARTICLE 2B. Soft Drink Tax.

§§ 105-113.41 through 105-113.67: Repealed by Session Laws 1996, Second Extra Session, c. 13, s. 4.2, effective July 1, 1999.

Editor's Note. - Session Laws 1996, Second Extra Session, c. 13, s. 4.2, effective July 1, 1999, provides: "Effective July 1, 1999, Article 2B of Chapter 105 of the General Statutes, as amended by this act, is repealed. The Secretary shall retain from collections under Article 2 of Chapter 105 of the General Statutes the cost of refunding the taxes levied in Article 2B of Chapter 105 of the General Statutes."

Session Laws 1996, Second Extra Session, c. 13, s. 1, provides that this act shall be known as the William S. Lee Quality Jobs and Business Expansion Act.

Repealed G.S. 105-113.43, 105-113.48, 105-113.49, 105-113.54 to 105-113.56C, 105-113.59 to 105-113.62, 105-113.66 and 105-113.67 had been repealed by Session Laws 1991, c. 689, s. 286. Repealed G.S. 105-113.65 had been repealed by Session Laws 1983 (Reg. Sess., 1984), c. 1004, s. 1.

ARTICLE 2C. Alcoholic Beverage License and Excise Taxes.

Part 1. General Provisions.

Sec.

Part 2. State Licenses.

Part 3. Local Licenses.

Part 4. Excise Taxes, Distribution of Tax Revenue.

Part 5. Administration.

PART 1. GENERAL PROVISIONS.

§ 105-113.68. Definitions; scope.

Definitions. - The following definitions apply in this Article:
1. ABC Commission. - The North Carolina Alcoholic Beverage Control Commission established under G.S. 18B-200.
2. Repealed by Session Laws 2004-170, s. 6, effective August 2, 2004.
3. ABC permit. - Defined in G.S. 18B-101.
4. Alcoholic beverage. - Defined in G.S. 18B-101.
5. Antique spirituous liquor. - Defined in G.S. 18B-101.
6. Distillery permittee. - A distillery that holds a distillery permit issued by the ABC Commission under G.S. 18B-1105.
7. Fortified wine. - Defined in G.S. 18B-101.
8. License. - A certificate, issued pursuant to this Article by a city or county, that authorizes a person to engage in a phase of the alcoholic beverage industry.
9. Malt beverage. - Defined in G.S. 18B-101.
10. Person. - Defined in G.S. 105-228.90.
11. Sale. - Defined in G.S. 18B-101.
12. Secretary. - The Secretary of Revenue.
13. Spirituous liquor or liquor. - Defined in G.S. 18B-101.
14. Unfortified wine. - Defined in G.S. 18B-101.
15. Wholesaler or importer. - When used with reference to a wholesaler or an importer of wine or malt beverages, the term includes a resident winery and a wine producer that sells its wines, or wine produced for the permittee under contract, at wholesale to a retailer or at retail and a resident brewery that sells its malt beverages, or malt beverages produced for the permittee under contract, at wholesale to a retailer or at retail. This subdivision applies to a person that holds any of the following permits issued by the ABC Commission:
  1. Unfortified winery permit under G.S. 18B-1101.
  2. Fortified winery permit under G.S. 18B-1102.
  3. Brewery permit under G.S. 18B-1104.
  4. Wine importer permit under G.S. 18B-1106.
  5. Wine wholesaler permit under G.S. 18B-1107.
  6. Malt beverages importer permit under G.S. 18B-1108.
  7. Malt beverages wholesaler permit under G.S. 18B-1109.
  8. Wine producer permit under G.S. 18B-1114.3.
16. Wine. - Unfortified and fortified wine.
17. Wine shipper permittee. - A winery that holds a wine shipper permit issued by the ABC Commission under G.S. 18B-1001.1.
Scope. - All alcoholic beverages shall be taxed as provided in this Article regardless whether they meet all criteria of these definitions.

History

(1971, c. 872, s. 2; 1973, c. 476, s. 193; 1975, c. 411, s. 1; 1981, c. 747, s. 2; 1985, c. 114, s. 1; c. 596, s. 3; 1993, c. 354, s. 9; c. 415, s. 26; 1995, c. 466, s. 16; 1998-95, s. 14; 1998-98, s. 58; 2003-402, s. 8; 2004-135, s. 3; 2004-170, s. 6; 2005-277, s. 2; 2005-435, s. 25(b); 2015-98, ss. 1(g), 4(b); 2019-169, s. 4.8.)

Editor's Note. - Session Laws 1971, c. 872, s. 2 added this Article, which contains revenue provisions similar to those formerly appearing in repealed Chapter 18.

Session Laws 1981, c. 747, ss. 1-32, extensively amended this Article so as to bring it into conformity with the revision of the laws governing alcoholic beverages, contained in Chapter 18B, as enacted by Session Laws 1981, c. 412.

Session Laws 1985, c. 114, s. 1, again extensively amended this Article. The historical citations to sections of this Article as it read prior to its 1985 amendment have been added where appropriate to corresponding sections of the Article as amended.

Session Laws 2013-414, s. 53(a), provides: "The Department of Revenue allocates and distributes to cities and counties the local sales and use taxes under Subchapter VIII of Chapter 105 of the General Statutes and a portion of various State taxes under Chapter 105 of the General Statutes, such as the excise tax on beer and wine, the franchise tax on electric power companies, the sales tax on video programming and telecommunications, and the excise tax on piped natural gas. If the Department is unable to accurately identify and calculate the amount of tax proceeds allocable and distributable to a county or city for any one or more of these taxes for one or more of the distributional periods because of implementation issues with the Tax Information Management System (TIMS), the Department must allocate and distribute to a county and city an amount for that period that is equal to the average of the applicable tax proceeds allocated and distributed to it for the same distributional period in the preceding three fiscal years."

Session Laws 2015-98, s. 1(i), provides: "No later than September 1, 2015, the ABC Commission shall establish and adopt temporary rules to implement the provisions of this section."

Session Laws 2015-98, s. 1(j), made subdivision (4a), as added by Session Laws 2015-98, s. 1(g), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 1(i). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Subdivision (a)(4a) as added by Session Laws 2015-98, s. 4(b), was redesignated as subdivision (a)(4b) by the Revisor of Statutes.

Session Laws 2015-98, s. 4(h), provides: "No later than October 1, 2015, the ABC Commission shall establish and adopt temporary rules to implement the provisions of this section."

Session Laws 2015-98, s. 4(i), made subdivision (a)(4b), as added by Session Laws 2015-98, s. 4(b), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 4(h). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Effect of Amendments. - Session Laws 2003-402, s. 8, effective October 1, 2003, added subdivision (15).

Session Laws 2004-135, s. 3, effective October 1, 2004, rewrote subdivision (a)(5), which read: "'Fortified wine' means a wine made by fermentation from grapes, fruits, berries, rice, or honey, to which nothing has been added other than pure brandy made from the same type of grape, fruit, berry, rice, or honey that is contained in the base wine, and which has an alcoholic content of not more than twenty-four percent (24%) alcohol by volume"; and rewrote subdivision (a)(12), which read: "'Unfortified wine' means wine that has an alcoholic content produced only by natural fermentation or by the addition of pure cane, beet, or dextrose sugar."

Session Laws 2004-170, s. 6, effective August 2, 2004, repealed subdivision (a)(2).

Session Laws 2015-98, ss. 1(g) and 4(b), added subdivisions (a)(4a) and (4b). For effective dates, see editor's note.

Session Laws 2019-169, s. 4.8, effective July 26, 2019, rewrote subdivision (a)(13), which formerly read: "Wholesaler or importer. - When used with reference to wholesalers or importers of wine or malt beverages, the term includes resident wineries that sell their wines at retail and resident breweries that produce fewer than 25,000 barrels of malt beverages per year."

§ 105-113.69. License tax; effect of license.

The taxes imposed in Part 3 of this Article are license taxes on the privilege of engaging in the activity authorized by the license. Licenses issued under this Article authorize the licensee to engage in only those activities that are authorized by the corresponding ABC permit. The activities authorized by each retail ABC permit are described in Article 10 of Chapter 18B of the General Statutes and the activities authorized by each commercial ABC permit are described in Article 11 of that Chapter.

History

(1949, c. 974, s. 6; 1951, c. 378, s. 4; 1963, c. 426, s. 12; 1971, c. 872, s. 2; 1981, c. 747, s. 3; 1985, c. 114, s. 1; 1998-95, s. 15.)

§ 105-113.70. Issuance, duration, transfer of license.

Issuance, Qualifications. - Each person who receives an ABC permit shall obtain the corresponding local license, if any, under this Article. All local licenses are issued by the city or county where the establishment for which the license is sought is located. No documentation shall be required of the applicant except as provided in this section. Issuance of a local license is mandatory if the applicant holds the corresponding ABC permit and provides all of the following: (i) a copy of the most recently completed State application form for an ABC permit exclusive of any attachments, (ii) the ABC permit for visual inspection, and (iii) payment of the prescribed tax. No local license may be issued under this Article until the applicant has received from the ABC Commission the applicable permit for that activity, and no county license may be issued for an establishment located in a city in that county until the applicant has received from the city the applicable license for that activity.
Duration. - All licenses issued under this section are annual licenses for the period from May 1 to April 30.
Transfer. - A license may not be transferred from one person to another or from one location to another.
License Exclusive. - A local government may not require a license for activities related to the manufacture or sale of alcoholic beverages other than the licenses stated in this Article.

History

(1985, c. 114, s. 1; 1998-95, s. 16; 2017-87, s. 17.)

Editor's Note. - Session Laws 2017-87, s. 19(a), (b), provides: "(a) Except as otherwise provided, the Alcoholic Beverage Control (ABC) Commission shall adopt temporary rules to implement the provisions of this act. Temporary rules adopted in accordance with this section shall remain in effect until permanent rules that replace the temporary rules become effective.

"(b) Any rule or policy adopted by the ABC Commission that does not comply with the provisions of this act shall be null, void, and without effect."

Effect of Amendments. - Session Laws 2017-87, s. 17, effective June 30, 2017, in subsection (a), deleted the second sentence, which read: "The information required to be provided and the qualifications for a local license are the same as the information and qualifications required for the corresponding ABC permit. Upon proper application and payment of the prescribed tax, issuance of a local license is mandatory if the applicant holds the corresponding ABC permit." and added the second and third sentences.

CASE NOTES

Commission Decision Granting Permit Preempts Zoning Ordinance. - In case in which petitioner, without objection by respondent board, argued that the decision of the ABC Commission to grant him a permit preempted respondent's denial of his special exception use permit request since the zoning ordinance, upon which respondent's denial was based, attempted to regulate the sale of alcoholic beverages, which is a violation of State law, the trial court did not err in concluding that petitioner, as the holder of a valid ABC permit issued by the State Alcoholic Beverage Control Commission, was entitled to be issued a city beer license, and in ordering the tax collector of the city to issue any city license. Melkonian v. Board of Adjustment, 85 N.C. App. 351, 355 S.E.2d 503, cert. denied, 320 N.C. 631, 360 S.E.2d 91 (1987).

§ 105-113.71. Local government may refuse to issue license.

Refusal to Issue. - Notwithstanding G.S. 105-113.70, the governing board of a city or county may refuse to issue a license if it finds that the applicant committed any act or permitted any activity in the preceding year that would be grounds for suspension or revocation of his permit under G.S. 18B-104. Before denying the license, the governing board shall give the applicant an opportunity to appear at a hearing before the board and to offer evidence. The applicant shall be given at least 10 days' notice of the hearing. At the conclusion of the hearing the board shall make written findings of fact based on the evidence at the hearing. The applicant may appeal the denial of a license to the superior court for that county, if notice of appeal is given within 10 days of the denial.
Local Exceptions. - The governing bodies of the following counties and cities in their discretion may decline to issue on-premises unfortified wine licenses: the counties of Alamance, Alexander, Ashe, Avery, Chatham, Clay, Duplin, Granville, Greene, Haywood, Jackson, Macon, Madison, McDowell, Montgomery, Nash, Pender, Randolph, Robeson, Sampson, Transylvania, Vance, Watauga, Wilkes, Yadkin; any city within any of those counties; and the cities of Greensboro, Aulander, Pink Hill, and Zebulon.

History

(1985, c. 114, s. 1.)

§ 105-113.72: Repealed by Session Laws 1998-95, s. 17, effective May 1, 1999.

§ 105-113.73. Misdemeanor.

Except as otherwise expressly provided, violation of a provision of this Article is a Class 1 misdemeanor.

History

(1939, c. 158, s. 525; 1971, c. 872, s. 2; 1981, c. 747, s. 32; 1985, c. 114, s. 1; 1993, c. 539, s. 701; 1994, Ex. Sess., c. 24, s. 14(c); 2003-402, s. 9.)

Effect of Amendments. - Session Laws 2003-402, s. 9, effective October 1, 2003, substituted "this Article" for "the ABC law."

PART 2. STATE LICENSES.

§ 105-113.74: Repealed by Session Laws 1998-95, s. 18, effective May 1, 1999.

Editor's Note. - A former G.S. 105-113.74 was repealed by Session Laws 1981, c. 747, s. 8, effective January 1, 1982.

§ 105-113.75: Repealed by Session Laws 1998-95, s. 19, effective May 1, 1999.

§ 105-113.76: Repealed by Session Laws 1998-95, s. 20, effective May 1, 1999.

PART 3. LOCAL LICENSES.

§ 105-113.77. City malt beverage and wine retail licenses.

License and Tax. - A person holding any of the following retail ABC permits for an establishment located in a city shall obtain from the city a city license for that activity. The annual tax for each license is as stated.
Tax on Additional License. - The tax stated in subsection (a) is the tax for the first license issued to a person. The tax for each additional license of the same type issued to that person for the same year is one hundred ten percent (110%) of the base license tax, that increase to apply progressively for each additional license.

ABC Permit Tax for Corresponding License On-premises malt beverage ......................................... $15.00 Off-premises malt beverage .......................................... 5.00 On-premises unfortified wine, on-premises fortified wine, or both .............................. 15.00 Off-premises unfortified wine, off-premises fortified wine, or both .............................. 10.00

History

(1985, c. 114, s. 1; 2019-6, s. 4.4.)

Editor's Note. - A former G.S. 105-113.77 was repealed by Session Laws 1981, c. 747, s. 11, effective January 1, 1982.

Effect of Amendments. - Session Laws 2019-6, s. 4.4, effective March 20, 2019, substituted "malt beverage" for "beer" in the section heading.

§ 105-113.78. County malt beverage and wine retail licenses.

A person holding any of the following retail ABC permits for an establishment located in a county shall obtain from the county a county license for that activity. The annual tax for each license is as stated.

ABC Permit Tax for Corresponding License On-premises malt beverage ......................................... $25.00 Off-premises malt beverage .......................................... 5.00 On-premises unfortified wine, on-premises fortified wine, or both .............................. 25.00 Off-premises unfortified wine, off-premises fortified wine, or both .............................. 25.00

History

(1985, c. 114, s. 1; 2019-6, s. 4.5.)

Editor's Note. - A former G.S. 105-113.78 was repealed by Session Laws 1981, c. 747, s. 11, effective January 1, 1982.

Effect of Amendments. - Session Laws 2019-6, s. 4.5, effective March 20, 2019, substituted "malt beverage" for "beer" in the section heading.

§ 105-113.79. City wholesaler license.

A city may require city malt beverage and wine wholesaler licenses for businesses located inside the city, but may not require a license for a business located outside the city, regardless whether that business sells or delivers malt beverages or wine inside the city. The city may charge an annual tax of not more than thirty-seven dollars and fifty cents ($37.50) for a city malt beverage wholesaler or a city wine wholesaler license.

History

(1985, c. 114, s. 1; 1998-95, s. 21.)

PART 4. EXCISE TAXES, DISTRIBUTION OF TAX REVENUE.

§ 105-113.80. Excise taxes on malt beverages, wine, and liquor.

Malt Beverage. -. An excise tax of sixty-one and seventy-one hundredths cents (61.71›) per gallon is levied on the sale of malt beverages.
Wine. - An excise tax of twenty-six and thirty-four hundredths cents (26.34›) per liter is levied on the sale of unfortified wine, and an excise tax of twenty-nine and thirty-four hundredths cents (29.34›) per liter is levied on the sale of fortified wine.
Liquor. - An excise tax of thirty percent (30%) is levied on spirituous liquor and antique spirituous liquor sold in ABC stores and in permitted distilleries. Pursuant to G.S. 18B-804(b), the price of liquor on which this tax is computed is the spirituous liquor or antique spirituous liquor seller's price plus (i) the State ABC warehouse freight and bailment charges and (ii) a markup for local ABC boards, unless otherwise specified by law.

History

(1985, c. 114, s. 1; 1987, c. 832, s. 2; 1998-95, s. 22; 2001-424, s. 34.23(c), (d); 2009-451, s. 27A.4(a); 2015-98, ss. 1(f), 4(c); 2019-6, s. 4.7.)

Editor's Note. - Session Laws 2009-451, s. 27A.4(a), which substituted "sixty-one and seventy-one hundredths cents (61.71 › )" for "fifty-three and one hundred seventy-seven one thousandths cents (53.177 › )" in subsection (a), substituted "twenty-six and thirty-four hundredths cents (26.34 › )" for "twenty-one cents (21 › )" and "twenty-nine and thirty-four hundredths cents (29.34 › )" for "twenty-four cents (24 › )" in subsection (b), and, substituted "thirty percent (30%)" for "twenty-five percent (25%)" in subsection (c), was applicable to malt beverages and wine first sold or otherwise disposed of on or after September 1, 2009, and to liquor sold on or after September 1, 2009.

Session Laws 2009-451, s. 27A.4(c), provides: "Notwithstanding G.S. 105-113.82, the percentages of the net amount of excise taxes distributable to a county or city under G.S. 105-113.82 for the taxes collected during the 12-month period ending March 31, 2010, are as follows:

"(1) Of the tax on malt beverages levied under G.S. 105-113.80(a), seven and twenty-four hundredths percent (7.24%).

"(2) Of the tax on unfortified wine levied under G.S. 105-113.80(b), eighteen percent (18%).

"(3) Of the tax on fortified wine levied under G.S. 105-113.80(b), six and forty-nine hundredths percent (6.49%)."

Session Laws 2009-451, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2009'."

Session Laws 2009-451, s. 28.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2009-2011 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2009-2011 fiscal biennium."

Session Laws 2009-451, s. 28.5 is a severability clause.

Session Laws 2015-98, s. 1(i), provides: "No later than September 1, 2015, the ABC Commission shall establish and adopt temporary rules to implement the provisions of this section."

Session Laws 2015-98, s. 1(j), made the amendment to subsection (c) by Session Laws 2015-98, s. 1(f), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 1(i). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Session Laws 2015-98, s. 4(h), provides: "No later than October 1, 2015, the ABC Commission shall establish and adopt temporary rules to implement the provisions of this section."

Session Laws 2015-98, s. 4(i), made the amendment to subsection (c) of this section by Session Laws 2015-98, s. 4(c), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 4(h). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Effect of Amendments. - Session Laws 2009-451, s. 27A.4(a), effective September 1, 2009, and applicable to malt beverages and wine first sold or otherwise disposed of on or after that date and to liquor sold on or after that date, substituted "sixty-one and seventy-one hundredths cents (61.71 › )" for "fifty-three and one hundred seventy-seven one thousandths cents (53.177 › )" in subsection (a); substituted "twenty-six and thirty-four hundredths cents (26.34 › )" for "twenty-one cents (21 › )" and "twenty-nine and thirty-four hundredths cents (29.34 › )" for "twenty-four cents (24 › )" in subsection (b); and, substituted "thirty percent (30%)" for "twenty-five percent (25%)" in subsection (c).

Session Laws 2015-98, ss. 1(f) and 4(c), in subsection (c), in the first sentence, substituted "spirituous liquor and antique spirituous liquor" for "liquor" and inserted "and in permitted distilleries", and in the second sentence, inserted "or the antique spirituous liquor seller's" and made a minor punctuation change. For effective dates, see editor's note.

Session Laws 2019-6, s. 4.7, substituted "malt beverages" for "beer" in the section heading; substituted "Malt Beverage" for "Beer" in the heading for subsection (a); and, in subsection (c), in the second sentence, substituted "spirituous liquor or" for "distiller's or the" near the middle, and added "unless otherwise specified by law" at the end.

Legal Periodicals. - For article, "A History of Liquor-by-the-Drink Legislation in North Carolina," see 1 Campbell L. Rev. 61 (1979).

Opinions of Attorney General

Computation of "Net Profit." - Taxes payable under former G.S. 18-85 were not deductible in computing "net profit" for purposes of determining the tax ceiling. See opinion of Attorney General to Honorable I.L. Clayton, Commissioner of Revenue of N.C. and Mr. W.C. Pickett, Jr., Director, Privilege License Beverage and Cigarette Tax Division, 41 N.C.A.G. 144 (1970), rendered under former G.S. 18-85.

§ 105-113.81. Exemptions.

Major Disaster. - Wholesalers and importers of malt beverages and wine are not required to remit excise taxes on malt beverages or wine rendered unsalable by a major disaster. To qualify for this exemption, the wholesaler or importer shall prove to the satisfaction of the Secretary that a major disaster occurred. A major disaster is the destruction, spoilage, or rendering unsalable of 50 or more cases, or the equivalent, of malt beverages or 25 or more cases, or the equivalent, of wine.
Sales to Oceangoing Vessels. - Wholesalers and importers of malt beverages and wine are not required to remit excise taxes on malt beverages and wine sold and delivered for use on oceangoing vessels. An oceangoing vessel is a ship that plies the high seas in interstate or foreign commerce, in the transport of freight or passengers, or both, for hire exclusively. To qualify for this exemption the beverages shall be delivered to an officer or agent of the vessel for use on that vessel. Sales made to officers, agents, crewmen, or passengers for their personal use are not exempt.
Sales to Armed Forces of the United States. - Wholesalers and importers of malt beverages and wine are not required to remit excise taxes on malt beverages and wine sold to the Armed Forces of the United States. The Secretary may require malt beverages and wine sold to the Armed Forces of the United States to be marked "For Military Use Only" to facilitate identification of those beverages.
Out-of-State Sales. - Wholesalers and importers of malt beverages and wine are not required to remit excise taxes on malt beverages and wine shipped out of this State for resale outside the State.
Tasting. - Resident breweries, wineries, and distilleries are not required to remit excise taxes on malt beverages, wine, or spirituous liquor given free of charge to customers, visitors, and employees on the manufacturer's licensed premises for consumption on those premises.

History

(1963, c. 992, s. 1; 1967, c. 759, s. 24; 1971, c. 872, s. 2; 1975, c. 586, s. 3; 1985, c. 114, s. 1; 2011-183, s. 71; 2015-98, s. 4(d).)

Editor's Note. - Session Laws 2015-98, s. 4(h), provides: "No later than October 1, 2015, the ABC Commission shall establish and adopt temporary rules to implement the provisions of this section."

Session Laws 2015-98, s. 4(i), made the amendment to subsection (e) of this section by Session Laws 2015-98, s. 4(d), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 4(h). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Effect of Amendments. - Session Laws 2011-183, s. 71, effective June 20, 2011, in subsection (c), in the catchline and second sentence, substituted "Armed Forces of the United States" for "Armed Forces," and in the first sentence, substituted "Armed Forces of the United States" for "United States Armed Forces."

Session Laws 2015-98, s. 4(d), in subsection (e), substituted "breweries, wineries, and distilleries" for "breweries and wineries" and "beverages, wine, or spirituous liquor" for "beverages and wine." For effective date, see editor's note.

§ 105-113.81A: Repealed by Session Laws 2009-451, s. 14.19(f), effective July 1, 2009.

§ 105-113.82. Distribution of part of malt beverage and wine taxes.

Amount. - The Secretary must distribute annually a percentage of the net amount of excise taxes collected on the sale of malt beverages and wine during the preceding 12-month period ending March 31 to the counties or cities in which the retail sale of these beverages is authorized in the entire county or city. The percentages to be distributed are as follows:
1. Of the tax on malt beverages levied under G.S. 105-113.80(a), twenty and forty-seven hundredths percent (20.47%).
2. Of the tax on unfortified wine levied under G.S. 105-113.80(b), forty-nine and forty-four hundredths percent (49.44%).
3. Of the tax on fortified wine levied under G.S. 105-113.80(b), eighteen percent (18%).
Method. - If malt beverages, unfortified wine, or fortified wine may be licensed to be sold at retail in both a county and a city located in the county, both the county and city receive a portion of the amount distributed, that portion to be determined on the basis of population. If one of these beverages may be licensed to be sold at retail in a city located in a county in which the sale of the beverage is otherwise prohibited, only the city receives a portion of the amount distributed, that portion to be determined on the basis of population. The amounts distributable under subsection (a) of this section must be computed separately.
Repealed by Session Laws 2000, c. 173, s. 3, effective August 2, 2000.
Exception. - Notwithstanding subsections (a) and (a1) of this section, in a county in which ABC stores have been established by petition, the revenue shall be distributed as though the entire county had approved the retail sale of a beverage whose retail sale is authorized in part of the county.
Time. - The revenue shall be distributed to cities and counties within 60 days after March 31 of each year. The General Assembly finds that the revenue distributed under this section is local revenue, not a State expenditure, for the purpose of Section 5(3) of Article III of the North Carolina Constitution. Therefore, the Governor may not reduce or withhold the distribution.
Population Estimates. - To determine the population of a city or county for purposes of the distribution required by this section, the Secretary shall use the most recent annual estimate of population certified by the State Budget Officer.
City Defined. - As used in this section, the term "city" means a city as defined in G.S. 153A-1(1) or an urban service district defined by the governing body of a consolidated city-county.
Use of Funds. - Funds distributed to a county or city under this section may be used for any public purpose.
Disqualification. - No municipality may receive any funds under this section if it was incorporated with an effective date of on or after January 1, 2000, and is disqualified from receiving funds under G.S. 136-41.2. No municipality may receive any funds under this section, incorporated with an effective date on or after January 1, 2000, unless a majority of the mileage of its streets is open to the public. The previous sentence becomes effective with respect to distribution of funds on or after July 1, 1999.

History

(1985, c. 114, s. 1; 1987, c. 836, s. 2; 1989 (Reg. Sess., 1990), c. 813, s. 5; 1991, c. 689, s. 28(b); 1993, c. 321, s. 26(g); c. 485, s. 2; 1995, c. 17, s. 1; 1996, 2nd Ex. Sess., c. 18, s. 25.2(a); 1997-261, s. 109; 1999-458, s. 10; 2000-173, s. 3; 2002-120, s. 1; 2004-203, s. 5(d); 2005-435, s. 34(a); 2006-162, s. 1; 2007-527, s. 4; 2009-451, s. 27A.4(b); 2011-330, s. 7; 2019-6, s. 4.6.)

Local Modification. - Community of Gray's Creek: 1999-458, s. 13 (contingent on petition filed before July 1, 2002); Community of Union Cross: 1999-458, s. 13 (contingent on petition filed before July 1, 2002).

Editor's Note. - Session Laws 2009-451, s. 27A.4(b), which amended subsections (a), (a1), and (c), was effective September 1, 2009, and applicable to malt beverages and wine first sold or otherwise disposed of on or after that date and to liquor sold on or after that date.

"(1) Of the tax on malt beverages levied under G.S. 105-113.80(a), seven and twenty-four hundredths percent (7.24%).

"(2) Of the tax on unfortified wine levied under G.S. 105-113.80(b), eighteen percent (18%).

"(3) Of the tax on fortified wine levied under G.S. 105-113.80(b), six and forty-nine hundredths percent (6.49%)."

Session Laws 2009-451, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2009'."

Session Laws 2009-451, s. 28.5 is a severability clause.

Effect of Amendments. - Session Laws 2004-203, s. 5(d), effective August 17, 2004, substituted "Budget Officer" for "Planning Officer" in subsection (e).

Session Laws 2005-435, s. 34(a), effective September 27, 2005, made a minor stylistic change in the next-to-last sentence of subsection (h).

Session Laws 2006-162, s. 1, effective July 24, 2006, substituted "Department of Commerce" for "Department of Agriculture and Consumer Services" near the middle of subsection (a).

Session Laws 2007-527, s. 4, effective August 31, 2007, in subsection (a), deleted "less the amount of the net proceeds credited to the Department of Commerce under G.S. 105-113.81A" following "March 31," substituted "counties or cities" for "counties and cities," and added the first sentence of the last paragraph.

Session Laws 2009-451, s. 27A.4(b), effective September 1, 2009, and applicable to malt beverages and wine first sold or otherwise disposed of on or after that date and to liquor sold on or after that date, in subsection (a), deleted "Method" from the subsection heading, in the introductory language, substituted "must distribute annually a percentage" for "shall distribute annually the following percentages" near the beginning, and "or city. For purposes of this subsection, the term 'net amount' means gross collections less refunds and amounts credited to the Department of Commerce under G.S. 105-113.81A. The percentages to be distributed are as follows:" for "or city:" at the end; in subdivision (a)(1), substituted "twenty and forty-seven hundredths percent (20.47%)" for "twenty-three and three-fourths percent (23 3/4%)"; in subdivision (a)(2), substituted "forty-nine and forty-four hundredths percent (49.44%)." for "sixty-two percent (62%); and"; in subdivision (a)(3), substituted "eighteen percent (18%)" for "twenty-two percent (22%)"; designated the former second paragraph of subsection (a), as subsection (a1); in subsection (a1), added "Method" as the subsection heading, deleted the former first sentence, which read: "For purposes of this subsection, 'net amount' means gross collections less refunds and amounts credited to the Department of Commerce under G.S. 105-113.81A.", deleted "shall" preceding "receive a portion" in the first sentence, substituted "receives" for "shall receive" in the second sentence, and substituted "distributable under subsection (a) of this section must" for "distributed under subdivisions (1), (2), and (3) shall" in the last sentence; and, in subsection (c), substituted "subsections (a) and (a1) of this section" for "subsection (a)" near the beginning.

Session Laws 2011-330, s. 7, effective June 27, 2011, deleted the former second sentence in the introductory paragraph of subsection (a), which read: "For purposes of this subsection, the term 'net amount' means gross collections less refunds and amounts credited to the Department of Commerce under G.S. 105-113.81A."

Session Laws 2019-6, s. 4.6, effective March 20, 2019, substituted "malt beverage" for "beer" in the section heading.

PART 5. ADMINISTRATION.

§ 105-113.83. Payment of excise taxes.

Liquor. - The excise tax on liquor levied under G.S. 105-113.80(c) is payable monthly by the local ABC board and by a distillery permittee to the Secretary. The tax shall be paid on or before the 15th day of the month following the month in which the tax was collected.
Malt Beverage and Wine. - The excise taxes on malt beverages and wine levied under G.S. 105-113.80(a) and (b), respectively, are payable to the Secretary by the resident wholesaler or importer who first handles the beverages in this State. The excise taxes levied under G.S. 105-113.80(b) on wine shipped directly to consumers in this State pursuant to G.S. 18B-1001.1 must be paid by the wine shipper permittee. The taxes on malt beverages and wine are payable only once on the same beverages. Unless otherwise provided, the tax is due on or before the 15th day of the month following the month in which the beverage is first sold or otherwise disposed of in this State by the wholesaler or importer. When excise taxes are paid on wine or malt beverages, the wholesaler or importer must submit to the Secretary verified reports on forms provided by the Secretary detailing sales records for the month for which the taxes are paid. The report must indicate the amount of excise tax due, contain the information required by the Secretary, and indicate separately any transactions to which the excise tax does not apply. A wine shipper permittee shall submit verified reports once a year on forms provided by the Secretary detailing sales records for the year the taxes are paid. The verified report is due on or before the fifteenth day of the first month of the following calendar year.
Railroad Sales. - Each person operating a railroad train in this State on which alcoholic beverages are sold must submit monthly reports of the amount of alcoholic beverages sold in this State and must remit the applicable excise tax due on the sale of these beverages when the report is submitted. The report is due on or before the 15th day of the month following the month in which the beverages are sold. The report must be made on a form prescribed by the Secretary.

History

(1985, c. 114, s. 1; 1998-95, s. 23; 2003-402, s. 10; 2004-170, s. 7; 2005-435, s. 26; 2015-98, s. 4(e); 2016-5, s. 4.3; 2019-6, s. 4.8.)

Session Laws 2015-98, s. 4(i), made the amendment to subsection (a) of this section by Session Laws 2015-98, s. 4(e), effective upon adoption of rules pursuant to Session Laws 2015-98, s. 4(h). The Revisor of Statutes has been informed that these temporary rules have been adopted.

Effect of Amendments. - Session Laws 2003-402, s. 10, effective October 1, 2003, in subsection (b), inserted the second sentence, inserted "or wine shipper permittee" following "wholesaler, importer" in the fourth and fifth sentences, and made minor stylistic and punctuation changes throughout.

Session Laws 2004-170, s. 7, effective August 2, 2004, in subsection (b), deleted "on wine" preceding "levied under," and inserted "on wine" preceding "shipped directly" in the second sentence.

Session Laws 2005-435, s. 26, effective September 27, 2005, in subsection (b), inserted "in this State" following "consumers" in the second sentence, substituted "are payable" for "shall be paid" and "is due" for "shall be paid" in the third and fourth sentences, and substituted "must" for "shall" in the last two sentences.

Session Laws 2015-98, s. 4(e), inserted "and by a distillery permittee" in subsection (a). For effective date, see editor's note.

Session Laws 2016-5, s. 4.3, effective May 11, 2016, in subsection (b), substituted "Unless otherwise provided, the tax" for "The tax" in the fourth sentence, substituted "wholesaler or importer" for "wholesaler, importer, or wine shipper permittee" in the fifth sentence, and added the last two sentences.

Session Laws 2019-6, s. 4.8, effective March 20, 2019, in subsection (b), substituted "Malt Beverage" for "Beer" in the subsection heading, and substituted "wholesaler or importer" for "wholesaler, importer, or wine shipper permittee" at the end of the fourth sentence.

CASE NOTES

Constitutionality - Provisions of North Carolina's alcoholic beverage code, which prohibited out-of-state wineries from selling wine directly to North Carolina residents but allowed North Carolina wineries to make direct sales, violated the Commerce Clause of the U.S. Constitution, and federal district court enjoined State officials from enforcing those provisions. Beskind v. Easley, 197 F. Supp. 2d 464 (W.D.N.C. 2002).

Cited in Beskind v. Easley, 325 F.3d 506 (4th Cir. 2003).

§ 105-113.83A. Registration and discontinuance requirements; penalties.

Registration Required. - A person who holds a wine shipper permit issued under G.S. 18B-1001.1 or one or more of the following ABC permits issued under Article 11 of Chapter 18B of the General Statutes must register with the Secretary:
1. Unfortified winery.
2. Fortified winery.
3. Brewery.
4. Distillery.
5. Wine importer.
6. Wine wholesaler.
7. Malt beverages importer.
8. Malt beverages wholesaler.
9. Nonresident malt beverage vendor.
10. Nonresident wine vendor.
11. Wine Producer.
Registration Form. - Registration must be in a form required by the Secretary and include all information requested. If a permittee fails to register, the Secretary must notify the ABC Commission of the violation.
Discontinuance of Authorized Activities. - A permittee required to be registered, who changes ownership or stops engaging in the activities authorized by an issued ABC permit, must notify the Secretary in writing of the change. The permittee is responsible for maintaining a bond or irrevocable letter of credit as required by G.S. 105-113.86 and submitting all returns and the payment of all taxes for which the permittee is liable under this Article while the issued ABC permit is active.
Penalty. - The Secretary must notify the ABC Commission when a permittee required to register is not eligible to hold an ABC permit for failure to satisfy G.S. 18B-900(a)(8). Upon notification, the ABC Commission must impose any penalty permitted under G.S. 18B-104.

History

(2018-5, s. 38.6(c).)

Editor's Note. - Session Laws 2018-5, s. 38.6(m), made this section effective July 1, 2018, and further provides that "permittees must register in accordance with subsection (c) of this section [which enacted this section] on or before December 1, 2018."

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

§ 105-113.84. Report of resident brewery, resident winery, resident wine producer, nonresident vendor, or wine shipper permittee.

A resident brewery, resident winery, resident wine producer, and nonresident vendor must file a monthly informational report with the Secretary.
A wine shipper permittee must file an annual report with the Secretary.
The report required by this section must list the amount of beverages sold, delivered, or shipped to North Carolina wholesalers, importers, and purchasers under G.S. 18B-1001.1 during the period covered by the report. The report is due by the 15th day of the month following the period covered by the report, unless otherwise provided. The report must be filed on a form approved by the Secretary and must contain the information required by the Secretary.

History

(1985, c. 114, s. 1; 1998-95, s. 24; 2000-173, s. 4; 2003-402, s. 11; 2016-5, s. 4.12; 2019-169, s. 4.9.)

Effect of Amendments. - Session Laws 2003-402, s. 11, effective October 1, 2003, added "or wine shipper permittee" in the section heading; in the first sentence, inserted "wine shipper permittee" following "nonresident vendor, and"; in the second sentence, inserted "and purchasers under G.S. 18B-1001.1" following "wholesalers, importers," and made minor stylistic and punctuation changes throughout the section.

Session Laws 2016-5, s. 4.12, effective May 11, 2016, rewrote the section.

Session Laws 2019-169, s. 4.9, effective July 26, 2019, inserted "resident wine producer" in the section heading; in subsection (a), inserted "resident wine producer" near the middle and "informational" near the end; and, in subsection (c), substituted "sold, delivered, or shipped" for "delivered" in the first sentence, and added "unless otherwise provided" at the end of the second sentence.

§ 105-113.85. Discount.

Each wholesaler or importer who files a timely return and sends a timely payment may deduct from the amount payable a discount of two percent (2%). This discount covers losses due to spoilage and breakage, expenses incurred in preparing the records and reports required by this Article, and the expense of furnishing a bond.

History

(1985, c. 114, s. 1; 2000-173, s. 5; 2001-414, s. 5; 2003-284, s. 45A.2(a); 2004-84, s. 2(d).)

This section was repealed by Session Laws 2003-284, s. 45A.2(a), effective for reporting periods beginning on or after August 1, 2003. Session Laws 2004-84, s. 2(d), reenacted and amended the section, effective for reporting periods beginning on or after August 1, 2004.

Effect of Amendments. - Session Laws 2004-84, s. 2.(d), effective for reporting periods beginning on or after August 1, 2004, reenacted and amended the section by substituting "two percent (2%)" for "four percent (4%)."

§ 105-113.86. Bond or irrevocable letter of credit.

Wholesalers and Importers. - A wholesaler or importer must file with the Secretary a bond in an amount of not less than five thousand dollars ($5,000). The amount of the bond must be proportionate to the anticipated tax liability of the wholesaler or importer. The Secretary should periodically review the sufficiency of the bonds required under this section. The Secretary may increase the proportionate amount required, not to exceed fifty thousand dollars ($50,000), if the bond furnished no longer covers the taxpayer's anticipated tax liability. The Secretary may decrease the proportionate amount required when the Secretary determines that a smaller bond amount will adequately protect the State from loss. The bond must be conditioned on compliance with this Article, payable to the State, in a form acceptable to the Secretary, and secured by a corporate surety.
Nonresident Vendors. - The Secretary may require the holder of a nonresident vendor ABC permit to furnish a bond in an amount not to exceed two thousand dollars ($2,000). The bond must be conditioned on compliance with this Article, payable to the State in a form acceptable to the Secretary, and secured by a corporate surety.
Letter of Credit. - For purposes of this section, a wholesaler or importer or a nonresident vendor may substitute an irrevocable letter of credit for the secured bond required by this section. The letter of credit must be issued by a commercial bank acceptable to the Secretary and available to the State as a beneficiary. The letter of credit must be in a form acceptable to the Secretary, conditioned upon compliance with this Article, and in the amounts stipulated in this section.

History

(1985, c. 114, s. 1; 1987, c. 18; 1998-95, s. 25; 2014-3, s. 9.1(c); 2018-5, s. 38.6(d).)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2014-3, s. 9.1(c), effective May 29, 2014, rewrote the section heading, which formerly read "Bonds."; rewrote subsection (a); and added subsection (c).

Session Laws 2018-5, s. 38.6(d), effective June 12, 2018, substituted "bond must be conditioned on compliance with this Article, payable to the State in a form acceptable to the Secretary, and secured by a corporate surety" for "bond shall be conditioned on compliance with this Article, shall be payable to the State, shall be in a form acceptable to the Secretary, and shall be secured by a corporate surety or by a pledge of obligations of the federal government, the State, or a political subdivision of the State" in the last sentence of subsection (b).

§ 105-113.87. Refund for excise tax paid on sacramental wine.

Refund Allowed. - A person who purchases wine for the purpose stated in G.S. 18B-103(8) may obtain a refund from the Secretary for the amount of the excise tax levied under this Article. The Secretary shall make refunds annually.
Application. - An applicant for a refund authorized by this section shall file a written request with the Secretary for the refund due for the prior calendar year on or before April 15. The Secretary may by rule prescribe what information and records shall be supplied by the applicant to qualify for the refund. No refund may be made if the application is filed more than three years after the date it is due.
Repealed by Session Laws 1998-212, s. 29A.14(e), effective January 1, 1999.

History

(1985, c. 114, s. 1; 1998-212, s. 29A.14(e).)

§ 105-113.88. Record-keeping requirements.

A person who is required to file a report or return under this Article must keep a record of all documents used to determine information the person provides in a report or return. The records must be kept for three years from the due date of the report or return to which the records apply.

History

(1939, c. 158, s. 520; 1945, c. 903, s. 1; 1971, c. 872, s. 2; 1973, c. 476, s. 193; 1981, c. 747, s. 28; 1985, c. 114, s. 1; 2000-173, s. 6.)

§ 105-113.89. Other applicable administrative provisions.

The administrative provisions of Article 9 of this Chapter apply to this Article.

History

(1985, c. 114, s. 1; 1998-95, s. 26.)

CASE NOTES

Cited in N.C. Sch. Bds. Ass'n v. Moore, 359 N.C. 474, 614 S.E.2d 504 (2005).

§§ 105-113.90, 105-113.91: Repealed by Session Laws 1985, c. 114, s. 1.

§ 105-113.92: Repealed by Session Laws 1981, c. 747, s. 25.

§ 105-113.93: Repealed by Session Laws 1985, c. 114, s. 1.

Cross References. - As to excise taxes on beer, wine and liquor, see now G.S. 105-113.80.

§ 105-113.94: Repealed by Session Laws 1975, c. 53, s. 3.

§§ 105-113.95 through 105-113.104: Repealed by Session Laws 1985, c. 114, s. 1.

Cross References. - For general provisions dealing with alcoholic beverage license and excise taxes, see now G.S. 105-113.68 et seq.

As to local licenses, see now G.S. 105-113.77 et seq.

As to excise taxes and distribution of tax revenue, see now G.S. 105-113.80 et seq.

For administrative provisions, see now G.S. 105-113.83 et seq.

ARTICLE 2D. Unauthorized Substances Taxes.

Sec.

§ 105-113.105. Purpose.

The purpose of this Article is to levy an excise tax to generate revenue for State and local law enforcement agencies and for the General Fund. Nothing in this Article may in any manner provide immunity from criminal prosecution for a person who possesses an illegal substance.

History

(1989, c. 772, s. 1; 1995, c. 340, s. 1; 1997-292, s. 1; 1998-98, s. 59.)

Legal Periodicals. - For article, "Law Between the Lines," 25 Campbell L. Rev. 151 (2003).

CASE NOTES

Federal court's view of this section as a criminal penalty prevented the defendant's subsequent drug conviction from being enhanced with a mandatory life sentence. The court found that such enhancement would be unconstitutional where the state had previously assessed and collected a portion of its drug tax against him with respect to the very drugs at issue in the conviction and where the defendant had not waived his double jeopardy claim because it would have been futile for him to have raised it in state court where the drug tax was not considered a criminal penalty. United States v. Anderson, - F.3d - (4th Cir. May 15, 2000).

Did Not Result in the Issuance of a Writ of Habeas Corpus. - Because the tax outlined in this section is neither contingent upon arrest, nor assessed on property that has necessarily been confiscated or destroyed and because it allows for anonymous reporting and payment, the state court's finding that this section was not a criminal penalty and its consequent refusal to dismiss the defendant's sentence of imprisonment for trafficking in cocaine, based in part on the same drugs upon which the Drug Tax was assessed, as multiple punishment in violation of the Double Jeopardy clause of the Fifth Amendment did not warrant a writ of habeas corpus although a federal court deciding the issue on direct appeal might have come to a different conclusion. Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001).

Double Jeopardy. - A judgment entered for unpaid taxes on seized drugs did not preclude, under double jeopardy principles, the defendant's prosecution for controlled substances violations. State v. Adams, 132 N.C. App. 819, 513 S.E.2d 588 (1999), cert. denied, 350 N.C. 836, 538 S.E.2d 570, cert. denied, 528 U.S. 1022, 120 S. Ct. 534, 145 L. Ed. 2d 414 (1999).

The North Carolina Controlled Substance Tax, G.S. 105-113.105 through 105-113.113, did not violate the double jeopardy clause as it did not have fundamentally punitive characteristics to render it violative. State v. Crenshaw, 144 N.C. App. 574, 551 S.E.2d 147 (2001).

Because the Department of Revenue's collection of unpaid taxes on seized drugs pursuant to this section did not constitute criminal punishment, subsequent marijuana charges were not barred by double jeopardy. State v. Woods, 136 N.C. App. 386, 524 S.E.2d 363 (2000), cert. denied, 351 N.C. 370, 543 S.E.2d 147 (2000).

Tax Not Punishment. - Assessment and collection of the North Carolina Controlled Substance Tax does not constitute punishment so as to bar subsequent prosecution and punishment for criminal possession of the same drugs. State v. Ballenger, 123 N.C. App. 179, 472 S.E.2d 572 (1996), aff'd, 345 N.C. 626, 481 S.E.2d 84, cert. denied, 522 U.S. 817, 118 S. Ct. 68, 139 L. Ed. 2d 29 (1997).

The Controlled Substance Tax Is Not a Criminal Penalty. - Whether challenged in a criminal proceeding or a civil proceeding, the drug tax is not a criminal penalty, and the plaintiff was, therefore, not entitled to the procedural safeguards required for criminal proceedings. (But see Lynn v. West, 134 F.3d 582 (4th Cir. 1998).) Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999), cert. denied, 531 U.S. 819, 121 S. Ct. 60, 148 L. Ed. 2d 26 (2000).

The controlled substance tax is a criminal penalty, given its high rate of taxation and its deterrent purpose, and thus the state's enforcement scheme must provide the constitutional safeguards that attach to criminal prosecutions. Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)).

Monies Received for Excise Tax Versus Penalties and Interest Payments. - Excise tax on unauthorized substances is not a penalty subject to the provisions of N.C. Const., Art. IX, § 7 and is, therefore, not payable to public schools; however, the penalties and interest payments collected by the Department of Revenue for enforcement of the excise tax are classified as penalties to be disbursed to public school systems, pursuant to N.C. Const., Art. IX, § 7. N.C. Sch. Bds. Ass'n v. Moore, 359 N.C. 474, 614 S.E.2d 504 (2005).

The Tax Injunction Act did not apply to bar the district court from exercising subject matter jurisdiction over the plaintiffs' claims for declaratory and injunctive relief with regard to the controlled substances tax because the tax is in reality a criminal penalty. Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)).

Purpose is to levy an excise tax to generate revenue for state and local law enforcement agencies and for the General Fund, which is a remedial purpose; payments collected under G.S. 105-113.105 thus are not subject to N.C. Const. IX, § 7. N.C. Sch. Bds. Ass'n v. Moore, 160 N.C. App. 253, 585 S.E.2d 418 (2003).

Cited in Nivens v. Gilchrist, 319 F.3d 151 (4th Cir. 2003), cert. denied, 539 U.S. 915, 123 S. Ct. 2279, 156 L. Ed. 2d 131 (2003); State v. Harris, 157 N.C. App. 647, 580 S.E.2d 63 (2003).

Opinions of Attorney General

If money or property is not seized as evidence of a controlled substance law violation, agents of the Department of Revenue may seize it for satisfaction of controlled substance excise taxes without an order from the court having jurisdiction over the criminal offense and without the district attorney's consent provided the seizure otherwise is made in compliance with law. See opinion of Attorney General to Secretary Janice H. Faulkner, - N.C.A.G. - (July 19, 1994).

§ 105-113.106. Definitions.

The following definitions apply in this Article:

Controlled Substance. - Defined in G.S. 90-87.
Repealed by Session Laws 1995, c. 340, s. 1.
Dealer. - Any of the following:
1. A person who actually or constructively possesses more than 42.5 grams of marijuana, seven or more grams of any other controlled substance that is sold by weight, or 10 or more dosage units of any other controlled substance that is not sold by weight.
2. A person who in violation of Chapter 18B of the General Statutes possesses illicit spirituous liquor for sale.
3. A person who in violation of Chapter 18B of the General Statutes possesses mash.
4. A person who in violation of Chapter 18B of the General Statutes possesses an illicit mixed beverage for sale.
Repealed by Session Laws 1995, c. 340, s. 1.
Illicit mixed beverage. - A mixed beverage, as defined in G.S. 18B-101, composed in whole or in part from spirituous liquor on which the charge imposed by G.S. 18B-804(b)(8) has not been paid, but not including a premixed cocktail served from a closed package containing only one serving.
Illicit spirituous liquor. - Spirituous liquor, as defined in G.S. 105-113.68, not authorized by the North Carolina Alcoholic Beverage Control Commission. Some examples of illicit spirituous liquor are the products known as "bootleg liquor", "moonshine", "non-tax-paid liquor", and "white liquor".
Local law enforcement agency. - A municipal police department, a county police department, or a sheriff's office.
Low-street-value drug. - Any of the following controlled substances:
1. An anabolic steroid as defined in G.S. 90-91(k).
2. A depressant described in G.S. 90-89(4), 90-90(4), 90-91(b), or 90-92(a).
3. A hallucinogenic substance described in G.S. 90-89(3) or G.S. 90-90(5).
4. A stimulant described in G.S. 90-89(5), 90-90(3), 90-91(j), 90-92(a)(3), or 90-93(a)(3).
5. A controlled substance described in G.S. 90-91(c), (d), or (e), 90-92(a)(3), or (a)(5), or 90-93(a)1.
Repealed by Session Laws 1995, c. 340, s. 1.
Marijuana. - All parts of the plant of the genus Cannabis, whether growing or not; the seeds of this plant; the resin extracted from any part of this plant; and every compound, salt, derivative, mixture, or preparation of this plant, its seeds, or its resin.
Mash. - The fermentable starchy mixture from which spirituous liquor can be distilled.
Person. - Defined in G.S. 105-228.90.
Secretary. - Defined in G.S. 105-228.90.
State law enforcement agency. - Any State agency, force, department, or unit responsible for enforcing criminal laws.
Unauthorized substance. - A controlled substance, an illicit mixed beverage, illicit spirituous liquor, or mash.

History

(1989, c. 772, s. 1; 1993, c. 354, s. 10; 1995, c. 340, s. 1; 1997-292, s. 1; 1999-337, s. 19; 2000-119, ss. 3, 4.)

CASE NOTES

Seizure by Filing Certificate of Tax Liability. - Filing a certificate of tax liability following assessment of a controlled substance tax constituted a meaningful interference with possessory interests and thus was a fourth amendment seizure. Andrews v. Crump, 984 F. Supp. 393 (W.D.N.C. 1996).

No Probable Cause. - Agents did not have probable cause to believe that plaintiff was a dealer or that he possessed the marijuana forming the basis of the controlled substance tax assessment, and thus they did not have probable cause to seize his property by way of tax assessment and lien. Andrews v. Crump, 984 F. Supp. 393 (W.D.N.C. 1996).

Cited in Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001); Nivens v. Gilchrist, 319 F.3d 151 (4th Cir. 2003), cert. denied, 539 U.S. 915, 123 S. Ct. 2279, 156 L. Ed. 2d 131 (2003).

§ 105-113.107. Excise tax on unauthorized substances.

Controlled Substances. - An excise tax is levied on controlled substances possessed, either actually or constructively, by dealers at the following rates:
1. At the rate of forty cents (40›) for each gram, or fraction thereof, of harvested marijuana stems and stalks that have been separated from and are not mixed with any other parts of the marijuana plant.
2. At the rate of three dollars and fifty cents ($3.50) for each gram, or fraction thereof, of marijuana, other than separated stems and stalks taxed under subdivision (1) of this [sub]section, or synthetic cannabinoids.
3. At the rate of fifty dollars ($50.00) for each gram, or fraction thereof, of cocaine.
4. At the rate of fifty dollars ($50.00) for each gram, or fraction thereof, of any low-street-value drug that is sold by weight.
5. At the rate of two hundred dollars ($200.00) for each gram, or fraction thereof, of any other controlled substance that is sold by weight.
6. At the rate of fifty dollars ($50.00) for each 10 dosage units, or fraction thereof, of any low-street-value drug that is not sold by weight.
7. At the rate of two hundred dollars ($200.00) for each 10 dosage units, or fraction thereof, of any other controlled substance that is not sold by weight.
Weight. - A quantity of marijuana or other controlled substance is measured by the weight of the substance whether pure or impure or dilute, or by dosage units when the substance is not sold by weight, in the dealer's possession. A quantity of a controlled substance is dilute if it consists of a detectable quantity of pure controlled substance and any excipients or fillers.
Illicit Spirituous Liquor. - An excise tax is levied on illicit spirituous liquor possessed by a dealer at the following rates:
1. At the rate of thirty-one dollars and seventy cents ($31.70) for each gallon, or fraction thereof, of illicit spirituous liquor sold by the drink.
2. At the rate of twelve dollars and eighty cents ($12.80) for each gallon, or fraction thereof, of illicit spirituous liquor not sold by the drink.
Mash. - An excise tax is levied on mash possessed by a dealer at the rate of one dollar and twenty-eight cents ($1.28) for each gallon or fraction thereof.
Illicit Mixed Beverages. - A tax is levied on illicit mixed beverages sold by a dealer at the rate of twenty dollars ($20.00) on each four liters and a proportional sum on lesser quantities.

History

(1989, c. 772, s. 1; 1995, c. 340, s. 1; 1997-292, s. 1; 1998-218, s. 1; 2012-79, s. 2.2(a); 2014-3, s. 14.25.)

Editor's Note. - The bracketed "[sub]" was added preceding the word "section" in subdivision (a)(1a) at the direction of the Revisor of Statutes.

Effect of Amendments. - Session Laws 2012-79, s. 2.2(a), added "or synthetic cannabinoids" at the end of subdivision (a)(1a). For effective date, see editor's note.

Session Laws 2014-3, s. 14.25, effective May 29, 2014, added subdivision (a)(1c).

CASE NOTES

Failure to Pay Excise Tax. - Convictions for trafficking in cocaine by possession and for failure to pay excise tax on the controlled substance did not constitute double jeopardy, nor did the punishments imposed upon those convictions violate the prohibition against multiple punishments for the same offense, where the State sought to collect the drug excise tax from defendant in the same prosecution, and where neither of the crimes in question was a lesser included offense of the other. State v. Morgan, 118 N.C. App. 461, 455 S.E.2d 490 (1995).

When a North Carolina Department of Revenue agent uses a jeopardy assessment to collect the excise tax on controlled substances possessed by dealers pursuant to G.S. 105-113.107 of the North Carolina's Unauthorized Substances Tax Act, G.S. 105-113 et seq., the Department was required by former G.S. 105-241.1(a), (c), and (g) (repealed January 1, 2008) to provide the dealer with written notice no later than 30 days after the jeopardy assessment that the dealer may request a hearing on the jeopardy assessment following the procedure described in the notice. Thus, while the statute may not technically require that the Revenue Officer provide written notice to a dealer that he may halt the seizure of property by posting a bond, it does require that officer to provide written notice of the right to request a hearing either at the time of the assessment or, in the case of a jeopardy assessment, within 30 days after the seizure, and the officer thus must serve the taxpayer with the assessment, a warrant and written notice of procedures. Ervin v. Hammond, - F. Supp. 2d - (W.D.N.C. Mar. 31, 2008).

Magistrate judge's recommendation against the dismissal of certain claims asserted by a plaintiff pursuant to 42 U.S.C.S. § 1983 and 42 U.S.C.S. § 1985 for damages based on the conduct of defendant officials in allegedly entering his home without a warrant, seizing his property to satisfy the "drug dealer excise tax" imposed in G.S. 105-113.107 by North Carolina's Unauthorized Substances Tax Act, G.S. 105-113 et seq., and otherwise violating his constitutional rights was sustained in part because plaintiff's claims against certain of the officers in their individual capacities stated a claim under federal law for violation of such rights. Ervin v. Hammond, - F. Supp. 2d - (W.D.N.C. Mar. 31, 2008).

Subpoena in Criminal Case. - In defendant's marijuana trafficking prosecution, it was not an abuse of discretion to quash defendant's subpoena for a Department of Revenue employee to testify about an unauthorized substance tax case against defendant because such testimony was statutorily barred in a criminal case whether or not the substance of the testimony could be disclosed under G.S. 105-129. State v. Stimson, 246 N.C. App. 708, 783 S.E.2d 749 (2016).

Cited in Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)); Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001); Nivens v. Gilchrist, 319 F.3d 151 (4th Cir. 2003), cert. denied, 539 U.S. 915, 123 S. Ct. 2279, 156 L. Ed. 2d 131 (2003).

§ 105-113.107A. Exemptions.

Authorized Possession. - The tax levied in this Article does not apply to a substance in the possession of a dealer who is authorized by law to possess the substance. This exemption applies only during the time the dealer's possession of the substance is authorized by law.
Certain Marijuana Parts. - The tax levied in this Article does not apply to the following marijuana:
1. Harvested mature marijuana stalks when separated from and not mixed with any other parts of the marijuana plant.
2. Fiber or any other product of marijuana stalks described in subdivision (1) of this subsection, except resin extracted from the stalks.
3. Marijuana seeds that have been sterilized and are incapable of germination.
4. Roots of the marijuana plant.

History

(1995, c. 340, s. 1; 1997-292, s. 1.)

CASE NOTES

§ 105-113.108. Reports; revenue stamps.

Revenue Stamps. - The Secretary shall issue stamps to affix to unauthorized substances to indicate payment of the tax required by this Article. Dealers shall report the taxes payable under this Article at the time and on the return prescribed by the Secretary. Notwithstanding any other provision of law, dealers are not required to give their name, address, social security number, or other identifying information on the return, and the return is not required to be verified by oath or affirmation. Upon payment of the tax, the Secretary shall issue stamps in an amount equal to the amount of the tax paid. Taxes may be paid and stamps may be issued either by mail or in person.
Reports. - Every local law enforcement agency and every State law enforcement agency must report to the Department within 48 hours after seizing an unauthorized substance, or making an arrest of an individual in possession of an unauthorized substance, listed in this subsection upon which a stamp has not been affixed. The report must be in the form prescribed by the Secretary and it must include the time and place of the arrest or seizure, the amount, location, and kind of substance, the identification of an individual in possession of the substance and that individual's social security number, and any other information prescribed by the Secretary. The report must be made when the arrest or seizure involves any of the following unauthorized substances upon which a stamp has not been affixed as required by this Article:
1. More than 42.5 grams of marijuana.
2. Seven or more grams of any other controlled substance that is sold by weight.
3. Ten or more dosage units of any other controlled substance that is not sold by weight.
4. Any illicit mixed beverage.
5. Any illicit spirituous liquor.
6. Mash.

History

(1989, c. 772, s. 1; 1995, c. 340, s. 1; 1997-292, s. 1; 2000-119, s. 5; 2004-170, s. 8.)

Effect of Amendments. - Session Laws 2004-170, s. 8, effective August 2, 2004, in subsection (a), substituted "return" for "form," inserted "Notwithstanding any other provision of law," at the beginning of the second sentence, and substituted "return, and the return is not required to be verified by oath or affirmation" for "form" at the end of the second sentence.

CASE NOTES

Deprivation of Rights Claims. - United States Supreme Court had declined to hold that a former version of the Unauthorized Substances Tax (UST), (now G.S. 105-113.108(b) and related sections), created a criminal or punitive penalty for purposes of constitutional safeguards and defendants (an arresting deputy and a state tax official), in their official capacities, were immune from liability pursuant to the Eleventh Amendment; further, taxpayers were barred by principles of comity from asserting 42 U.S.C.S. § 1983 actions against the validity of state tax systems in federal courts. Leon-Sanchez v. Tolson, - F. Supp. 2d - (W.D.N.C. Aug. 5, 2004).

Cited in Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)); Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001); State v. Stimson, 246 N.C. App. 708, 783 S.E.2d 749 (2016).

§ 105-113.109. When tax payable.

The tax imposed by this Article is payable by any dealer who actually or constructively possesses an unauthorized substance in this State upon which the tax has not been paid, as evidenced by a stamp. The tax is payable within 48 hours after the dealer acquires actual or constructive possession of a non-tax-paid unauthorized substance, exclusive of Saturdays, Sundays, and legal holidays of this State, in which case the tax is payable on the next working day. Upon payment of the tax, the dealer shall permanently affix the appropriate stamps to the unauthorized substance. Once the tax due on an unauthorized substance has been paid, no additional tax is due under this Article even though the unauthorized substance may be handled by other dealers.

History

(1989, c. 772, s. 1; 1995, c. 340, s. 1; 1997-292, s. 1.)

CASE NOTES

Cited in Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001).

§ 105-113.110: Repealed by Session Laws 1995, c. 340, s. 1.

§ 105-113.110A. Administration.

Article 9 of this Chapter applies to this Article.

History

(1989 (Reg. Sess., 1990), c. 814, s. 7; 1995, c. 340, s. 1; 1997, c. 292, s. 1; 1998-218, s. 2.)

CASE NOTES

§ 105-113.111. Assessments.

Notwithstanding any other provision of law, an assessment against a dealer who possesses an unauthorized substance to which a stamp has not been affixed as required by this Article shall be made as provided in this section. The Secretary shall assess a tax, applicable penalties, and interest based on personal knowledge or information available to the Secretary. The Secretary shall notify the dealer in writing of the amount of the tax, penalty, and interest due, and demand its immediate payment. The notice and demand shall be either mailed to the dealer at the dealer's last known address or served on the dealer in person. If the dealer does not pay the tax, penalty, and interest immediately upon receipt of the notice and demand, the Secretary shall collect the tax, penalty, and interest pursuant to the jeopardy collection procedures in G.S. 105-241.23 or the general collection procedures in G.S. 105-242, including causing execution to be issued immediately against the personal property of the dealer, unless the dealer files with the Secretary a bond in the amount of the asserted liability for the tax, penalty, and interest. The Secretary shall use all means available to collect the tax, penalty, and interest from any property in which the dealer has a legal, equitable, or beneficial interest. The dealer may seek review of the assessment as provided in Article 9 of this Chapter.

History

(1989, c. 772, s. 1; 1989 (Reg. Sess., 1990), c. 1039, s. 2; 1991 (Reg. Sess., 1992), c. 900, s. 20(d); 1995, c. 340, s. 1; 1997-292, s. 1; 2007-491, s. 8.)

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 [repealed] before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2007-491, s. 8, effective January 1, 2008, in the fifth sentence, substituted "jeopardy collection procedures in G.S. 105-241.23 or the general collection procedures in G.S. 105-242" for "procedure set forth in G.S. 105-241.1(g) for jeopardy assessments or the procedure set forth in G.S. 105-242." For applicability, see Editor's note.

CASE NOTES

Cited in Salas v. McGee, 125 N.C. App. 255, 480 S.E.2d 714 (1997); Lynn v. West, 134 F.3d 582 (4th Cir. 1998), cert. denied, 525 U.S. 813, 119 S. Ct. 47, 142 L. Ed. 2d 36 (1998) (But see Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999)); Milligan v. State, 135 N.C. App. 781, 522 S.E.2d 330 (1999), cert. denied, 531 U.S. 819, 121 S. Ct. 60, 148 L. Ed. 2d 26 (2000); Vick v. Williams, 233 F.3d 213 (4th Cir. 2000), cert denied, 533 U.S. 952, 121 S. Ct. 2596, 150 L. Ed. 2d 754 (2001); Andrews v. Crump, 144 N.C. App. 68, 547 S.E.2d 117 (2001).

§ 105-113.112. Confidentiality of information.

Information obtained by the Department in the course of administering the tax imposed by this Article, including information on whether the Department has issued a revenue stamp to a person, is confidential tax information and is subject to the provisions of G.S. 105-259.
Information obtained by the Department from the taxpayer in the course of administering the tax imposed by this Article, including information on whether the Department has issued a revenue stamp to a person, may not be used as evidence, as defined in G.S. 15A-971, by a prosecutor in a criminal prosecution of the taxpayer for an offense related to the manufacturing, possession, transportation, distribution, or sale of the unauthorized substance. Under this prohibition, no officer, employee, or agent of the Department may testify about this information in a criminal prosecution of the taxpayer for an offense related to the manufacturing, possession, transportation, distribution, or sale of the unauthorized substance. This subsection implements the protections against double jeopardy and self-incrimination set out in Amendment V of the United States Constitution and the restrictions in it apply regardless of whether information may be disclosed under G.S. 105-259. An officer, employee, or agent of the Department who provides evidence or testifies in violation of this subdivision is guilty of a Class 1 misdemeanor.

History

(1989, c. 772, s. 1; 1993, c. 539, s. 702; 1994, Ex. Sess., c. 24, s. 14(c); 1997, c. 292, s. 1; 2005-435, s. 27; 2008-134, s. 68(a); 2013-414, s. 21.)

Effect of Amendments. - Session Laws 2005-435, s. 26, effective September 27, 2005, rewrote the section.

Session Laws 2008-134, s. 68(a), effective December 1, 2008, and applicable to offenses committed on or after that date, added the fifth sentence in subdivision (2).

Session Laws 2013-414, s. 21, effective August 23, 2013, rewrote the section.

CASE NOTES

§ 105-113.113. Use of tax proceeds.

Special Account. - The Unauthorized Substances Tax Account is established as a special nonreverting account. The Secretary shall credit the proceeds of the tax levied by this Article to the Account.
Distribution. - The Secretary shall distribute unencumbered tax proceeds in the Unauthorized Substances Tax Account on a quarterly or more frequent basis. Tax proceeds in the Account are unencumbered when they are collectible under G.S. 105-241.22. The Secretary shall distribute seventy-five percent (75%) of the unencumbered tax proceeds in the Account that were collected by assessment to the State or local law enforcement agency that conducted the investigation of a dealer that led to the assessment. If more than one State or local law enforcement agency conducted the investigation, the Secretary shall determine the equitable share for each agency based on the contribution each agency made to the investigation. The Secretary shall credit the remaining unencumbered tax proceeds in the Account to the General Fund.
Refunds. - The refund of a tax that has already been distributed shall be drawn initially from the Unauthorized Substances Tax Account. The amount of refunded taxes that were distributed to a law enforcement agency under this section and any interest shall be subtracted from succeeding distributions from the Account to that law enforcement agency. The amount of refunded taxes that were credited to the General Fund under this section and any interest shall be subtracted from succeeding credits to the General Fund from the Account.

History

(1991 (Reg. Sess., 1992), c. 900, s. 20(c); 1995, c. 340, s. 1; 1997-292, s. 1; 2007-491, s. 9.)

Editor's Note. - Session Laws 2006-66, s. 19.4(a), provides: "Notwithstanding G.S. 143-18, the Department of Revenue may expend up to two million four hundred thirty-four thousand two hundred seventy dollars and seventy-one cents ($2,434,270.71) of unencumbered maintenance appropriations as of June 30, 2006, for the purpose of paying the Civil Penalty and Forfeiture Fund. The amount to be expended represents Unauthorized Substance Tax penalty collections that were paid to local law enforcement agencies for the period of July 1, 2005, through December 31, 2005. The source of the unencumbered funds shall come entirely from the Department of Revenue. If unencumbered funds are not sufficient on June 30, 2006, the Department shall use anticipated unencumbered funds as of July 1, 2006."

Session Laws 2006-66, s. 19.4(b), provides: "Through the 2008-2009 fiscal year, the Department of Revenue shall reduce succeeding distributions to a law enforcement agency under G.S. 105-113.113 to offset the amount that was improperly distributed to that agency, as described in subsection (a) of this section, and the Department shall deposit the funds collected into a reserve account which shall revert at the end of each fiscal year."

Session Laws 2006-66, s. 1.2, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2006'."

Session Laws 2006-66, s. 28.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2006-2007 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2006-2007 fiscal year."

Session Laws 2006-66, s. 28.6 is a severability clause.

Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 [repealed] before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2007-491, s. 9, effective January 1, 2008, rewrote subsection (a); in subsection (b), added the first two sentences, in the third sentence, substituted "distribute" for "remit," deleted "part of the" preceding "unencumbered tax proceeds" and inserted "in the Account" thereafter; and made minor stylistic changes throughout. For applicability, see Editor's note.

CASE NOTES

ARTICLE 3. Franchise Tax.

Sec.

§ 105-114. Nature of taxes; definitions.

Repealed by Session Laws 2017-204, s. 1.1, effective August 11, 2017.
Scope. - The tax levied in this Article upon corporations is a privilege tax levied upon:
1. Corporations organized under the laws of this State for the existence of the corporate rights and privileges granted by their charters, and the enjoyment, under the protection of the laws of this State, of the powers, rights, privileges and immunities derived from the State by the form of such existence; and
2. Corporations not organized under the laws of this State for doing business in this State and for the benefit and protection which these corporations receive from the government and laws of this State in doing business in this State.
Condition for Doing Business. - If the corporation is organized under the laws of this State, the payment of the tax levied by this Article is a condition precedent to the right to continue in the corporate form of organization. If the corporation is not organized under the laws of this State, payment of this tax is a condition precedent to the right to continue to engage in doing business in this State.
Tax Year. - The tax levied in this Article is for the income year of the corporation in which the taxes become due.
No Double Taxation. - G.S. 105-122 does not apply to holding companies taxed under G.S. 105-120.2.
Definitions. - The following definitions apply in this Article:
1. City. - Defined in G.S. 105-228.90.
2. Code. - Defined in G.S. 105-228.90.
3. Corporation. - A domestic corporation, a foreign corporation, an electric membership corporation organized under Chapter 117 of the General Statutes or doing business in this State, or an association that is organized for pecuniary gain, has capital stock represented by shares, whether with or without par value, and has privileges not possessed by individuals or partnerships. The term includes a mutual or capital stock savings and loan association or building and loan association chartered under the laws of any state or of the United States. The term includes a limited liability company or a partnership that elects to be taxed as a corporation under the Code, but does not otherwise include a limited liability company or a partnership.
4. Doing business. - Each and every act, power, or privilege exercised or enjoyed in this State, as an incident to, or by virtue of the powers and privileges granted by the laws of this State.
5. Income year. - Defined in G.S. 105-130.2(10).
6. (Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Total assets. - The sum of all cash, investments, furniture, fixtures, equipment, receivables, intangibles, and any other items of value owned by a person or a business entity.
Recodified as G.S. 105-114.1 by Session Laws 2002-126, s. 30G.2(b), effective January 1, 2003.
Critical Infrastructure Disaster Relief. - A nonresident business that solely performs disaster-related work in this State during a disaster response period at the request of a critical infrastructure company is not considered to be doing business in this State for purposes of this Article. The definitions and provisions in G.S. 166A-19.70A apply in this subsection.

History

(1939, c. 158, s. 201; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1965, c. 287, s. 16; 1967, c. 286; 1969, c. 541, s. 6; 1973, c. 1287, s. 3; 1983, c. 713, s. 66; 1985, c. 656, s. 7; 1985 (Reg. Sess., 1986), c. 853, s. 1; 1987, c. 778, s. 1; 1987 (Reg. Sess., 1988), c. 1015, s. 2; 1989, c. 36, s. 2; 1989 (Reg. Sess., 1990), c. 981, s. 2; 1991, c. 30, s. 2; c. 689, s. 250; 1991 (Reg. Sess., 1992), c. 922, s. 3; 1993, c. 12, s. 4; c. 354, s. 11; c. 485, s. 5; 1997-118, s. 4; 1998-98, ss. 60, 76; 1999-337, s. 20; 2000-173, s. 8; 2001-327, s. 2(b); 2002-126, s. 30G.2(b); 2005-435, s. 59.2(a); 2006-66, s. 24A.2(a); 2006-162, ss. 3(b), 22; 2008-107, s. 28.7(a); 2014-3, ss. 14.1, 14.26; 2015-6, s. 2.3; 2015-241, s. 32.15(a); 2016-5, s. 1.7(a); 2017-204, s. 1.1; 2018-5, s. 38.2(a); 2019-187, s. 1(e).)

Editor's Note. - Session Laws 1998-98, s. 1(i) provides: "This section repeals any law that would otherwise exempt savings and loan associations, as defined in G.S. 54B-4, from the franchise tax imposed in Article 3 of Chapter 105 of the General Statutes."

The subdivision designation (b)(1) was assigned by the Revisor of Statutes, the designation in Session Laws 1997-118, s. 4, having been (b)(01); former subdivision (b)(1) was renumbered as (b)(1a) at the direction of the Revisor of Statutes.

The definition of "Income year," referred to in subdivision (b)(4) of this section, is found at G.S. 105-130.2(4a). Session Laws 1993, c. 354, s. 12 originally enacted the definition of "Income year" as subdivision (5); however, this definition was redesignated as subdivision (4a) at the direction of the Revisor of Statutes.

Session Laws 2001-327, s. 2(a), as amended by Session Laws 2002-126, s. 30G.2(a), provides: "The General Assembly finds that most corporations engaged in business in this State comply with the State franchise tax on corporate assets. Some taxpayers, however, take advantage of an unintended loophole in the law and avoid franchise tax by transferring their assets to a controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on their assets. It is the intent of this section to apply the franchise tax equally to assets held by corporations and assets held by corporate-affiliated limited liability companies. It is also the intent of this section to provide that a criminal penalty applies to taxpayers who fraudulently evade the tax.

"The General Assembly further finds that, after this loophole was closed in 2001, some taxpayers continue to avoid franchise tax by manipulating ownership of assets. One method is to interpose a controlled partnership between the corporation and the controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on all their assets. It is the intent of the General Assembly to apply the franchise tax equally to assets held by corporations and assets held by corporate-controlled entities."

Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made subdivision (b)(5), as added by Session Laws 2015-241, s. 32.15(a), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2018-5, s. 38.2(j), made the amendment of subdivision (b)(2) of this section by Session Laws 2018-5, s. 38.2(a), effective beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax return.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-187, s. 3, made subsection (d), as added by Session Laws 2019-187, s. 1(e), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2005-435, s. 59.2(a), as amended by Session Laws 2006-162, s. 22, effective July 24, 2006, in subsection (a4), deleted "on the corporation" following "exceed the taxes levied" and added the language beginning "on the corporation or on a limited liability company" at the end.

Session Laws 2006-66, s. 24A.2(a), effective for taxable years beginning on or after January 1, 2007, rewrote the last sentence in subdivision (b)(2).

Session Laws 2006-162, s. 3(b), effective July 24, 2006, substituted "G.S. 105-130.2(4b)" for "G.S. 105-130.2(5)" in subdivision (b)(4).

Session Laws 2008-107, s. 28.7(a), effective for taxable years beginning on or after January 1, 2009, substituted "corporation" for "C Corporation" in the last sentence of subdivision (b)(2).

Session Laws 2014-3, ss. 14.1 and 14.26, effective May 29, 2014, made identical changes, substituting "G.S. 105-130.2(10)" for "G.S. 105-130.2(4b)" in subdivision (b)(4). Session Laws 2015-6, s. 2.3, effective April 9, 2015, repealed Session Laws 2014-3, s. 14.26.

Session Laws 2015-241, s. 32.15(a), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, added subdivision (b)(5). See editor's note for applicability.

Session Laws 2017-204, s. 1.1, effective August 11, 2017, deleted former subsection (a), which defined "Nature of Taxes"; in subsection (a1), substituted "tax" for "taxes" near the beginning and substituted "is a privilege tax levied" for "are privilege or excise taxes levied" near the end; deleted "fiscal year of the State in which the taxes become due, except that the taxes levied in G.S. 105-122 are for the" preceding "income year" in subsection (a3); deleted the former last sentence in subsection (a4), which read: "G.S. 105-122 applies to a corporation taxed under another section of this Article only to the extent the taxes levied on the corporation in G.S. 105-122 exceed the taxes levied in other sections of this Article on the corporation or on a limited liability company whose assets must be included in the corporation's tax base under G.S. 105-114.1"; and made stylistic changes.

Session Laws 2018-5, s. 38.2(a), added "or a partnership" twice in the last sentence of subdivision (b)(2). For effective date and applicability, see editor's note.

Session Laws 2019-187, s. 1(e), added subsection (d). For effective date and applicability, see editor's note.

CASE NOTES

Constitutionality. - Assessment of tax under this section against a business trust did not violate the uniformity requirement of N.C. Const., Art. V, § 2, on grounds that it was similar to a limited partnership, which is not subject to the franchise tax. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

What Organizations Are Taxable Under This Section. - This section levies a franchise tax only upon organizations which are (1) corporations as defined within that section, and (2) doing business within North Carolina. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

Corporation. - Under the terms of this section, an organization is properly classified as a corporation for franchise tax purposes when it satisfies three criteria: (1) It is a corporation, association, joint-stock company or any other form of organization for pecuniary gain; (2) it has capital stock represented by shares; and (3) it has privileges not possessed by individuals or partnerships. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

"Capital stock" must be read to encompass ownership interests in all the different types of business organizations potentially subject to the franchise tax. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

Despite the fact that plaintiff was organized as a business trust rather than as an ordinary business corporation, and that its shares of capital stock were designated as "shares of beneficial interest," plaintiff's shares were the functional equivalent of capital stock for purposes of this section. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

Franchise Tax Not Ordinarily Included in Term "Privilege Tax". - While the term "privilege tax" includes franchise taxes as well as license taxes, a franchise is a special kind of privilege constituting a property right, which is ordinarily transferable and exclusive, and involves the use of public facilities. The word "privilege" is too broad, per se, as a classification for taxation, but is usually particularized into licenses and franchises in classifying businesses for taxation, and as used in our taxing statutes, the term "privilege tax" does not ordinarily include franchise taxes. Duke Power Co. v. Bowles, 229 N.C. 143, 48 S.E.2d 287 (1948).

Privileges Not Possessed by Individuals or Partnerships. - By establishing for its trustees and shareholders limited liability for trust obligations, the plaintiff obtained a privilege not possessed by individuals or partnerships for purposes of this section. First Carolina Investors v. Lynch, 78 N.C. App. 583, 337 S.E.2d 691 (1985).

Tax Due to Royalty Payments Paid to Out-of-State Trademark Holder. - North Carolina Secretary of Revenue did not exceed his authority in imposing franchise and income taxes on out-of-state trademark holding companies that entered into licensing agreements with related retail companies that operated in North Carolina, whereby the retail companies paid the holding companies royalties for the use of the trademarks in North Carolina; the holding companies were doing business in North Carolina, and the Secretary's attempt to assess the taxes did not offend the Commerce Clause of the United States Constitution. A&F Trademark, Inc. v. Tolson, 167 N.C. App. 150, 605 S.E.2d 187 (2004), appeal dismissed, 359 N.C. 320, - S.E.2d - (2005), cert. denied, - U.S. - , 126 S. Ct. 353, 163 L. Ed. 2d 62 (2005).

Tax Measured by Amount of Business Transacted. - Whenever a tax is imposed upon a corporation directly by the legislature and is not assessed by assessors, and the amount depends on the amount of business transacted by the corporation, and the extent to which it has exercised the privileges granted in its charter, without reference to the value of its property or the nature of the investments made of it, it is a franchise tax. Worth v. Petersburg R.R., 89 N.C. 301 (1883).

Franchise taxes are imposed for the privilege of engaging in business in this State. The amount of the tax varies with the nature and magnitude of the privilege taxed, the relative financial returns to be expected of the business or activities under franchise, and the burden put on government in regulating, protecting and fostering the enterprise. Southern Bell Tel. & Tel. Co. v. Clayton, 266 N.C. 687, 147 S.E.2d 195 (1966).

Uniformity Required. - The rule of uniformity laid down in N.C. Const., Art. V, § 2, was intended to apply to taxes on franchises. Worth v. Petersburg R.R., 89 N.C. 301 (1883).

Legislature May Make Tax by State Exclusive. - The General Assembly may require a corporation to pay a license tax for the privilege of carrying on its business, and forbid counties or other municipalities to exact any other license tax or fee. Charlotte Bldg. & Loan Ass'n v. Commissioners of Mecklenburg County, 115 N.C. 410, 20 S.E. 526 (1894).

Cited in Standard Fertilizer Co. v. Gill, 225 N.C. 426, 35 S.E.2d 275 (1945); Secretary of Revenue v. Carolina Tel. & Tel. Co., 81 N.C. App. 240, 344 S.E.2d 46 (1986); Four County Elec. Membership Corp. v. Powers, 96 N.C. App. 417, 386 S.E.2d 107 (1989).

§ 105-114.1. Limited liability companies.

Definitions. - The following definitions apply in this section:
1. Affiliated group. - Defined in section 1504 of the Code.
2. Capital interest. - The right under a limited liability company's governing law to receive a percentage of the company's assets upon dissolution after payments to creditors.
3. Entity. - A person that is not a human being.
4. Governing law. - The law under which a limited liability company is organized.
5. Noncorporate limited liability company. - A limited liability company that does not elect to be taxed as a corporation under the Code.
(Effective for taxable years beginning before January 1, 2017) Controlled Companies. - If a corporation or an affiliated group of corporations owns more than fifty percent (50%) of the capital interests in a noncorporate limited liability company, the corporation or group of corporations must include in its three tax bases pursuant to G.S. 105-122 the same percentage of (i) the noncorporate limited liability company's capital stock, surplus, and undivided profits; (ii) fifty-five percent (55%) of the noncorporate limited liability company's appraised ad valorem tax value of property; and (iii) the noncorporate limited liability company's actual investment in tangible property in this State, as appropriate.
(Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Controlled Companies. - If a corporation or an affiliated group of corporations owns more than fifty percent (50%) of the capital interests in a noncorporate limited liability company, the corporation or group of corporations must include in its three tax bases pursuant to G.S. 105-122 the same percentage of (i) the noncorporate limited liability company's net worth; (ii) fifty-five percent (55%) of the noncorporate limited liability company's appraised ad valorem tax value of property; and (iii) the noncorporate limited liability company's actual investment in tangible property in this State, as appropriate.
Constructive Ownership. - Ownership of the capital interests in a noncorporate limited liability company is determined by reference to the constructive ownership rules for partnerships, estates, and trusts in section 318(a)(2)(A) and (B) of the Code with the following modifications:
1. The term "capital interest" is substituted for "stock" each place it appears.
2. A noncorporate limited liability company and any noncorporate entity other than a partnership, estate, or trust is treated as a partnership.
3. The operating rule of section 318(a)(5) of the Code applies without regard to section 318(a)(5)(C).
(Effective for taxable years beginning before January 1, 2017) No Double Inclusion. - If a corporation is required to include a percentage of a noncorporate limited liability company's assets in its tax bases under this Article pursuant to subsection (b) of this section, its investment in the noncorporate limited liability company is not included in its computation of capital stock base under G.S. 105-122(b).
(Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) No Double Inclusion. - If a corporation is required to include a percentage of a noncorporate limited liability company's assets in its tax bases under this Article pursuant to subsection (b) of this section, its investment in the noncorporate limited liability company is not included in its computation of net worth base under G.S. 105-122(b).
Affiliated Group. - If the owner of the capital interests in a noncorporate limited liability company is an affiliated group of corporations, the percentage to be included pursuant to subsection (b) of this section by each group member that is doing business in this State is determined by multiplying the capital interests in the noncorporate limited liability company owned by the affiliated group by a fraction. The numerator of the fraction is the capital interests in the noncorporate limited liability company owned by the group member, and the denominator of the fraction is the capital interests in the noncorporate limited liability company owned by all group members that are doing business in this State.
Exemption. - This section does not apply to assets owned by a noncorporate limited liability company if the total book value of the noncorporate limited liability company's assets never exceeded one hundred fifty thousand dollars ($150,000) during its taxable year.
Timing. - Ownership of the capital interests in a noncorporate limited liability company is determined as of the last day of its taxable year. The adjustments pursuant to subsections (b) and (d) of this section must be made to the owner's next following return filed under this Article. If a noncorporate limited liability company and a corporation or an affiliated group of corporations have engaged in a pattern of transferring assets between them with the result that each did not own the capital interests on the last day of its taxable year, the ownership of the capital interests in the noncorporate limited liability company must be determined as of the last day of the corporation or group of corporations' taxable year.
Penalty. - A taxpayer who, because of fraud with intent to evade tax, underpays the tax under this Article on assets attributable to it under this section is guilty of a Class H felony in accordance with G.S. 105-236(7).

History

(2002-126, s. 30G.2(b); 2004-74, ss. 1, 2; 2004-170, s. 8.1; 2006-66, s. 24A.2(b); 2008-107, s. 28.7(b); 2013-157, s. 25; 2015-241, s. 32.15(e); 2016-5, s. 1.7(a).)

Subsections (b) and (d) Set Out Twice. - The first versions of subsections (b) and (d) set out above are effective for taxable years beginning before January 1, 2017. The second versions of subsections (b) and (d) set out above are effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Editor's Note. - Session Laws 2002-126, s. 30G.2(a), provides: "The General Assembly finds that most corporations engaged in business in this State comply with the State franchise tax on corporate assets. Some taxpayers, however, take advantage of an unintended loophole in the law and avoid franchise tax by transferring their assets to a controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on their assets. It is the intent of this section to apply the franchise tax equally to assets held by corporations and assets held by corporate-affiliated limited liability companies. It is also the intent of this section to provide that a criminal penalty applies to taxpayers who fraudulently evade the tax.

"The General Assembly further finds that, after this loophole was closed in 2001, some taxpayers continue to avoid franchise tax by manipulating ownership of assets. One method is to interpose a controlled partnership between the corporation and the controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on their assets. It is the intent of the General Assembly to apply the franchise tax equally to assets held by corporations and assets held by corporate-controlled entities."

Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made the amendments to subsections (b) and (d) by Session Laws 2015-241, s. 32.15(e), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Effect of Amendments. - Session Laws 2004-74, s. 1, effective January 1, 2003, and applicable to taxes due on or after that date, rewrote the section.

Session Laws 2004-74, s. 2, effective January 1, 2005, and applicable to taxes due on or after that date, substituted "more than fifty percent (50%)" for "seventy percent (70%) or more" in subsection (b).

Session Laws 2004-170, s. 8.1, effective August 2, 2004, in subsection (b), substituted "pursuant to G.S. 105-122" for "under this Article," and substituted "(i) the limited liability company's capital stock, surplus, and undivided profits; (ii) fifty-five percent (55%) of the limited liability company's appraised ad valorem tax value of property; and (iii) the limited liability company's actual investment in tangible property in this State, as appropriate" for "the limited liability company's net assets."

Session Laws 2006-66, s. 24A.2(b), effective for taxable years beginning on or after January 1, 2007, added subdivision (a)(5); and inserted "noncorporate" preceding "limited liability" throughout the section.

Session Laws 2008-107, s. 28.7(b), effective for taxable years beginning on or after January 1, 2009, substituted "corporation" for "C Corporation" in subdivision (a)(5).

Session Laws 2013-157, s. 25, effective January 1, 2014, rewrote subdivision (a)(4), which formerly read "A limited liability company's governing law is determined under G.S. 57C-6-05 or G.S. 57C-7-01, as applicable."

Session Laws 2015-241, s. 32.15(e), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, substituted "net worth" for "capital stock, surplus, and undivided profits" in subsection (b); and substituted "net worth" for "capital stock" in subsection (d). See editor's note for applicability.

§ 105-115: Repealed by Session Laws 1989 (Regular Session, 1990), c. 1002, s. 1.

§ 105-116: Repealed by Session Laws 2013-316, s. 4.1(a), effective July 1, 2014, and applicable to gross receipts billed on or after that date.

History

(1939, c. 158, s. 203; 1949, c. 392, s. 2; 1951, c. 643, s. 3; 1955, c. 1313, s. 2; 1957, c. 1340, s. 3; 1959, c. 1259, s. 3; 1963, c. 1169, s. 1; 1965, c. 517; 1967, c. 519, ss. 1, 3; c. 1272, ss. 1, 3; 1971, c. 298, s. 1; c. 833, s. 1; 1973, c. 476, s. 193; c. 537, s. 3; c. 1287, s. 3; c. 1349; 1975, c. 812; 1983 (Reg. Sess., 1984), c. 1097, ss. 2, 16; 1987 (Reg. Sess., 1988), c. 882, s. 4.4; 1989 (Reg. Sess., 1990), c. 813, s. 3; c. 814, s. 10; c. 945, ss. 3, 17; 1991, c. 598, s. 4; c. 689, s. 28(c); 1991 (Reg. Sess., 1992), c. 1007, s. 2; 1993, c. 321, s. 26(h); 1997-118, s. 2; 1997-426, s. 3; 1998-22, s. 2; 1998-98, s. 72; 1998-217, s. 32(a); 2000-140, s. 62; 2001-427, s. 6(c), (d); 2002-72, s. 10; 2002-120, s. 8; 2006-33, s. 10; 2006-162, s. 31; 2013-414, s. 1(a); repealed by 2013-316, s. 4.1(a), effective July 1, 2014.)

Editor's Note. - Former G.S. 105-116 pertained to franchise or privilege tax on electric power, water, and sewerage companies.

Session Laws 2013-316, s. 4.2(a), as amended by Session Laws 2015-6, s. 2.4(b), provides: "The Utilities Commission must adjust the rate set for the following utilities:

"(1) Electricity to reflect the repeal of G.S. 105-116 and the resulting liability of electric power companies for the tax imposed under G.S. 105-122, the increase in the rate of tax imposed on sales of electricity under G.S. 105-164.4, and the reduction in the corporate income tax rate imposed under G.S. 105-130.3.

"(2) Piped natural gas to reflect the repeal of Article 5E of Chapter 105 of the General Statutes, the repeal of the credit formerly allowed under G.S. 105-122(d1), the resulting liability of companies for the tax imposed on sales of piped natural gas under G.S. 105-164.4, and the reduction in the corporate income tax rate imposed under G.S. 105-130.3.

"(3) Public water and wastewater companies to reflect the repeal of G.S. 105-116 and the resulting liability of public water and wastewater companies under G.S. 105-122, and the reduction in the corporate income tax rate imposed under G.S. 105-130.3."

Session Laws 2014-3, s. 14.13(a)-(d), expiring July 1, 2018, provides: "All amended returns under G.S. 105-116 must be filed within three years from the due date of the original return. The Department must process amended returns under G.S. 105-116 within six months of receipt of the return. When the Department processes an amended franchise tax return under G.S. 105-116 that changes the taxable gross receipts of electricity derived within a city so that the amount that should have been distributed to that city under G.S. 105-116.1 for distributions made on or before September 30, 2014, is greater than or less than the amount actually distributed to that city, the Department of Revenue must adjust the next quarterly distribution under G.S. 105-164.44K by the applicable amount and redetermine the franchise tax share for that city based upon the amended return in accordance with subsection (b) of this section. The Department of Revenue must draw the funds needed to make an increased distribution from sales and use tax collections under Article 5 of Chapter 105 of the General Statutes.

"(b) The Department of Revenue must determine the quarterly franchise tax share a city is eligible to receive under G.S. 105-164.44K(b) for each quarter of the fiscal year on or before September 15 for the fiscal year that began the preceding July 1. The Department must include all amended franchise tax returns under G.S. 105-116 processed by the Department by the preceding July 31 in the franchise tax share determination. The determination made by the Department with respect to the city's franchise tax share for that fiscal year is final. The distributions are payable as provided in G.S. 105-164.44K.

"(c) All amended returns under G.S. 105-187.41 must be filed within three years from the due date of the original return. The Department must process amended returns under G.S. 105-187.41 within six months of receipt of the return. When the Department processes an amended excise tax return under G.S. 105-187.41 that changes the amount of the tax attributable to a city so that the amount that should have been distributed to that city under G.S. 105-187.44 for distributions made on or before September 30, 2014, is greater than or less than the amount actually distributed to that city, the Department of Revenue must adjust the next quarterly distribution under G.S. 105-164.44L for the city by the applicable amount and redetermine the excise tax share for that city based upon the amended return in accordance with subsection (b) of this section. The Department of Revenue must draw the funds needed to make an increased distribution from sales and use tax collections under Article 5 of Chapter 105 of the General Statutes.

"(d) The Department of Revenue must determine the quarterly excise tax share a city is eligible to receive under G.S. 105-164.44L(b) for each quarter of the fiscal year on or before September 15 for the fiscal year that began the preceding July 1. The Department must include all amended excise tax returns under G.S. 105-187.41 processed by the Department by the preceding July 31 in the excise tax share determination. The determination made by the Department with respect to the city's franchise tax share for that fiscal year is final. The distributions are payable as provided in G.S. 105-164.44L."

Session Laws 2015-6, s. 2.4(a), provides: "The purpose of this section is to clarify the intent of the 2013 Session of the General Assembly that the Utilities Commission must adjust the rate for sales of electricity, piped natural gas, and water and wastewater services to reflect all of the tax changes as enacted in S.L. 2013-316."

Session Laws 2015-6, s. 2.4(c), provides: "The Utilities Commission must order a utility to add interest to money refunded to its customers for refunds resulting from the reduction of the corporate income tax rate effective for taxable years beginning on or after January 1, 2014. Refunds subject to interest shall not include any amounts to be refunded arising from excess deferred income taxes due to the reduction in the corporate income tax rate effective for taxable years beginning on or after January 1, 2014. The interest rate applied to the refund must be set in accordance with G.S. 62-130."

§ 105-116.1: Repealed by Session Laws 2013-316, s. 4.1(a), effective July 1, 2014, and applicable to gross receipts billed on or after that date.

History

(1997-118, s. 1; 1997-426, s. 3.1; 1997-439, s. 3; 1997-456, s. 55.5; 1998-22, s. 3; 1999-458, s. 11; 2000-128, s. 2; 2001-430, s. 11; 2002-120, s. 2; 2005-435, s. 34(b); repealed by 2013-316, s. 4.1(a), effective July 1, 2014.)

Editor's Note. - Former G.S. 105-116.1 pertained to distribution of gross receipts taxes to cities.

Session Laws 2014-3, s. 14.13(a)-(d), expiring July 1, 2018, provides: "(a) All amended returns under G.S. 105-116 must be filed within three years from the due date of the original return. The Department must process amended returns under G.S. 105-116 within six months of receipt of the return. When the Department processes an amended franchise tax return under G.S. 105-116 that changes the taxable gross receipts of electricity derived within a city so that the amount that should have been distributed to that city under G.S. 105-116.1 for distributions made on or before September 30, 2014, is greater than or less than the amount actually distributed to that city, the Department of Revenue must adjust the next quarterly distribution under G.S. 105-164.44K by the applicable amount and redetermine the franchise tax share for that city based upon the amended return in accordance with subsection (b) of this section. The Department of Revenue must draw the funds needed to make an increased distribution from sales and use tax collections under Article 5 of Chapter 105 of the General Statutes.

Session Laws 2015-6, s. 2.19(a), provides: "The Department of Revenue may draw the funds needed to make the following distributions from the sales and use tax collections under Article 5 of Chapter 105 of the General Statutes:

"(1) The September 15, 2014, distribution of the franchise tax to cities under G.S. 105-116.1 for the calendar quarter that begins April 1, 2014.

"(2) The September 15, 2014, distribution of the excise tax to cities under G.S. 105-187.44 for the calendar quarter that begins April 1, 2014."

§§ 105-117, 105-118: Repealed by Session Laws 1995 (Regular Session, 1996), c. 646, s. 3.

§ 105-119: Repealed by Session Laws 2000-173, s. 7, effective August 2, 2000.

§ 105-120: Repealed by Session Laws 2001-430, s. 12, effective January 1, 2002, and applies to taxable services reflected on bills dated on or after January 1, 2002.

Cross References. - As to tax on telecommunications, see G.S. 105-164.4B.

As to distribution of part of telecommunications taxes to cities, see G.S. 105-164.44F.

Editor's Note. - Session Laws 2001-487, s. 118(a), effective December 16, 2001, repealed the amendment to this section by Session Laws 2001-427, s. 6(e). The amendment by Session Laws 2001-427 would have been effective January 1, 2002, and therefore never went into effect.

Session Laws 2001-430, s. 18, as amended by Session Laws 2001-487, s. 119, provides: "Pursuant to G.S. 62-31 and G.S. 62-32, the Utilities Commission must lower the rates set for telecommunications services to reflect the repeal of G.S. 105-120 and the resulting liability of local telecommunications companies for the tax imposed under G.S. 105-122."

§ 105-120.1: Repealed by Session Laws 2000-173, s. 7, effective August 2, 2000.

§ 105-120.2. Franchise or privilege tax on holding companies.

(Effective for taxable years beginning before January 1, 2017) Every corporation, domestic and foreign, incorporated or, by an act, domesticated under the laws of this State or doing business in this State that, at the close of its taxable year, is a holding company as defined in subsection (c) of this section, shall, pursuant to the provisions of G.S. 105-122, do all of the following:
1. File a return.
2. Determine the total amount of its issued and outstanding capital stock, surplus and undivided profits.
3. Apportion such outstanding capital stock, surplus and undivided profits to this State.

(Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Every corporation, domestic and foreign, incorporated or, by an act, domesticated under the laws of this State or doing business in this State that, at the close of its taxable year, is a holding company as defined in subsection (c) of this section, shall, pursuant to the provisions of G.S. 105-122, do all of the following:
1. File a return.
2. Determine the total amount of its net worth.
3. Apportion its net worth to this State.
1. (Effective for taxable years beginning before January 1, 2017) Every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the return is due, a franchise or privilege tax at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the amount determined under subsection (a) of this section, but in no case shall the tax be more than seventy-five thousand dollars ($75,000) nor less than thirty-five dollars ($35.00). (b) (1) (Effective for taxable years beginning before January 1, 2017) Every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the return is due, a franchise or privilege tax at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the amount determined under subsection (a) of this section, but in no case shall the tax be more than seventy-five thousand dollars ($75,000) nor less than thirty-five dollars ($35.00).
2. Notwithstanding the provisions of subdivision (1) of this subsection, if the tax produced pursuant to application of this paragraph (2) exceeds the tax produced pursuant to application of subdivision (1), then the tax is levied at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) on the greater of the following:
  1. Fifty-five percent (55%) of the appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State of each such corporation plus the total appraised value of intangible property returned for taxation of intangible personal property as computed under G.S. 105-122(d).
  2. The total actual investment in tangible property in this State of such corporation as computed under G.S. 105-122(d).
(Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Tax Rate. - Every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the return is due, the greater of the following:
1. A franchise or privilege tax at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the amount determined under subsection (a) of this section, but in no case shall the tax be more than one hundred fifty thousand dollars ($150,000) nor less than two hundred dollars ($200.00).
2. If the tax calculated under this subdivision exceeds the tax calculated under subdivision (1) of this subsection, then the tax is levied at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) on the greater of the following:
  1. Fifty-five percent (55%) of the appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State of each such corporation plus the total appraised value of intangible property returned for taxation of intangible personal property as computed under G.S. 105-122(d).
  2. The total actual investment in tangible property in this State of such corporation as computed under G.S. 105-122(d).
(Effective for taxable years beginning before January 1, 2020) For purposes of this section, a "holding company" is a corporation that satisfies at least one of the following conditions:
1. It has no assets other than ownership interests in corporations in which it owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting stock or voting capital interests.
2. It receives during its taxable year more than eighty percent (80%) of its gross income from corporations in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock, voting capital interests, or ownership interests.
(Effective for taxable years beginning on or after January 1, 2020) For purposes of this section, a "holding company" is a corporation that satisfies at least one of the following conditions:
1. It has no assets other than ownership interests in corporations in which it owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting stock or voting capital interests.
2. It receives during its taxable year more than eighty percent (80%) of its gross income from corporations in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock, voting capital interests, or ownership interests.
3. It owns copyrights, patents, or trademarks that represent more than eighty percent (80%) of its total assets, or receives royalties and license fees that represent more than eighty percent (80%) of its gross income, and it is one hundred percent (100%) directly owned by a corporation that meets all of the following conditions:
  1. Is a manufacturer, as defined by NAICS codes 31 through 33.
  2. Generates revenues in excess of five billion dollars ($5,000,000,000) for income tax purposes from goods that it manufactures.
  3. Includes in its net worth, as determined under G.S. 105-122(b), an investment in a subsidiary that owns copyrights, patents, or trademarks.
Repealed by Session Laws 1985, c. 656, s. 39.
Counties, cities and towns shall not levy a franchise tax on corporations taxed under this section. The tax imposed under the provisions of G.S. 105-122 shall not apply to businesses taxed under the provisions of this section.
Repealed by Session Laws 2011-330, s. 3, effective June 27, 2011.

History

(1975, c. 130, s. 1; 1985, c. 656, s. 39; 1985 (Reg. Sess., 1986), c. 854, s. 1; 1987 (Reg. Sess., 1988), c. 882, s. 4.2; 1991, c. 30, s. 4; 1998-98, s. 72; 2006-196, s. 9; 2011-330, s. 3; 2012-79, s. 2.3; 2013-414, s. 1(b); 2015-241, s. 32.15(b); 2016-5, s. 1.7(a); 2017-204, s. 1.2; 2019-246, s. 2(a).)

Subsections (a) and (b) Set Out Twice. - The first versions of subsections (a) and (b) set out above are effective for taxable years beginning before January 1, 2017. The second versions of subsections (a) and (b) set out above are effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Subsection (c) Set Out Twice. - The first version of subsection (c) set out above is effective for taxable years beginning before January 1, 2020. The second version of subsection (c) set out above is 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.

Editor's Note. - Session Laws 2006-196, s. 13, provides: "The Revenue Laws Study Committee shall study the following issues:

"(1) The simplification of the additional tax imposed on insurance contracts on property coverage, as enacted in Section 3 of this act, and the distribution of the revenue generated by the tax. The study of this issue may include a recommendation on the percentage of revenue to be distributed to the firemen's local relief funds and the formula for making this distribution. The study may also consider the increasing difference between the amount of revenue available in the Volunteer Fire Department Fund for matching grants to purchase equipment and make capital improvements and the amount of grant requests received.

"(2) The authority of the Secretary of Revenue to require taxpayers to file consolidated returns. The study of this issue may include consideration of whether the State should require some corporations or all corporations to file a consolidated return.

"(3) The feasibility of replacing the State's current corporate income and franchise tax laws with a commercial activity tax based upon business gross receipts.

"(4) The administrative process for the review of disputed tax matters."

Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made the amendments to subsections (a) and (b) by Session Laws 2015-241, s. 32.15(b), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2019-246, s. 2(b), made subdivision (c)(3), as added by Session Laws 2019-246, s. 2(a), 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.

Effect of Amendments. - Session Laws 2006-196, s. 9, effective January 1, 2007, and applicable for taxable years beginning on or after that date, in subsection (c), substituted "a corporation that" for "any corporation which" near the middle and added "or voting capital interests" at the end.

Session Laws 2011-330, s. 3, effective June 27, 2011, repealed subsection (f), which read: "In determining the total tax payable by any holding company under this section, there shall be allowed as a credit on such tax the amount of the credit authorized under Part 5 of Article 4 of this Chapter."

Session Laws 2012-79, s. 2.3, effective June 26, 2012, rewrote subsection (c), which formerly read: "For purposes of this section, a 'holding company' is a corporation that receives during its taxable year more than eighty percent (80%) of its gross income from corporations in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock or voting capital interests."

Session Laws 2013-414, s. 1(b), effective August 23, 2013, in the introductory language of subsection (a), substituted "State that" for "State which" and added "do all of the following"; rewrote subdivision (a)(1), which formerly read "Make a report and statement, and"; in subdivision (b)(1), substituted "return is" for "report and statement are," and deleted "which is hereby levied" following "privilege tax"; in subdivision (b)(2), substituted "is levied" for "shall be levied" near the middle and "greater of the following" for "greater of the amounts of" at the end; and made minor stylistic and punctuation changes throughout subsections (a) and (b).

Session Laws 2015-241, s. 32.15(b), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, in subsection (a), substituted "net worth" for "issued and outstanding capital stock, surplus and undivided profits" in subdivision (2) and "its net worth" for "such outstanding capital stock, surplus and undivided profits" in subdivision (3); and rewrote subsection (b). See editor's note for applicability.

Session Laws 2017-204, s. 1.2, effective August 11, 2017, substituted "stock, voting capital interests, or ownership interests" for "stock or voting capital interests" in subdivision (c)(2).

Session Laws 2019-246, s. 2(a), added subdivision (c)(3). For effective date and applicability, see editor's note.

§ 105-121: Repealed by Session Laws 1945, c. 752, s. 1.

Cross References. - The repealed section related to franchise or privilege taxes on insurance companies. For present law relating to taxes thereon, see G.S. 105-228.3 through 105-228.10.

§ 105-121.1. (Repealed effective for taxes due on or after April 1, 2017) Mutual burial associations.

An annual franchise or privilege tax on all domestic mutual burial associations shall be due and payable to the Secretary of Revenue on or before the first day of April of each year. The amount of this franchise or privilege tax shall be based on the membership of such associations according to the following schedule:

Membership less than 3,000 ........................................ $15.00 Membership of 3,000 to 5,000 ...................................... 20.00 Membership of 5,000 to 10,000 ..................................... 25.00 Membership of 10,000 to 15,000 .................................... 30.00 Membership of 15,000 to 20,000 .................................... 35.00 Membership of 20,000 to 25,000 .................................... 40.00 Membership of 25,000 to 30,000 .................................... 45.00 Membership of 30,000 or more ...................................... 50.00

History

(1943, c. 60, s. 2; 1973, c. 476, s. 193.)

Section Repealed Effective for Taxes Due on or After April 1, 2017. - This section is repealed effective for taxes due on or after April 1, 2017, by Session Laws 2016-5, s. 1.1(a).

§ 105-122. (Effective for taxable years beginning before January 1, 2017) Franchise or privilege tax on domestic and foreign corporations.

An annual franchise or privilege tax is imposed on a corporation doing business in this State. The tax is determined on the basis of the books and records of the corporation as of the close of its income year. A corporation subject to the tax must file a return under affirmation with the Secretary at the place and in the manner prescribed by the Secretary. The return must be signed by the president, vice-president, treasurer, or chief financial officer of the corporation. The return is due on or before the fifteenth day of the fourth month following the end of the corporation's income year.
Determination of Capital Base. - A corporation taxed under this section shall determine the total amount of its issued and outstanding capital stock, surplus, and undivided profits. No reservation or allocation from surplus or undivided profits is allowed except as provided below:
1. Definite and accrued legal liabilities.
2. Billings in excess of costs that are considered a deferred liability under the percentage of completion method of revenue recognition.
3. Taxes accrued, dividends declared, and reserves for depreciation of tangible assets and for amortization of intangible assets as permitted for income tax purposes.
4. When including deferred tax liabilities, a corporation may reduce the amount included in its base by netting against that amount deferred tax assets. The reduction may not decrease deferred tax liabilities below zero (0).
5. Reserves for the cost of any air-cleaning device or sewage or waste treatment plant, including waste lagoons, and pollution abatement equipment purchased or constructed and installed which reduces the amount of air or water pollution resulting from the emission of air contaminants or the discharge of sewage and industrial wastes or other polluting materials or substances into the outdoor atmosphere or streams, lakes, or rivers, upon condition that the corporation claiming such deductible liability shall furnish to the Secretary a certificate from the Department of Environmental Quality or from a local air pollution control program for air-cleaning devices located in an area where the Environmental Management Commission has certified a local air pollution control program pursuant to G.S. 143-215.112 certifying that the Environmental Management Commis- sion or local air pollution control program has found as a fact that the air-cleaning device, waste treatment plant or pollution abatement equipment purchased or constructed and installed as above described has actually been constructed and installed and that such plant or equipment complies with the requirements of the Environmental Management Commission or local air pollution control program with respect to such devices, plants or equipment, that such device, plant or equipment is being effectively operated in accordance with the terms and conditions set forth in the permit, certificate of approval, or other document of approval issued by the Environmental Management Commission or local air pollution control program and that the primary purpose thereof is to reduce air or water pollution resulting from the emission of air contaminants or the discharge of sewage and waste and not merely incidental to other purposes and functions.
6. Reserves for the cost of purchasing and installing equipment or constructing facilities for the purpose of recycling or resource recov- ering of or from solid waste or for the purpose of reducing the volume of hazardous waste generated shall be treated as deductible for the purposes of this section upon condition that the corporation claiming such deductible liability shall furnish to the Secretary a certificate from the Department of Environmental Quality certifying that the Department of Environmental Quality has found as a fact that the equipment or facility has actually been purchased, installed or con- structed, that it is in conformance with all rules and regulations of the Department of Environmental Quality, and the recycling or resource recovering is the primary purpose of the facility or equipment.
7. Reserves for the cost of constructing facilities of any private or public utility built for the purpose of providing sewer service to residential and outlying areas shall be treated as deductible for the purposes of this section; the deductible liability allowed by this section shall apply only with respect to such pollution abatement plants or equipment constructed or installed on or after January 1, 1955.
8. The cost of treasury stock.
9. In the case of an international banking facility, the capital base shall be reduced by the excess of the amount as of the end of the taxable year of all assets of an international banking facility which are employed outside the United States over liabilities of the interna- tional banking facility owed to foreign persons. For purposes of such reduction, foreign persons shall have the same meaning as defined in G.S. 105-130.5(b)(13)d.
Definitions. - The following definitions apply in subsection (b) of this section:
1. Affiliate. - The same meaning as specified in G.S. 105-130.2.
2. Indebtedness. - All loans, credits, goods, supplies, or other capital of whatsoever nature furnished by a parent, subsidiary, or affiliated corporation, other than indebtedness endorsed, guaranteed, or otherwise supported by one of these corporations.
3. Parent. - The same meaning as specified in G.S. 105-130.2.
4. Subsidiary. - The same meaning as specified in G.S. 105-130.2.
Repealed by Session Laws 2007-491, s. 2, effective January 1, 2008.
Apportionment. - A corporation that is doing business in this State and in one or more other states must apportion its capital stock, surplus, and undivided profits to this State. A corporation must use the apportionment method set out in subdivision (1) of this subsection unless the Department has authorized it to use a different method under subdivision (2) of this subsection. The portion of a corporation's capital stock, surplus, and undivided profits determined by applying the appropriate apportionment method is considered the amount of capital stock, surplus, and undivided profits the corporation uses in its business in this State.
1. Statutory. - A corporation that is subject to income tax under Article 4 of this Chapter must apportion its capital stock, surplus, and undivided profits by using the fraction it applies in apportioning its income under that Article. A corporation that is not subject to income tax under Article 4 of this Chapter must apportion its capital stock, surplus, and undivided profits by using the fraction it would be required to apply in apportioning its income if it were subject to that Article. The apportionment method set out in this subdivision is considered the statutory method of apportionment and is presumed to be the best method of determining the amount of a corporation's capital stock, surplus, and undivided profits attributable to the corporation's business in this State.
2. Alternative. - corporation that believes the statutory apportionment method set out in subdivision (1) of this subsection subjects a greater portion of its capital stock, surplus, and undivided profits to tax under this section than is attributable to its business in this State may make a written request to the Secretary for permission to use an alternative method. The request must set out the reasons for the corporation's belief and propose an alternative method. The corporation has the burden of establishing by clear, cogent, and convincing proof that the statutory apportionment method subjects a greater portion of the corporation's capital stock, surplus, and undivided profits to tax under this section than is attributable to its business in this State and that the proposed alternative method is a better method of determining the amount of the corporation's capital stock, surplus, and undivided profits attributable to the corporation's busi- ness in this State.
3. Repealed by Session Laws 2011-330, s. 5, effective June 27, 2011.
After determining the proportion of its total capital stock, surplus and undivided profits as set out in subsection (c1) of this section, which amount shall not be less than fifty-five percent (55%) of the appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State of each corporation nor less than its total actual investment in tangible property in this State, every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the return is due, a franchise or privilege tax at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the total amount of capital stock, surplus and undivided profits as provided in this section. The tax imposed in this section shall not be less than thirty-five dollars ($35.00) and is for the privilege of carrying on, doing business, and/or the continuance of articles of incorporation or domestication of each corporation in this State. Appraised value of tangible property including real estate is the ad valorem valuation for the calendar year next preceding the due date of the franchise tax return. The term "total actual investment in tangible property" as used in this section means the total original purchase price or consideration to the reporting taxpayer of its tangible properties, including real estate, in this State plus additions and improvements thereto less reserve for depreciation as permitted for income tax purposes, and also less any indebtedness incurred and existing by virtue of the purchase of any real estate and any permanent improvements made thereon. In computing "total actual investment in tangible personal property" a corporation may deduct reserves for the entire cost of any air-cleaning device or sewage or waste treatment plant, including waste lagoons, and pollution abatement equipment purchased or constructed and installed which reduces the amount of air or water pollution resulting from the emission of air contaminants or the discharge of sewage and industrial wastes or other polluting materials or substances into the outdoor atmosphere or into streams, lakes, or rivers, upon condition that the corporation claiming this deduction shall furnish to the Secretary a certificate from the Department of Environmental Quality or from a local air pollution control program for air-cleaning devices located in an area where the Environmental Management Commission has certified a local air pollution control program pursuant to G.S. 143-215.112 certifying that said Department or local air pollution control program has found as a fact that the air-cleaning device, waste treatment plant or pollution abatement equipment purchased or constructed and installed as above described has actually been constructed and installed and that the device, plant or equipment complies with the requirements of the Environmental Management Commission or local air pollution control program with respect to the devices, plants or equipment, that the device, plant or equipment is being effectively operated in accordance with the terms and conditions set forth in the permit, certificate of approval, or other document of approval issued by the Environmental Management Commission or local air pollution control program and that the primary purpose is to reduce air or water pollution resulting from the emission of air contaminants or the discharge of sewage and waste and not merely incidental to other purposes and functions. The cost of constructing facilities of any private or public utility built for the purpose of providing sewer service to residential and outlying areas is treated as deductible for the purposes of this section; the deductible liability allowed by this section applies only with respect to pollution abatement plants or equipment constructed or installed on or after January 1, 1955.
Credits. - Acorporation is allowed a credit against the tax imposed by this section for a taxable year equal to one-half of the amount of tax payable during the taxable year under Article 5E of this Chapter. The credit allowed by this subsection may not exceed the amount of tax imposed by this section for the taxable year, reduced by the sum of all other credits allowed against that tax, except tax payments made by or on behalf of the taxpayer.
Any corporation which changes its income year, and files a "short period" income tax return pursuant to G.S. 105-130.15 shall file a franchise tax return in accordance with the provisions of this section in the manner and as of the date specified in subsection (a) of this section. Such corporation shall be entitled to deduct from the total franchise tax computed (on an annual basis) on such return the amount of franchise tax previously paid which is applicable to the period subsequent to the beginning of the new income year.
The return and tax required by this section are in addition to all other reports required or taxes levied and assessed in this State.
Counties, cities and towns shall not levy a franchise tax on corporations taxed under this section.
Repealed by Session Laws 1981 (Regular Session, 1982), c. 1211, s. 5.

Every corporation doing business in this State which is a parent, subsidiary, or affiliate of another corporation shall add to its capital stock, surplus, and undivided profits all indebtedness owed to a parent, subsidiary, or affiliated corporation as a part of its capital used in its business and as a part of the base for franchise tax under this section. If any part of the capital of the creditor corporation is capital borrowed from a source other than a parent, subsidiary, or affiliate, the debtor corporation, which is required under this subsection to include in its tax base the amount of debt by reason of being a parent, subsidiary, or affiliate of the creditor corporation, may deduct from the debt included a proportionate part determined on the basis of the ratio of the borrowed capital of the creditor corporation to the total assets of the creditor corporation. If the creditor corporation is also taxable under the provisions of this section, the creditor corporation is allowed to deduct from the total of its capital, surplus, and undivided profits the amount of any debt owed to it by a parent, subsidiary or affiliated corporation to the extent that the debt has been included in the tax base of the parent, subsidiary, or affiliated debtor corporation reporting for taxation under the provisions of this section.

The Secretary must issue a written decision on a corporation's request for an alternative apportionment method. If the decision grants the request, it must describe the alternative method the corporation is authorized to use and state the tax years to which the alternative method applies. A decision may apply to no more than three tax years. A corporation may renew a request to use an alternative apportionment method by following the procedure in this subdivision. A decision of the Secretary on a request for an alternative apportionment method is final and is not subject to administrative or judicial review. A corporation authorized to use an alternative method may apportion its capital stock, surplus, and undivided profits in accordance with the alternative method or the statutory method.

History

(1939, c. 158, s. 210; 1941, c. 50, s. 4; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1947, c. 501, s. 3; 1951, c. 643, s. 3; 1953, c. 1302, s. 3; 1955, c. 1100, s. 2 1 / 2 ; c. 1350, s. 17; 1957, c. 1340, s. 3; 1959, c. 1259, s. 3; 1963, c. 1169, s. 1; 1967, c. 286; c. 892, ss. 10, 11; c. 1110, s. 2; 1973, c. 476, s. 193; c. 695, s. 17; c. 1262, s. 23; c. 1287, s. 3; 1975, c. 764, s. 2; 1977, c. 771, s. 4; 1981, c. 704, s. 18; c. 855, s. 3; 1981 (Reg. Sess., 1982), c. 1211, s. 5; 1985, c. 656, s. 40; 1985 (Reg. Sess., 1986), c. 826, s. 6; c. 854, s. 1; 1987 (Reg. Sess., 1988), c. 882, s. 4.3; 1989, c. 148, s. 1; c. 727, ss. 218(39), 219(27); 1991, c. 30, s. 5; 1993, c. 532, s. 11; 1995 (Reg. Sess., 1996), c. 560, s. 1; 1997-443, s. 11A.119(a); 1998-22, ss. 8, 9; 1998-98, ss. 72, 77; 1998-217, s. 43; 1999-337, s. 21; 2001-427, s. 12(a); 2003-416, s. 5(j); 2006-95, s. 1.1; 2006-162, s. 2; 2007-491, ss. 2, 10, 11; 2008-134, ss. 3(a), (b); 2009-422, s. 1; 2009-445, s. 2; 2010-31, s. 31.9(a); 2010-89, s. 2(c); 2011-145, s. 31A.2(a); 2011-330, s. 5; 2012-79, s. 1.14(a); 2013-414, ss. 1(c), 2(a); 2015-241, s. 14.30(u).)

Section set out twice. - The section above is effective for taxable years beginning before January 1, 2017. For the section as amended for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return, see the following section, also numbered G.S. 105-122.

Effect of Amendments. - Session Laws 2015-241, s. 14.30(u), effective July 1, 2015, substituted "Department of Environmental Quality" for "Department of Environment and Natural Resources" in subdivisions (b)(4) and (5) and subsection (d).

§ 105-122. (Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Franchise or privilege tax on domestic and foreign corporations.

Tax Imposed. - An annual franchise or privilege tax is imposed on a corporation doing business in this State for the privilege of doing business in this State and for the continuance of articles of incorporation or domestication of each corporation in this State. A corporation subject to the tax must file a return under affirmation with the Secretary at the place and in the manner prescribed by the Secretary. The return must be signed by the president, vice-president, treasurer, or chief financial officer of the corporation. The return is due on or before the fifteenth day of the fourth month following the end of the corporation's income year.
Determination of Net Worth. - A corporation taxed under this section shall determine the total amount of its net worth on the basis of the books and records of the corporation as of the close of its income year. The net worth of a corporation is its total assets without regard to the deduction for accumulated depreciation, depletion, or amortization less its total liabilities, computed in accordance with generally accepted accounting principles as of the end of the corporation's taxable year. If the corporation does not maintain its books and records in accordance with generally accepted accounting principles, then its net worth is computed in accordance with the accounting method used by the entity for federal tax purposes. A corporation's net worth is subject to the following adjustments:
1. A deduction for accumulated depreciation, depletion, and amortization as determined in accordance with the method used for federal tax purposes.
2. Repealed by Session Laws 2015-241, s. 32.15(d), effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.
3. Assets for which a deduction is allowed under subdivision (1) of this subsection are valued in accordance with the method used in computing depreciation, depletion, and amortization for federal income tax purposes.
4. (Effective for taxable years beginning before January 1, 2021) An addition for indebtedness the corporation owes to a parent, a subsidiary, an affiliate, or a noncorporate entity in which the corporation or an affiliated group of corporations owns directly or indirectly more than fifty percent (50%) of the capital interests of the noncorporate entity. The amount added back to the corporation's net worth may be further adjusted if part of the capital of the creditor is capital borrowed from a source other than a parent, a subsidiary, or an affiliate. The debtor corporation may deduct a proportionate part of the indebtedness based on the ratio of the borrowed capital of the creditor to the total assets of the creditor. For purposes of this subdivision, borrowed capital does not include indebtedness incurred by a bank arising out of the receipt of a deposit and evidenced by a certificate of deposit, a passbook, a cashier's check, a certified check, or other similar document.
5. If the creditor corporation is taxable under this Article, the creditor corporation may deduct the amount of indebtedness owed to it by a parent, subsidiary, or affiliated corporation to the extent that such indebtedness has been added by the debtor corporation.
6. Repealed by Session Laws 2018-5, s. 38.2(b), effective beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax return.
7. through (8) Repealed by Session Laws 2015-241, s. 32.15(c), effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.
Definitions. - The following definitions apply in subsection (b) of this section:
1. Affiliate. - A corporation is an affiliate of another corporation when both are directly or indirectly controlled by the same parent corporation or by the same or associated financial interests by stock ownership, interlocking directors, or by any other means whatsoever, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
2. Affiliated group. - The same meaning as defined in G.S. 105-114.1.
3. Capital interest. - The right under an entity's governing law to receive a percentage of the entity's assets upon dissolution after payments to creditors.
4. Governing law. - The law under which the noncorporate entity is organized.
5. Indebtedness. - All loans, credits, goods, supplies, or other capital of whatsoever nature furnished by a parent, a subsidiary, an affiliate, or a noncorporate entity in which the corporation or an affiliated group of corporations owns directly or indirectly more than fifty percent (50%) of the capital interests of the noncorporate entity, other than indebtedness endorsed, guaranteed, or otherwise supported by one of these corporations.
6. Noncorporate entity. - A person that is neither a human being nor a corporation.
7. Parent. - A corporation is a parent of another corporation when, directly or indirectly, it controls the other corporation by stock ownership, interlocking directors, or by any other means whatsoever exercised by the same or associated financial interests, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
8. Subsidiary. - A corporation is a subsidiary of another corporation when, directly or indirectly, it is subject to control by the other corporation by stock ownership, interlocking directors, or by any other means whatsoever exercised by the same or associated financial interest, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
Repealed by Session Laws 2007-491, s. 2, effective January 1, 2008.
(Effective for taxable years beginning before January 1, 2020) Apportionment. - A corporation that is doing business in this State and in one or more other states must apportion its net worth to this State. A corporation must use the apportionment method set out in subdivision (1) of this subsection unless the Department has authorized it to use a different method under subdivision (2) of this subsection. The portion of a corporation's net worth determined by applying the appropriate apportionment method is considered the amount of net worth the corporation uses in its business in this State:
1. Statutory. - A corporation that is subject to income tax under Article 4 of this Chapter must apportion its net worth by using the fraction it applies in apportioning its income under that Article. A corporation that is not subject to income tax under Article 4 of this Chapter must apportion its net worth by using the fraction it would be required to apply in apportioning its income if it were subject to that Article. The apportionment method set out in this subdivision is considered the statutory method of apportionment and is presumed to be the best method of determining the amount of a corporation's net worth attributable to the corporation's business in this State.
2. Alternative. - A corporation that believes the statutory apportionment method set out in subdivision (1) of this subsection subjects a greater portion of its net worth to tax under this section than is attributable to its business in this State may make a written request to the Secretary for permission to use an alternative method. The request must set out the reasons for the corporation's belief and propose an alternative method. The corporation has the burden of establishing by clear, cogent, and convincing proof that the statutory apportionment method subjects a greater portion of the corporation's net worth to tax under this section than is attributable to its business in this State and that the proposed alternative method is a better method of determining the amount of the corporation's net worth attributable to the corporation's business in this State.
3. Repealed by Session Laws 2011-330, s. 5, effective June 27, 2011.
(Effective for taxable years beginning on or after January 1, 2020) Apportionment. - A corporation that is doing business in this State and in one or more other states must apportion its net worth to this State. A corporation must use the apportionment method set out in subdivision (1) of this subsection unless the Department has authorized it to use a different method under subdivision (2) of this subsection. A taxpayer that has made an election under G.S. 105-130.4(t3) must use the apportionment method set out in subdivision (1) of this subsection as if the election had not been made, unless the Department has authorized a different method under subdivision (2) of this subsection. The portion of a corporation's net worth determined by applying the appropriate apportionment method is considered the amount of net worth the corporation uses in its business in this State:
1. Statutory. - A corporation that is subject to income tax under Article 4 of this Chapter must apportion its net worth by using the fraction it applies in apportioning its income under that Article. A corporation that is not subject to income tax under Article 4 of this Chapter must apportion its net worth by using the fraction it would be required to apply in apportioning its income if it were subject to that Article. The apportionment method set out in this subdivision is considered the statutory method of apportionment and is presumed to be the best method of determining the amount of a corporation's net worth attributable to the corporation's business in this State.
2. Alternative. - A corporation that believes the statutory apportionment method set out in subdivision (1) of this subsection subjects a greater portion of its net worth to tax under this section than is attributable to its business in this State may make a written request to the Secretary for permission to use an alternative method. The request must set out the reasons for the corporation's belief and propose an alternative method. The corporation has the burden of establishing by clear, cogent, and convincing proof that the statutory apportionment method subjects a greater portion of the corporation's net worth to tax under this section than is attributable to its business in this State and that the proposed alternative method is a better method of determining the amount of the corporation's net worth attributable to the corporation's business in this State.
3. Repealed by Session Laws 2011-330, s. 5, effective June 27, 2011.
Tax Base. - A corporation's tax base is the greatest of the following:
1. The proportion of its net worth as set out in subsection (c1) of this section.
2. Fifty-five percent (55%) of the corporation's appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State. For purposes of this subdivision, the appraised value of tangible property, including real estate, is the ad valorem valuation for the calendar year next preceding the due date of the franchise tax return.
3. (Effective for taxable years beginning before January 1, 2020) The corporation's total actual investment in tangible property in this State. For purposes of this subdivision, the total actual investment in tangible property in this State is the total original purchase price or consideration to the reporting taxpayer of its tangible properties, including real estate, in this State plus additions and improvements thereto less reserve for depreciation as permitted for income tax purposes.
Repealed by Session Laws 2015-241, s. 32.15(c), effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.
(Effective for taxable years beginning before January 1, 2019) Tax Rate. - The tax rate is one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the corporation's tax base as determined under subsection (d) of this section. The tax imposed in this section shall not be less than two hundred dollars ($200.00).
(Effective for taxable years beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax returns) Tax Rate. - For a C Corporation, as defined in G.S. 105-130.2, [the] tax rate is one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the corporation's tax base as determined under subsection (d) of this section. For an S Corporation, as defined in G.S. 105-130.2, the tax rate is two hundred dollars ($200.00) for the first one million dollars ($1,000,000) of the corporation's tax base as determined under subsection (d) of this section and one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of its tax base that exceeds one million dollars ($1,000,000). In no event may the tax imposed by this section be less than two hundred dollars ($200.00).
Short Period. - Any corporation which changes its income year, and files a "short period" income tax return pursuant to G.S. 105-130.15 shall file a franchise tax return in accordance with the provisions of this section in the manner and as of the date specified in subsection (a) of this section. Such corporation shall be entitled to deduct from the total franchise tax computed (on an annual basis) on such return the amount of franchise tax previously paid which is applicable to the period subsequent to the beginning of the new income year.
Return and Tax. - The return and tax required by this section are in addition to all other reports required or taxes levied and assessed in this State.
Local Prohibition. - Counties, cities and towns shall not levy a franchise tax on corporations taxed under this section.
Repealed by Session Laws 1981 (Regular Session, 1982), c. 1211, s. 5.

(2) (Effective for taxable years beginning on or after January 1, 2021) An addition for the amount of indebtedness the corporation owes that creates net interest expense, as defined in G.S. 105-130.7B(b)(3), but does not create qualified interest expense, as defined in G.S. 105-130.7B(b)(4).

The Secretary must issue a written decision on a corporation's request for an alternative apportionment method. If the decision grants the request, it must describe the alternative method the corporation is authorized to use and state the tax years to which the alternative method applies. A decision may apply to no more than three tax years. A corporation may renew a request to use an alternative apportionment method by following the procedure in this subdivision. A decision of the Secretary on a request for an alternative apportionment method is final and is not subject to administrative or judicial review. A corporation authorized to use an alternative method may apportion its net worth in accordance with the alternative method or the statutory method.

(3) (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) The corporation's total actual investment in tangible property in this State. For purposes of this subdivision, the total actual investment in tangible property in this State is the total original purchase price or consideration to the reporting taxpayer of its tangible properties, including real estate, in this State plus additions and improvements thereto less (i) reserve for depreciation as permitted for income tax purposes and (ii) any indebtedness specifically incurred and existing solely for and as the result of the purchase of any real estate and any permanent improvements made on the real estate.

History

Section set out twice. - The section above is effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return. For the section as in effect for taxable years beginning before January 1, 2017, see the preceding section, also numbered G.S. 105-122.

Subdivision (b)(2) Set Out Twice. - The first version of subdivision (b)(2) set out above is effective until January 1, 2021. The second version of subsection (b)(2) set out above is effective January 1, 2021.

Subsection (c1) Set Out Twice. - The first version of subsection (c) set out above is effective for taxable years beginning before January 1, 2020. The second version of subsection (c) set out above is effective for taxable years beginning on or after January 1, 2020.

Subdivision (d)(3) Set Out Twice. - The first version of subdivision (d)(3) set out above is effective for taxable years beginning before January 1, 2020. The second version of subdivision (d)(3) set out above is 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.

Subsection (d2) Set Out Twice. - The first version of subsection (d2) set out above is effective for taxable years beginning before January 1, 2019. The second version of subsection (d2) set out above is effective for taxable years beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax returns.

Editor's Note. - The bracketed word "[the]" was inserted in the first sentence of subsection (d2) at the direction of the Revisor of Statutes.

Session Laws 1998-98, s. 1(i) provides: "This section repeals any law that would otherwise exempt savings and loan associations, as defined in G.S. 54B-4, from the franchise tax imposed in Article 3 of Chapter 105 of the General Statutes."

Session Laws 2007-491, s. 47 provide: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 [repealed] before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Session Laws 2007-491, s. 10, which rewrote subsection (a), was repealed by Session Laws 2008-134, s. 3(a), effective January 1, 2008.

Session Laws 2010-31, s. 31.9(b), provides: "A taxpayer that paid franchise tax in taxable years 2007, 2008, or 2009 and that included billings in excess of costs in its capital base may apply to the Department of Revenue for a refund of any excess tax paid to the extent the refund is the result of the change in the law enacted by this section. A request for a refund must be made on or before January 1, 2011. A request for refund received after that date is barred."

Session Laws 2010-31, s. 1.1, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2010'."

Session Laws 2010-31, s. 32.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2010-2011 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2010-2011 fiscal year."

Session Laws 2010-31, s. 32.6 is a severability clause.

Session Laws 2013-316, s. 4.2(a), as amended by Session Laws 2015-6, s. 2.4(b), provides: "The Utilities Commission must adjust the rate set for the following utilities:

Session Laws 2015-241, ss. 14.30(u) and 32.15(c) both amended this section in the coded bill drafting format provided by G.S. 120-20.1. Section 32.15(c) deleted language in subdivisions (b)(4) and (5) and subsection (d) without accounting for the substitution made by s. 14.30(u). Pursuant to the conforming authority provided in Session Laws 2015-241, s. 14.30(c), the word "Quality" has been deleted in subdivisions (b)(4) and (5) and subsection (d) at the direction of the Revisor of Statutes.

Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made the rewriting of this section by Session Laws 2015-241, s. 32.15(a), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2015-268, s. 10.1(i), as amended by Session Laws 2016-5, s. 1.7(b), made the amendments to subdivision (b)(1), by Session Laws 2015-268, s. 10.1(a), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2017-57, s. 38.6(b), made the rewriting of subsection (d2) by Session Laws 2017-57, s. 38.6(a), as amended by Session Laws 2017-204, s. 1.3(c), effective for taxable years beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax returns.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Session Laws 2017-204, s. 1.3(d), made the amendment to subdivision (d)(3) by Session Laws 2017-204, s. 1.3(b), 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.

Session Laws 2017-204, s. 7.1, is a severability clause.

Session Laws 2018-5, s. 38.2(j), made the amendment of subsection (b) of this section by Session Laws 2018-5, s. 38.2(b), effective beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax return.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2020-58, s. 5.1(b), made the rewriting of subdivision (b)(2) by Session Laws 2020-58, s. 5.1(a), 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.

Effect of Amendments. - Session Laws 2003-416, s. 5.(j), effective August 14, 2003, in the first sentence of the first paragraph of subdivision (c)(1), substituted "its capital stock" for "said capital stock," "apportionable" for "business," and "that Article" for "said Article"; in the second paragraph, substituted "Notwithstanding the foregoing, if" for "Provided, that although," "apportionable" for "business," and "this alternative formula" for "such alternative formula"; and in the last paragraph, deleted "Provided, further, that" preceding "a corporation."

Session Laws 2006-95, s. 1.1, effective for taxable years beginning on or after January 1, 2007, rewrote subsection (b).

Session Laws 2006-162, s. 2, effective July 24, 2006, rewrote subsection (d).

Session Laws 2007-491, ss. 2, 10 and 11, effective January 1, 2008, rewrote subsection (a), repealed subsection (c) and added subsection (c1). For applicability, see Editor's note.

Session Laws 2008-134, s. 3(b), effective for taxable years beginning on or after January 1, 2009, rewrote subsection (a).

Session Laws 2009-422, s. 1, as amended by Session Laws 2010-31, s. 31.9(a), effective retroactively for taxable years beginning on or after January 1, 2007, added subdivision (b)(1a).

Session Laws 2009-445, s. 2, effective August 7, 2009, designated the former last paragraph of subsection (b) as subsection (b1); and in subsection (b1), added the subsection heading, and substituted "subsection (b) of this section" for "this subsection" in the introductory language.

Session Laws 2010-89, s. 2(c), effective July 11, 2010, and applicable to requests for alternative apportionment formulas filed on or after that date, in the last paragraph in subdivision (c1)(2), added "unless the provisions of subdivision (3) of this subsection applies" at the end of the third sentence; and added subdivision (c1)(3).

Session Laws 2011-145, s. 31A.2(a), effective for taxable years beginning on or after January 1, 2007, inserted "and for amortization of intangible assets" in subdivision (b)(2).

Session Laws 2011-330, s. 5, effective June 27, 2011, repealed subdivision (c1)(3), which pertained to a 15-Year Alternative method of apportionment.

Session Laws 2012-79, s. 1.14(a), effective June 26, 2012, substituted "G.S. 105-130.2" for "G.S. 105-130.6" in subdivisions (b1)(1), (b1)(3), and (b1)(4).

Session Laws 2013-414, ss. 1(c) and 2(a), effective August 23, 2013, deleted "unless the provisions of subdivision (3) of this subsection applies" following "years" at the end of the third sentence in the second paragraph of subdivision (c1)(2); in subsection (d), substituted "subsection (c1)" for "subsection (c)," and "return is" for "report and statement are" in the first sentence, substituted "is for the privilege" for "shall be for the privilege" in the second sentence, substituted "a corporation may deduct" for "there shall also be deducted" in the fifth sentence, and substituted "section applies" for "section shall apply" in the last sentence; and, in subsection (f), substituted "return and tax required by this section are" for "report, statement and tax required by this section shall be".

Session Laws 2015-241, s. 14.30(u), effective July 1, 2015, substituted "Department of Environmental Quality" for "Department of Environment and Natural Resources" in subdivisions (b)(4) and (5) and subsection (d).

Session Laws 2015-241, s. 32.15(c), (d), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, rewrote the section. See editor's note for applicability.

Session Laws 2015-268, s. 10.1(a), as amended by Session Laws 2016-5, s. 1.7(b), effective for taxable years beginning on or after January 1, 2017, substituted "amortization as determined" for "amortization is determined" in subdivision (b)(1). See editor's note for applicability.

Session Laws 2017-39, s. 2, effective June 21, 2017, deleted the former second sentence of subsection (a), which read "The tax is determined on the basis of the books and records of the corporation as of the close of its income year"; and added "on the basis of the books and records of the corporation as the close of its income year" at the end of the first sentence of the introductory paragraph of subsection (b).

Session Laws 2017-57, s. 38.6(a), as amended by Session Laws 2017-204, s. 1.3(c), rewrote subsection (d2). For effective date and applicability, see editor's note.

Session Laws 2017-204, s. 1.3(a), effective August 11, 2017, added "for the privilege of doing business in this State and for the continuance of articles of incorporation or domestication of each corporation in this State" at the end of the first sentence of subsection (a); rewrote subsection (d); and added subsection (d2).

Session Laws 2017-204, s. 1.3(b), in subdivision (d)(3), inserted the clause (i) designation and added clause (ii). For effective date and applicability, see editor's note.

Session Laws 2018-5, s. 38.2(b), in subsection (b), in the introductory paragraph, deleted "so long as the method fairly reflects the corporation's net worth for purposes of the tax levied by this section" following "federal tax purposes" in third sentence; added subdivision (b)(1b); and deleted subdivision (b)(3), which read: "A corporation may deduct the cost of treasury stock." For effective date and applicability, see editor's note.

Session Laws 2019-246, s. 3(d), effective November 8, 2019, in subsection (c1), added the third sentence in the introductory language, and added the third sentence in subdivision (c1)(1).

Session Laws 2020-58, s. 5.1(a), rewrote subdivision (b)(2). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 5.2(b), effective for taxable years beginning on or after January 1, 2020, deleted the former third sentence of subdivision (c1)(1), as added by Session Laws 2019-246, s. 3(d), which read: "The apportionment fraction for a wholesale content distributor, as that term is defined in G.S. 105-130.4A, shall not be less than two percent (2%)."

Legal Periodicals. - For brief comment on the 1953 amendment, see 31 N.C.L. Rev. 435, 441 (1953).

CASE NOTES

Purpose of Section. - The purpose of this section is to levy a tax upon going corporations for the privilege of doing business in this State. Broadwell Realty Corp. v. Coble, 30 N.C. App. 261, 226 S.E.2d 869 (1976), rev'd on other grounds, 291 N.C. 608, 231 S.E.2d 656 (1977).

Power of Legislature. - It is within the legislative power of taxation, in respect to corporations, to levy any two or more of the following taxes simultaneously: (1) on the franchise (including corporate dividends); (2) on the capital stock; (3) on the tangible property of the corporation; and (4) on the shares of the capital stock in the hands of the stockholders. The tax on the two subjects last named is imperative. Board of Comm'rs v. Blackwell Durham Tobacco Co., 116 N.C. 441, 21 S.E. 423 (1895).

Foreign corporations do business here by comity of the State, and the latter may impose a license tax as a condition upon which such corporations may do business here under the protection of our laws, where such is not an interference with interstate commerce, or the tax is not otherwise invalid. Pittsburgh Life & Trust Co. v. Young, 172 N.C. 470, 90 S.E. 568 (1916).

Tax Is on Privilege of Existence. - By the express terms of Laws 1931, c. 427, s. 210, which was superseded by this section, the corporation was liable for the annual franchise tax for each year during which it enjoyed the privilege of the continuance of its charter. It was immaterial whether or not the corporation exercised its privilege of doing or carrying on the business authorized by its charter or certificate of incorporation; it was liable so long as it enjoyed the privilege granted by the State of "being" a corporation. Stagg v. George E. Nissen Co., 208 N.C. 285, 180 S.E. 658 (1935).

Manner of Assessment of Tax by Secretary. - This section does not require that the Secretary use generally accepted accounting principles in making his determination of the franchise tax. Broadwell Realty Corp. v. Coble, 291 N.C. 608, 231 S.E.2d 656 (1977).

The portion of this section in subsection (a) which states that the tax shall be computed from the "books and records of the corporation" is not a requirement that the Secretary follow the categorizations placed upon the information contained in the books and records. Rather, this section authorizes the Secretary to require such facts and information as is deemed necessary to comply with his duty to assess the franchise tax in accordance with the statute. Broadwell Realty Corp. v. Coble, 291 N.C. 608, 231 S.E.2d 656 (1977).

Subsection (b) clearly does not permit a deduction for future income taxes from the franchise tax base. Broadwell Realty Corp. v. Coble, 291 N.C. 608, 231 S.E.2d 656 (1977)(Decided prior to 2006 amendments).

The plaintiff corporation, having voluntarily elected the installment method of accounting for income tax purposes, may not deduct deferred, potential State and federal income tax liabilities from its franchise tax base under subsection (b) as either "definite and accrued legal liabilities" or "accrued taxes." Broadwell Realty Corp. v. Coble, 291 N.C. 608, 231 S.E.2d 656 (1977)(Decided prior to 2006 amendments).

Corporation Not Relieved of License Tax on Carrying on of Particular Business. - The franchise tax imposed upon every corporation doing business in the State is a tax upon the privilege of being a corporation, and its payment does not relieve it, or its lessee, from the payment of a tax imposed upon the privilege of carrying on the particular kind of business for which the corporation was chartered. Cobb v. Commissioners of Durham County, 122 N.C. 307, 30 S.E. 338 (1898).

Effect of Business Corporation Act (now North Carolina Business Corporation Act) on Section. - It is illogical to assume that the legislature intended by the Business Corporation Act (now North Carolina Business Corporation Act), Chapter 55, to void regulations permitting computation of taxes on the cash receipt basis and thereby outlaw that method of accounting, or to invalidate an accepted method of determining capital and surplus for franchise tax returns required by this section. Watson v. Watson Seed Farms, Inc., 253 N.C. 238, 116 S.E.2d 716 (1961)(Decided prior to 2006 amendments).

Textile finishing plant engaged in processing by mechanical and chemical means, for a fee on a contractual basis, unfinished textile goods owned by others into finished textile goods with qualities and characteristics different from those of the unfinished material is engaged in manufacturing within the purview of this section for the purpose of computing its franchise tax liability. Sayles Biltmore Bleacheries, Inc. v. Johnson, 266 N.C. 692, 147 S.E.2d 177 (1966).

Tax on Royalty Payments Paid to Out-of-State Trademark Holder. - North Carolina Secretary of Revenue did not exceed his authority in imposing franchise and income taxes on out-of-state trademark holding companies that entered into licensing agreements with related retail companies that operated in North Carolina, whereby the retail companies paid the holding companies royalties for the use of the trademarks in North Carolina; the holding companies were doing business in North Carolina, and the Secretary's attempt to assess the taxes did not offend the Commerce Clause of the United States Constitution. A&F Trademark, Inc. v. Tolson, 167 N.C. App. 150, 605 S.E.2d 187 (2004), appeal dismissed, 359 N.C. 320, - S.E.2d - (2005), cert. denied, - U.S. - , 126 S. Ct. 353, 163 L. Ed. 2d 62 (2005).

Cited in Duke Power Co. v. Bowles, 229 N.C. 143, 48 S.E.2d 287 (1948); In re Vanderbilt Univ., 252 N.C. 743, 114 S.E.2d 655 (1960); Southern Bell Tel. & Tel. Co. v. Clayton, 266 N.C. 687, 147 S.E.2d 195 (1966); Four County Elec. Membership Corp. v. Powers, 96 N.C. App. 417, 386 S.E.2d 107 (1989); In re Cent. Tel. Co., 167 N.C. App. 14, 604 S.E.2d 680 (2004), appeal dismissed, cert. denied, 359 N.C. 281, 610 S.E.2d 203 (2005); Midrex Techs. v. N.C. Dep't of Revenue, 369 N.C. 250, 794 S.E.2d 785 (2016).

Opinions of Attorney General

Equity Capital of Wholly-Owned Subsidiary Not "Indebtedness" That Parent Corporation May Deduct from Franchise Tax Base. - See opinion of Attorney General to Mr. W.B. Matthews, North Carolina Revenue Department, 41 N.C.A.G. 332 (1971).

§ 105-122.1. Credit for additional annual report fees paid by limited liability companies subject to franchise tax.

A limited liability company subject to tax under this Article is allowed a credit against the tax imposed by this Article equal to the difference between the annual report fee for corporations under G.S. 55-1-22(a)(23) and the annual report fee for limited liability companies under G.S. 57D-1-22. The credit allowed by this section may not exceed the amount of tax imposed by this Article for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.

History

(2006-66, s. 24A.2(c); 2007-323, s. 30.6(b); 2013-157, s. 26.)

Editor's Note. - Session Laws 2006-66, s. 1.2, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2006'."

Session Laws 2006-66, s. 28.6 is a severability clause.

Session Laws 2006-66, s. 24A.2(d), makes this section effective for taxable years beginning on or after January 1, 2007.

Effect of Amendments. - Session Laws 2007-323, s. 30.6(b), effective July 1, 2007, and effective for taxable years beginning on or after January 1, 2007, inserted "(a)(23)" following "G.S. 55-1-22" in the middle of the first sentence.

Session Laws 2013-157, s. 26, effective January 1, 2014, substituted "G.S. 57D-1-22" for "G.S. 57C-1-22(a)" at the end of the first sentence.

§ 105-123: Repealed by Session Laws 1991, c. 30, s. 1.

§ 105-124: Repealed by Session Laws 1959, c. 1259, s. 9.

§ 105-125. Exempt corporations.

Exemptions. - The following corporations are exempt from the taxes levied by this Article. Upon request of the Secretary, an exempt corporation must establish its claim for exemption in writing:
1. A charitable, religious, fraternal, benevolent, scientific, or educational corporation not operated for profit.
2. An insurance company subject to tax under Article 8B of this Chapter.
3. A mutual ditch or irrigation association, a mutual or cooperative telephone association or company, a mutual canning association, a cooperative breeding association, or a similar corporation of a purely local character deriving receipts solely from assessments, dues, or fees collected from members for the sole purpose of meeting expenses.
4. A cooperative marketing association that operates solely for the purpose of marketing the products of members or other farmers and returns to the members and farmers the proceeds of sales, less the association's necessary operating expenses, including interest and dividends on capital stock, on the basis of the quantity of product furnished by them. The association's operations may include activities directly related to these marketing activities.
5. A production credit association organized under the federal Farm Credit Act of 1933.
6. A club organized and operated exclusively for pleasure, recreation, or other nonprofit purposes, a civic league operated exclusively for the promotion of social welfare, a business league, or a board of trade.
7. A chamber of commerce or merchants' association not organized for profit, no part of the net earnings of which inures to the benefit of a private stockholder, an individual, or another corporation.
8. An organization, such as a condominium association, a homeowners' association, or a cooperative housing corporation not organized for profit, the membership of which is limited to the owners or occupants of residential units in the condominium, housing development, or cooperative housing corporation. To qualify for the exemption, the organization must be operated exclusively for the management, operation, preservation, maintenance, or landscaping of the residential units owned by the organization or its members or of the common areas and facilities that are contiguous to the residential units and owned by the organization or by its members. To qualify for the exemption, no part of the net earnings of the organization may inure, other than through the performance of related services for the members of the organization, to the benefit of any person.
9. Except as otherwise provided by law, an organization exempt from federal income tax under the Code.
(Effective for taxable years beginning before January 1, 2017) Certain Investment Companies. - A corporation doing business in North Carolina that meets one or more of the following conditions may, in determining its capital stock, surplus, and undivided profits base for franchise tax, deduct the aggregate market value of its investments in the stocks, bonds, debentures, or other securities or evidences of debt of other corporations, partnerships, individuals, municipalities, governmental agencies, or governments:
1. A regulated investment company. - A regulated investment company is an entity that qualifies as a regulated investment company under section 851 of the Code.
2. A REIT, unless the REIT is a captive REIT. - The terms "REIT" and "captive REIT" have the same meanings as defined in G.S. 105-130.12.
(Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Certain Investment Companies. - A corporation doing business in North Carolina that meets one or more of the following conditions may, in determining its net worth base for franchise tax, deduct the aggregate market value of its investments in the stocks, bonds, debentures, or other securities or evidences of debt of other corporations, partnerships, individuals, municipalities, governmental agencies, or governments:
1. A regulated investment company. - A regulated investment company is an entity that qualifies as a regulated investment company under section 851 of the Code.
2. A REIT, unless the REIT is a captive REIT. - The terms "REIT" and "captive REIT" have the same meanings as defined in G.S. 105-130.12.

Provided, that an entity that qualifies as a real estate mortgage investment conduit, as defined in section 860D of the Code, is exempt from all of the taxes levied in this Article. Upon request by the Secretary of Revenue, a real estate mortgage investment conduit must establish in writing its qualification for this exemption.

History

(1939, c. 158, s. 213; 1951, c. 937, s. 3; 1955, c. 1313, s. 1; 1957, c. 1340, s. 3; 1963, c. 601, s. 3; c. 1169, s. 1; 1967, c. 1110, s. 2; 1971, c. 820, s. 3; c. 833, s. 1; 1973, c. 476, s. 193; c. 1053, s. 2; c. 1287, s. 3; 1975, c. 591, s. 1; 1983, c. 28, s. 2; c. 713, s. 67; 1985 (Reg. Sess., 1986), c. 826, s. 4; 1991, c. 30, s. 6; 1993, c. 485, s. 4; c. 494, s. 1; 2008-107, s. 28.7(c); 2011-330, s. 8; 2015-241, s. 32.15(f); 2016-5, s. 1.7(a).)

Subsection (b) Set Out Twice. - The first version of subsection (b) set out above is effective for taxable years beginning before January 1, 2017. The second version of subsection (b) set out above is effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Editor's Note. - Session Laws 1993, c. 494, s. 1, added the proviso at the end of subsection (a). The amendment, however, was made to the version of the section in effect before its complete revision by Session Laws 1993, c. 485, s. 4. This section has been set out in the form above at the direction of the Revisor of Statutes.

Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made the amendments to subsection (b) by Session Laws 2015-241, s. 32.15(f), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Effect of Amendments. - Session Laws 2008-107, s. 28.7(c), effective for taxable years beginning on or after January 1, 2009, rewrote subsection (b).

Session Laws 2011-330, s. 8, effective June 27, 2011, substituted "determining its capital stock, surplus, and undivided profits base for franchise tax" for "determining its basis for franchise tax" in the introductory paragraph of subsection (b).

Session Laws 2015-241, s. 32.15(f), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, substituted "net worth base" for "capital stock, surplus, and undivided profits base" in the introductory paragraph of subsection (b). See editor's note for applicability.

§ 105-126: Repealed by Session Laws 1959, c. 1259, s. 9.

§ 105-127. When franchise or privilege taxes payable.

Every corporation, domestic or foreign, that is required to file a return with the Secretary shall, unless otherwise provided, pay annually the franchise tax as required by G.S. 105-122.
Repealed by Session Laws 1998-98, s. 78, effective August 14, 1998.
It shall be the duty of the treasurer or other officer having charge of any such corporation, domestic or foreign, upon which a tax is herein imposed, to transmit the amount of the tax due to the Secretary of Revenue within the time provided by law for payment of same.
, (e) Repealed by Session Laws 2002-72, s. 11, effective August 12, 2002.
After the end of the income year in which a domestic corporation is dissolved pursuant to Part 1 of Article 14 of Chapter 55 of the General Statutes, the corporation is no longer subject to the tax levied in this Article unless the Secretary of Revenue finds that the corporation has engaged in business activities in this State not appropriate to winding up and liquidating its business and affairs.

History

(1939, c. 158, s. 215; 1973, c. 476, s. 193; 1991, c. 30, s. 7; 1993, c. 485, s. 6; 1998-98, s. 78; 2002-72, s. 11; 2011-330, s. 9; 2013-414, s. 1(d).)

Effect of Amendments. - Session Laws 2011-330, s. 9, effective June 27, 2011, inserted "Part 1 of" in subsection (f).

Session Laws 2013-414, s. 1(d), effective August 23, 2013, rewrote subsection (a), which formerly read "Every corporation, domestic or foreign, from which a report is required by law to be made to the Secretary of Revenue, shall, unless otherwise provided, pay to said Secretary annually the franchise tax as required by G.S. 105-122."

§ 105-128: Recodified as G.S. 105-258.3 by Session Laws 2019-169, s. 6.6(a).

Editor's Note. - This section was recodified as G.S. 105-258.3 by Session Laws 2019-169, s. 6.6(a).

§ 105-129. Extension of time for filing returns.

A return required by this Article is due on or before the date set in this Article. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105-263.

History

(1939, c. 158, s. 216; 1955, c. 1350, s. 17; 1959, c. 1259, s. 9; 1973, c. 476, s. 193; 1977, c. 1114, s. 6; 1989 (Reg. Sess., 1990), c. 984, s. 7; 1997-300, s. 2.)

CASE NOTES

Cited in State v. Stimson, 246 N.C. App. 708, 783 S.E.2d 749 (2016).

§ 105-129.1: Repealed by Session Laws 1989, c. 582, s. 1.

ARTICLE 3A. Tax Incentives for New and Expanding Businesses.

§§ 105-129.2 through 105-129.13: Repealed effective for business activities occurring on or after January 1, 2007.

History

(§ 105-129.2: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-360, ss. 1, 2; 2000-56, ss. 5(a), 5(b); 2000-173, s. 1(a); 2001-476, s. 1(a), (b); 2002-172, s. 1.5; 2003-416, s. 2; 2003-435, 2nd Ex. Sess., s. 3.1; 2004-170, s. 9; 2006-66, s. 24.16(b); 2010-166, s. 3.2; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.2A: 1997-277, s. 4; 1999-360, s. 18.1; 2000-173, ss. 1(b), 1(c); 2001-476, s. 2(a); 2002-146, s. 2; 2003-435, 2nd Ex. Sess., s. 3.2; 2005-241, ss. 1(a), 1(b); 2006-168, s. 2.1; 2006-252, s. 1.3; 2007-515, ss. 4, 5; 2008-134, s. 69; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.3: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-360, ss. 1, 2; 1999-456, s. 64; 2000-73, s. 1; 2001-94, s. 1; 2001-476, s. 3(a); 2004-202, s. 10; 2004-203, s. 5(e); 2005-241, ss. 4, 6; 2005-406, s. 1; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.3A: 1998-55, s. 1; 1999-360, ss. 1, 2; 2001-414, s. 6; 2001-476, s. 4(a); 2002-172, s. 1.4; 2003-416, s. 2; 2004-203, s. 5(f); 2006-66, s. 24.5(a); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.3B: 2006-66, s. 24.16(a); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.4: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, ss. 1, 2; 1998-55, s. 1; 1999-305, s. 3; 1999-360, ss. 1, 2; 1999-369, s. 5.2; 2000-56, ss. 5(c), 6, 8(c); 2000-140, ss. 92.A(a),(b); 2001-414, s. 7; 2001-476, ss. 5(a), 6(a); 2002-72, s. 12; 2002-146, ss. 3, 4; 2002-172, ss. 1.2, 1.3(b); 2003-349, s. 8.1; 2003-416, s. 2; 2003-435, 2nd Ex. Sess., ss. 3.3, 3.4; 2004-170, ss. 10, 11; 2004-204, 1st Ex. Sess., s. 2; 2005-241, s. 2; 2006-66, s. 24.14(a); 2007-491, s. 44(1)a; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.5: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-305, s. 4; 1999-360, ss. 1, 2; 2000-56, s. 2; 2001-476, s. 7(b); 2002-146, s. 5; 2003-435, 2nd Ex. Sess., s. 3.5; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.6: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-360, ss. 1, 2; 2000-56, s. 1(a); 2001-476, s. 8(a); 2001-487, s. 123; 2004-170, s. 12; 2004-203, s. 40; 2005-429, s. 2.2; 2006-66, s. 24.16(c); 2010-166, s. 1.1; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.7: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1999-360, ss. 1, 2; 2000-56, s. 5(d); 2001-476, s. 9(a); 2006-66, s. 24.16(d); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.8: 1987, c. 568, ss. 1, 2; 1989, c. 111, ss. 1, 2; c. 751, ss. 7(6), 7(7), 8(10), 8(11); c. 753, s. 4.1(a)-(d); 1989 (Reg. Sess., 1990), c. 814, s. 14; 1991, c. 517, ss. 1-3; 1991 (Reg. Sess., 1992), c. 959, ss. 20, 21; 1993, c. 45, ss. 1, 2; c. 485, ss. 7, 11; 1995, c. 370, ss. 5, 6; 1996, 2nd Ex. Sess., c. 13, ss. 3.2-3.4; 1997-277, s. 1; 1998-55, s. 1; 1999-360, s. 1; 2000-56, s. 8(a); 2000-140, s. 92.A(b); 2001-414, s. 8; 2002-146, s. 6; 2003-435, 2nd Ex. Sess., s. 3.6; 2004-170, s. 43(a); 2005-435, s. 28; 2006-66, s. 24.16(e); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.9: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-305, s. 1; 1999-360, ss. 1, 2; 2000-56, s. 8(b); 2000-140, s. 92.A(b); 2000-173, s. 1(a); 2001-476, s. 10(a); 2002-146, s. 7; 2002-172, s. 1.1; 2003-416, s. 2; 2003-435, 2nd Ex. Sess., s. 3.7; 2004-170, s. 13; 2006-66, s. 24.16(f); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.9A: 1999-305, s. 2; 2001-476, s. 11(a); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.10: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, § 1; 1998-55, s. 1; 1999-360, ss. 1, 2; 2000-173, s. 1(a); 2004-124, s. 32D.1; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.11: 1996, 2nd Ex. Sess., c. 13, s. 3.3; 1997-277, s. 1; 1998-55, s. 1; 1999-360, s. 1; 2000-173, s. 1(a); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.12: 1997-277, s. 1; 1998-55, s. 1; 1999-360, s. 1; 2000-56, s. 5(e); 2001-476, s. 12(a); repealed effective for business activities occurring on or after January 1, 2007. § 105-129.12A: 2001-476, s. 13(a); 2002-72, s. 13; repealed effective for business activities occurring on or after January 1, 2007. § 105-129.13: 1999-360, ss. 1, 2; 2000-56, s. 1(b); 2001-414, s. 9; 2001-476, s. 14(a).)

Editor's Note. - Former G.S. 105-129.2 pertained to definitions for this Article relating to tax incentives for new and expanding businesses. Former G.S. 105-129.2A pertained to the sunset provisions and studies. Former G.S. 105-129.3 pertained to enterprise tier designation. Former G.S. 105-129.3A pertained to development zone designation. Former G.S. 105-129.3B pertained to agrarian growth zone designation. Former G.S. 105-129.4 pertained to eligibility and forfeiture. Former G.S. 105-129.5 pertained to tax election, cap, carryforwards, and limitations. Former G.S. 105-129.6 pertained to fees and reports. Former G.S. 105-129.7 pertained to substantiation. Former G.S. 105-129.8 pertained to credit for creating jobs. Former G.S. 105-129.9 pertained to credit for investing in machinery and equipment. Former G.S. 105-129.9A pertained to technology commercialization credit. Former G.S. 105-129.10 pertained to credit for research and development. Former G.S. 105-129.11 pertained to credit for worker training. Former G.S. 105-129.12 pertained to credit for investing in central office or aircraft facility property. Former G.S. 105-129.12A pertained to credit for substantial investment in other property. Former G.S. 105-129.13 pertained to credit for development zone projects.

Session Laws 2011-302, s. 11, effective for taxable years beginning on or after January 1, 2009, amended former G.S. 105-129.12A in the first paragraph of subsection (c), in the last sentence, by deleting "If " from the beginning, and inserting "if (i)" and "and (ii) the taxpayer has failed to maintain at least 125 employees at the property and, within two years of the date the employment fell below 200, to invest at the property the greater of five million dollars ($5,000,000) or at least twice the value of the remaining installments of the credit." However, due to the repeal of this Article pursuant to the sunset provision in former G.S. 105-129.2A(a), effective for business activities occurring on or after January 1, 2007, the amendment has not been given effect.

Session Laws 2011-401, s. 3.8, effective November 1, 2011, amended former G.S. 105-129.4 by substituting "Division of Employment Security" for "Employment Security Commission" in the last paragraph of subsection (b). However, due to the repeal of this Article pursuant to the sunset provision in former G.S. 105-129.2A(a), effective for business activities occurring on or after January 1, 2007, the amendment has not been given effect.

§ 105-129.14: Reserved for future codification purposes.

ARTICLE 3B. Business and Energy Tax Credits.

Sec.

§ 105-129.15. Definitions.

The following definitions apply in this Article:

Business property. - Tangible personal property that is used by the taxpayer in connection with a business or for the production of income and is capitalized by the taxpayer for tax purposes under the Code. The term does not include, however, a luxury passenger automobile taxable under section 4001 of the Code or a watercraft used principally for entertainment and pleasure outings for which no admission is charged.
Cost. - In the case of property owned by the taxpayer, cost is determined pursuant to regulations adopted under section 1012 of the Code, subject to the limitation on cost provided in section 179 of the Code. In the case of property the taxpayer leases from another, cost is value as determined pursuant to G.S. 105-130.4(j)(2), unless the property is renewable energy property for which the taxpayer claims either a federal energy credit under section 48 of the Code or a federal grant in lieu of that credit and makes a lease pass-through election under the Code. In this circumstance, the cost of the leased renewable energy property is the cost determined under the Code.
Recodified as G.S. 105-129.15(5).
Hydroelectric generator. - A machine that produces electricity by water power or by the friction of water or steam.
Repealed by Session Laws 2002-87, s. 3, effective August 22, 2002.
Installation of renewable energy property. - Renewable energy property that, standing alone or in combination with other machinery, equipment, or real property, is able to produce usable energy on its own.
Purchase. - Defined in section 179 of the Code.
Renewable biomass resources. - Organic matter produced by terrestrial and aquatic plants and animals, such as standing vegetation, aquatic crops, forestry and agricultural residues, spent pulping liquor, landfill wastes, and animal wastes.
Renewable energy property. - Any of the following machinery and equipment or real property:
1. Biomass equipment that uses renewable biomass resources for biofuel production of ethanol, methanol, and biodiesel; anaerobic biogas production of methane utilizing agricultural and animal waste or garbage; or commercial thermal or electrical generation. The term also includes related devices for converting, conditioning, and storing the liquid fuels, gas, and electricity produced with biomass equipment.
2. Combined heat and power system property. - Defined in section 48 of the Code.
3. Geothermal equipment that meets either of the following descriptions:
  1. It is a heat pump that uses the ground or groundwater as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure.
  2. It uses the internal heat of the earth as a substitute for traditional energy for water heating or active space heating or cooling.
4. Hydroelectric generators located at existing dams or in free-flowing waterways, and related devices for water supply and control, and converting, conditioning, and storing the electricity generated.
5. Solar energy equipment that uses solar radiation as a substitute for traditional energy for water heating, active space heating and cooling, passive heating, daylighting, generating electricity, distillation, desalination, detoxification, or the production of industrial or commercial process heat. The term also includes related devices necessary for collecting, storing, exchanging, conditioning, or converting solar energy to other useful forms of energy.
6. Wind equipment required to capture and convert wind energy into electricity or mechanical power, and related devices for converting, conditioning, and storing the electricity produced or relaying the electricity by cable from the turbine motor to the power grid.
Renewable fuel. - Either of the following:
1. Biodiesel, as defined in G.S. 105-449.60.
2. Ethanol either unmixed or in mixtures with gasoline that are seventy percent (70%) or more ethanol by volume.

History

(1996, 2nd Ex. Sess., c. 13, s. 3.12; 1997-277, s. 3; 1998-55, s. 2; 1999-342, s. 2; 1999-360, s. 1; 2000-173, s. 1(a); 2001-431, s. 1; 2002-87, s. 3; 2004-153, s. 1; 2005-413, s. 4; 2006-162, s. 23; 2009-548, s. 1; 2010-167, s. 2(a).)

Editor's Note. - Session Laws 2000-173, s. 1(a) amended Session Laws 1996, Second Extra Session, c. 13, s. 10.2(3), as amended by Session Laws 1999-360, s. 1, to provide for repeal of this Article as provided within the Article. G.S. 105-129.15A, the sunset provision for Article 3B of Chapter 105, was subsequently repealed by Session Laws 2005-413, s. 6.

Session Laws 1999-342, s. 2 amended the heading of Article 3B to read "Business and Energy Tax Credits." Session Laws 1999-360, s. 10 amended the heading to read "Business Tax Credits." The article heading is set out as amended by Session Laws 1999-342, s. 2 at the direction of the Revisor of Statutes.

Subdivisions (4) to (7) were designated as such by the Revisor of Statutes, the designation in Session Laws 1999-342, s. 2 having been subdivisions (3) to (6).

Effect of Amendments. - Session Laws 2004-153, s. 1, effective for taxable years beginning on or after January 1, 2005, added subdivision (8).

Session Laws 2005-413, s. 4, as amended by Session Laws 2006-162, s. 23, effective for taxable years beginning on or after January 1, 2006, inserted "spent pulping liquor" preceding "landfill wastes" in subdivision (6); and deleted "from renewable energy crops or wood waste materials" from the end of the first sentence in subdivision (7)a.

Session Laws 2009-548, s. 1, effective for taxable years beginning on or after January 1, 2009, added subdivisions (7)e. and f.

Session Laws 2010-167, s. 2(a), effective for taxable years beginning on or after January 1, 2010, in subdivision (2), in the second sentence, added "unless the property is renewable energy property for which the taxpayer claims either a federal energy credit under section 48 of the Code or a federal grant in lieu of that credit and makes a lease pass-through election under the Code" at the end, and added the last sentence; added subdivision (4b); added sub-subdivisions (7)b. and (7)c., and redesignated former sub-subdivisions (7)b. through (7)d. as sub-subdivisions (7)d. through (7)f., respectively; in sub-subdivision (7)f., added "or relaying the electricity by cable from the turbine motor to the power grid" at the end; and deleted former sub-subdivisions (7)e. and (7)f., which pertained to geothermal heat pumps and equipment.

CASE NOTES

Solar Heating System. - In a taxation dispute, an argument that a taxpayer's solar heating system did not qualify as such because it created hot water for industrial processes and did not provide heating or cooling for a facility's employees or officers in bathrooms, kitchens, or other interior areas of the facility was rejected. The North Carolina's Tax Code took an expansive view of what constituted a solar heating or cooling system. In re Appeal of: FLS Owner II, LLC, 244 N.C. App. 611, 781 S.E.2d 300 (2016).

§§ 105-129.15A, 105-129.16: Repealed by Session Laws 2005-413, ss. 6 and 7, effective September 20, 2005.

§ 105-129.16A. (See subsections (e) through (h) for sunset provisions) Credit for investing in renewable energy property.

Credit. - A taxpayer that has constructed, purchased, or leased renewable energy property is allowed a credit equal to thirty-five percent (35%) of the cost of the property if the property is placed in service in this State during the taxable year. In the case of renewable energy property that serves a nonbusiness purpose, the credit must be taken for the taxable year in which the property is placed in service. For all other renewable energy property, the entire credit may not be taken for the taxable year in which the property is placed in service but must be taken in five equal installments beginning with the taxable year in which the property is placed in service. Upon request of a taxpayer that leases renewable energy property, the lessor of the property must give the taxpayer a statement that describes the renewable energy property and states the cost of the property. No credit is allowed under this section to the extent the cost of the renewable energy property was provided by public funds. For the purposes of this section, "public funds" does not include grants made under section 1603 of the American Recovery and Reinvestment Tax Act of 2009.
Expiration. - If, in one of the years in which the installment of a credit accrues, the renewable energy property with respect to which the credit was claimed is disposed of, taken out of service, or moved out of State, the credit expires and the taxpayer may not take any remaining installment of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17.
Ceilings. - The credit allowed by this section may not exceed the applicable ceilings provided in this subsection.
1. Business. - A ceiling of two million five hundred thousand dollars ($2,500,000) applies to each installation of renewable energy property placed in service for a business purpose. Renewable energy property is placed in service for a business purpose if the useful energy generated by the property is offered for sale or is used on-site for a purpose other than providing energy to a residence.
2. Nonbusiness. - The following ceilings apply to renewable energy property placed in service for a nonbusiness purpose:
  1. One thousand four hundred dollars ($1,400) per dwelling unit for solar energy equipment for domestic water heating, including pool heating.
  2. Three thousand five hundred dollars ($3,500) per dwelling unit for solar energy equipment for active space heating, combined active space and domestic hot water systems, and passive space heating.
  3. Eight thousand four hundred dollars ($8,400) for each installation of geothermal equipment.
  4. Ten thousand five hundred dollars ($10,500) for each installation of any other renewable energy property.
3. Eco-Industrial Park. - A ceiling of five million dollars ($5,000,000) applies to each installation of renewable energy property placed in service at an Eco-Industrial Park certified under G.S. 143B-437.08 for a business purpose described in subdivision (1) of this subsection.
No Double Credit. - A taxpayer that claims any other credit allowed under this Chapter with respect to renewable energy property may not take the credit allowed in this section with respect to the same property. A taxpayer may not take the credit allowed in this section for renewable energy property the taxpayer leases from another unless the taxpayer obtains the lessor's written certification that the lessor will not claim a credit under this Chapter with respect to the property.
Sunset. - Except for taxpayers covered by subsection (f) of this section, this section is repealed effective for renewable energy property placed into service on or after January 1, 2016.
Delayed Sunset. - This section is repealed effective for renewable energy property placed in service on or after January 1, 2017, except as provided in subsection (g) of this section.
Alternate Delayed Sunset. - This section is repealed effective for renewable energy property utilizing renewable biomass resources placed in service on or after May 5, 2017.
Delayed Sunset Conditions. - A taxpayer is eligible for the delayed sunset provided by subsection (f) or (g) of this section if the taxpayer makes a timely application for the extension, pays the application fee, and meets both of the following conditions on or before January 1, 2016: (i) incurred at least the minimum percentage of costs of the project and (ii) completed at least the minimum percentage of the physical construction of the project. For a project with a total size of less than 65 megawatts of direct current capacity, the minimum percentage of incurred costs and partial construction is at least eighty percent (80%). For a project with a total size of 65 megawatts or more of direct current capacity, the minimum percentage of incurred costs and partial construction is at least fifty percent (50%).
1. A written certification signed by the taxpayer that, prior to January 1, 2016, at least the minimum percentage of the physical construction of the project was completed and that at least the minimum percentage of the total cost of the project was incurred.
2. A notarized copy of a written report prepared by an independent engineer duly licensed in the State of North Carolina with expertise in the design and construction of installations of renewable energy property stating that at least the minimum percentage of the physical construction of the project was completed prior to January 1, 2016.
3. A notarized copy of a written report prepared by a certified public accountant duly licensed to practice in the State of North Carolina with expertise in accounting for and taxation of renewable energy property and that was prepared in accordance with AT Section 201 of the American Institute of Certified Public Accountants Standards for Agreed-Upon Procedures Engagements stating that the minimum percentage of the total cost of the project was paid or incurred as determined under Section 461 and other relevant sections of the Code prior to January 1, 2016.

An application and payment must be filed with the Secretary on or before October 1, 2015. The application must include the location of the project, an estimate of the total cost of the project, the total anticipated credit to be claimed, and the total size in megawatt capacity of each project proposed or under construction. The nonrefundable fee to be paid with the application is one thousand dollars ($1,000) per megawatt of capacity, with a minimum fee of five thousand dollars ($5,000).

A taxpayer must provide the documentation required under this subsection to the Department on or before March 1, 2016, to verify that the taxpayer meets the minimum percentage of incurred costs and partial construction required to be eligible for the sunset extension:

History

(1999-342, s. 2; 2005-413, s. 5; 2009-548, s. 2; 2010-4, s. 1; 2010-147, s. 5.4; 2010-167, s. 2(b); 2015-6, s. 2.6; 2015-11, s. 1; 2015-264, s. 54.3; 2017-57, s. 38.13.)

Editor's Note. - Subsections (f1) and (g), as designated by Session Laws 2017-57, s. 38.13, were redesignated as subsections (g) and (h), respectively, at the direction of the Revisor of Statutes. In conformity with this change, "subsection (g)" was substituted for "subsection (f1)" in subsection (f) and "subsection (f) or (g)" was substituted for "subsection (f) or (f1)" near the beginning of subsection (h).

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Effect of Amendments. - Session Laws 2005-413, s. 5, effective for taxable years beginning on or after January 1, 2006, substituted "two million five hundred thousand dollars ($2,500,000)" for "two hundred fifty thousand dollars ($250,000)" in subdivision (c)(1); added "including pool heating" to the end of subdivision (c)(2)a.; added subsection (e); and made a minor punctuation change.

Session Laws 2009-548, s. 2, effective for taxable years beginning on or after January 1, 2009, added subdivision (c)(2)d.; and substituted "January 1, 2016" for "January 1, 2011" at the end of subsection (e).

Session Laws 2010-4, s. 1, effective January 1, 2009, and applicable to renewable energy property placed into service on that date, added the last two sentences of subsection (a); and deleted the former last sentence of subsection (b), which read: "No credit is allowed under this section to the extent the cost of the renewable energy property was provided by public funds."

Session Laws 2010-147, s. 5.4, effective for taxable years beginning on or after January 1, 2011, added subdivision (c)(3).

Session Laws 2010-167, s. 2(b), effective for taxable years beginning on or after January 1, 2010, in subsection (a), in the second sentence, substituted "that serves a nonbusiness purpose" for "that serves a single-family dwelling," and added the fourth sentence; and rewrote subsection (c), which formerly pertained to nonresidential and residential property.

Session Laws 2015-6, s. 2.6, effective April 9, 2015, in subsection (a), rewrote the first sentence, which formerly read: "If a taxpayer that has constructed, purchased, or leased renewable energy property places it in service in this State during the taxable year, the taxpayer is allowed a credit equal to thirty-five percent (35%) of the cost of the property."

Session Laws 2015-11, s. 1, effective April 30, 2015, substituted "Except for taxpayers covered by subsection (f) of this section" for "This section" at the beginning of subsection (e); and added subsection (f).

Session Laws 2015-264, s. 54.3, effective October 1, 2015, substituted "physical construction of the project was completed" for "project was constructed and installed" in subdivision (f)(2).

Session Laws 2017-57, s. 38.13, effective July 1, 2017, subdivided subsection (f) into subsections (f), (f1), and (g), and added headings to subsections (f1) and (g); added "except as provided in subsection (f1) of this section." at the end of subsection (f) and made a stylistic change; and substituted "subsection (f) or (f1) of this section" for "this subsection" in the first sentence of the first paragraph of subsection (g). See editor's note for subsection redesignations.

§ 105-129.16B: Recodified as G.S. 105-129.41 by Session Laws 2002-87, s. 2, as amended by Session Laws 2003-416, s. 1, effective August 22, 2002, and applicable to credits for buildings for which a federal tax credit is first claimed for a taxable year beginning on or after January 1, 2002.

§ 105-129.16C: Repealed effective for taxable years beginning on or after January 1, 2006.

Editor's Note. - This section was repealed pursuant to the terms of the sunset provision in former subsection (d), effective for taxable years beginning on or after January 1, 2006.

§ 105-129.16D. (Repealed effective for facilities placed in service on or after January 1, 2014) Credit for constructing renewable fuel facilities.

Dispensing Credit. - A taxpayer that constructs and installs and places in service in this State a qualified commercial facility for dispensing renewable fuel is allowed a credit equal to fifteen percent (15%) of the cost to the taxpayer of constructing and installing the part of the dispensing facility, including pumps, storage tanks, and related equipment, that is directly and exclusively used for dispensing or storing renewable fuel. A facility is qualified if the equipment used to store or dispense renewable fuel is labeled for this purpose and clearly identified as associated with renewable fuel.
Production Credit. - A taxpayer that constructs and places in service in this State a commercial facility for processing renewable fuel is allowed a credit equal to twenty-five percent (25%) of the cost to the taxpayer of constructing and equipping the facility. The entire credit may not be taken for the taxable year in which the facility is placed in service but must be taken in seven equal annual installments beginning with the taxable year in which the facility is placed in service. If, in one of the years in which the installment of a credit accrues, the facility with respect to which the credit was claimed is disposed of or taken out of service, the credit expires and the taxpayer may not take any remaining installment of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17.
1. Signs a letter of commitment with the Department of Commerce on or before September 1, 2013, stating the taxpayer's intent to construct and place into service in this State a commercial facility for processing renewable fuel.
2. Begins construction of the facility on or before December 31, 2013.
Alternative Production Credit. - In lieu of the credit allowed under subsection (b) of this section, a taxpayer that constructs and places in service in this State three or more commercial facilities for processing renewable fuel and that invests a total amount of at least four hundred million dollars ($400,000,000) in the facilities is allowed a credit equal to thirty-five percent (35%) of the cost to the taxpayer of constructing and equipping the facilities. In order to claim the credit, the taxpayer must obtain a written determination from the Secretary of Commerce that the taxpayer is expected to invest within a five-year period a total amount of at least four hundred million dollars ($400,000,000) in three or more facilities. The credit must be taken in seven equal annual installments beginning with the taxable year in which the first facility is placed in service. If, in one of the years in which the installment of credit accrues, a facility with respect to which the credit was claimed is disposed of or taken out of service and the investment requirements of this subsection are no longer satisfied, the credit expires and the taxpayer may take any remaining installment of the credit only to the extent allowed under subsection (b) of this section. The taxpayer may, however, take the portion of an installment under this subsection that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17. Notwithstanding the provisions of G.S. 105-129.17, a taxpayer may carry forward unused portions of the credit allowed under this subsection for the succeeding 10 years.
No Double Credit. - A taxpayer may not claim the credits allowed under subsections (b) and (b1) of this section with respect to the same facility. A taxpayer that claims any other credit allowed under this Chapter with respect to the costs of constructing and installing a facility may not take the credit allowed in this section with respect to the same costs.
Sunset. - This section is repealed effective for facilities placed in service on or after January 1, 2014.

The entire credit may not be taken for the taxable year in which the facility is placed in service but must be taken in three equal annual installments beginning with the taxable year in which the facility is placed in service. If, in one of the years in which the installment of a credit accrues, the portion of the facility directly and exclusively used for dispensing or storing renewable fuel is disposed of or taken out of service, the credit expires and the taxpayer may not take any remaining installment of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17.

Notwithstanding subsection (d) of this section, this section is repealed effective for facilities placed in service on or after January 1, 2020, in the case of a taxpayer that meets both of the following conditions:

If a taxpayer that claimed a credit under this subsection fails to meet the requirements of this subsection but meets the requirements of subsection (b) of this section, the taxpayer forfeits the difference between the alternative credit claimed under this subsection and the credit allowed under subsection (b) of this section. A taxpayer that forfeits part of the alternative credit under this subsection is liable for the additional taxes avoided plus interest at the rate established under G.S. 105-241.21, computed from the date the additional taxes would have been due if the credit had not been allowed. The additional taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer that fails to pay the additional taxes and interest by the due date is subject to penalties provided in G.S. 105-236.

History

(2004-153, s. 2; 2006-66, s. 24.7(a); 2006-259, s. 19.5(a); 2007-323, s. 31.9(a); 2010-95, s. 2; 2010-167, s. 1(a); 2012-36, s. 2; 2013-363, s. 11.3(a); 2016-113, s. 10.)

Effect of Amendments. - Session Laws 2006-66, s. 24.7(a), effective for taxable years beginning on or after January 1, 2006, added subsection (b1); added the first sentence in subsection (c); and substituted "January 1, 2011" for "January 1, 2008" in subsection (d).

Session Laws 2006-259, s. 19.5(a), effective for taxable years beginning on or after January 1, 2006, in the last sentence of subsection (b1), deleted "(a)" following "105-129.17" and added "only and the taxpayer may carry forward unused portions of the credit allowed under this subsection for the succeeding 10 years."

Session Laws 2007-323, s. 31.9(a), effective July 1, 2007, and effective for taxable years beginning on or after January 1, 2007, in subsection (b1), in the first paragraph, in the third sentence, deleted "not" preceding "take" and added "only to the extent allowed under subsection (b) of this section," deleted the former fifth sentence which read: "If a credit allowed under this subsection expires, a taxpayer is not eligible for a credit under subsection (b) of this section with respect to the same property." and deleted "a taxpayer may claim the credit allowed under this subsection against the income tax imposed under Article 4 of this Chapter only and the" preceding "taxpayer may carry" in the last sentence, and added the second paragraph.

Session Laws 2010-95, s. 2, effective July 17, 2010, in subsection (b1), substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the second sentence of the last paragraph.

Session Laws 2010-167, s. 1(a), effective August 2, 2010, substituted "January 1, 2013" for "January 1, 2011" in subsection (d).

Session Laws 2012-36, s. 2, effective June 20, 2012, substituted "January 1, 2014 " for "January 1, 2013" in subsection (d).

Session Laws 2013-363, s. 11.3(a), effective July 29, 2013, added the second paragraph in subsection (b).

Session Laws 2016-113, s. 10, effective July 26, 2016, substituted "January 1, 2020" for "January 1, 2017" in the second paragraph of subsection (b).

§ 105-129.16E: Expired effective January 1, 2010, pursuant to the terms of former subsection (d) of this section.

History

(2006-66, s. 24.4(a); 2007-527, s. 5; 2008-107, s. 28.9A(a).)

Editor's Note. - Former G.S. 105-129.16E pertained to credit for small business employee health benefits.

§ 105-129.16F: Repealed by Session Laws 2012-36, s. 3, effective for taxable years beginning on or after January 1, 2014.

History

(2006-66, s. 24.8(a); 2010-167, s. 1(b); repealed by 2012-36, s. 3, effective January 1, 2014.)

Editor's Note. - Former G.S. 105-129.16F pertained to credit for biodiesel producers.

§ 105-129.16G: Expired by Session Laws 2012-36, s. 4, effective for taxable years beginning on or after January 1, 2014.

History

(2007-323, s. 31.21(a); 2008-134, s. 2(a); 2012-36, s. 4; 2013-10, s. 4; expired by 2012-36, s. 4, effective January 1, 2014.)

Editor's Note. - Former G.S. 105-129.16G pertained to the work opportunity tax credit.

§ 105-129.16H. (For contingent repeal, see subsection (d)) Credit for donating funds to a nonprofit organization or unit of State or local government to enable the nonprofit or government unit to acquire renewable energy property.

Credit. - A taxpayer who donates money to a tax-exempt nonprofit organization or a unit of State or local government for the purpose of providing funds for the organization or government unit to construct, purchase, or lease renewable energy property is allowed a credit under this section if the donation is used for its intended purpose. A tax-exempt nonprofit organization is an organization that is exempt from tax under section 501(c)(3) of the Code.
Records. - A nonprofit organization or a unit of State or local government must keep a record of all donations it receives for the purpose of providing funds for the organization to construct, purchase, or lease renewable energy property and of the amount of the donations used for this purpose. If a nonprofit organization or government unit places renewable energy property in service that is purchased in whole or in part from donations made for this purpose, the nonprofit organization or government unit must give each taxpayer who made a donation a statement setting out the amount of the credit for which the taxpayer qualifies under this section. The statement must describe the renewable energy property placed in service and state the cost of the property, the amount of the credit the nonprofit organization or government unit could claim under G.S. 105-129.16A if it were subject to tax, and the taxpayer's share of the credit allowed in this section. If the donations made for the renewable energy property exceed the cost of the property, the nonprofit organization or government unit must prorate each taxpayer's share of the credit. The sum of the credits allowed under this section to taxpayers who make donations to a nonprofit organization or a government unit may not exceed the amount of the credit the nonprofit organization or government unit could claim under G.S. 105-129.16A if it were subject to tax.
No Double Benefit. - A taxpayer who claims a credit under this section based on a donation to a nonprofit organization or a unit of State or local government is not allowed to deduct this donation as a charitable contribution.
Sunset. - This section is repealed as of the date that G.S. 105-129.16A is repealed. The repeal applies to donations made for renewable energy property placed in service on or after the date the section is repealed.

The amount of the credit allowed in this section is the taxpayer's share of the credit the nonprofit organization or the unit of State or local government could claim under G.S. 105-129.16A if the nonprofit organization or government unit were subject to tax. The taxpayer's share of the credit is calculated by dividing the taxpayer's donation by the cost of the renewable energy property constructed, purchased, or leased by the nonprofit organization or government unit and placed in service during the taxable year and then multiplying this percentage by the amount of the credit the nonprofit organization or government unit could claim if it were subject to tax. A taxpayer must take the credit allowed by this section for the taxable year in which the property is placed in service. The installment requirements in G.S. 105-129.16A for nonresidential property do not apply to the credit allowed in this section.

History

(2007-397, s. 13(a); 2008-107, s. 28.25(a); 2008-134, s. 70; 2013-414, s. 32.)

Editor's Note. - Session Laws 2007-397, s. 13(e), made this section effective for taxable years beginning on or after January 1, 2008.

Session Laws 2007-397, s. 13(a), enacted this section as G.S. 105-129.16G. It has been renumbered as G.S. 105-129.16H at the direction of the Revisor of Statutes.

Session Laws 2007-397, s. 15, contains a severability clause.

Effect of Amendments. - Session Laws 2008-107, s. 28.25(a), effective for taxable years beginning on or after January 1, 2008, inserted "or unit of State or local government" and "or unit" throughout the section; and in the first sentence of subsection (a), substituted "donation is used" for "nonprofit organization uses the donation."

Session Laws 2008-134, s. 70, effective July 28, 2008, substituted "for the taxable year" for "in the year" in the third sentence of the second paragraph of subsection (a).

Session Laws 2013-414, s. 32, effective August 23, 2013, added subsection (d).

§ 105-129.16I. (Repealed effective for a renewable energy property facility placed in service on or after January 1, 2014) Credit for a renewable energy property facility.

Credit. - A taxpayer that places in service in this State a commercial facility for the manufacture of renewable energy property or a major component subassembly for a solar array or a wind turbine is allowed a credit. A taxpayer places a facility in service if it constructs the facility or converts its existing manufacturing facility to change the product it manufactures. For a taxpayer that constructs a facility, the credit is twenty-five percent (25%) of the taxpayer's cost to construct and equip the facility. For a taxpayer that converts a facility, the credit is twenty-five percent (25%) of the taxpayer's cost to convert and equip the existing facility. A taxpayer that claims any other credit allowed under this Chapter with respect to the facility may not take the credit allowed in this section with respect to that facility.
Installments. - The entire credit may not be taken for the taxable year in which the facility is placed in service but must be taken in five equal annual installments beginning with the taxable year in which the facility is placed in service. If, in one of the years in which the installment of a credit accrues, the facility with respect to which the credit was claimed is disposed of or taken out of service, the credit expires and the taxpayer may not take any remaining installment of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17.
Sunset. - This section is repealed effective for a renewable energy property facility placed in service on or after January 1, 2014.

History

(2010-167, s. 3(a).)

Editor's Note. - Session Laws 2010-167, s. 3(b), made this section effective for taxable years beginning on or after January 1, 2011.

§ 105-129.16J. Temporary unemployment insurance refundable tax credit.

Credit. - A small business that makes contributions during the taxable year to the State Unemployment Insurance Fund with respect to wages paid for employment in this State is allowed a credit equal to twenty-five percent (25%) of the contributions. A small business is a business whose cumulative gross receipts from business activity for the taxable year do not exceed one million dollars ($1,000,000).
Refundable. - Notwithstanding G.S. 105-129.17, the credit allowed by this section is subject to the following:
1. The credit may only be claimed against the income taxes imposed by Article 4 of this Chapter.
2. If the credit exceeds the amount of tax imposed by Article 4 of this Chapter for the taxable year reduced by the sum of all credits allowable, the excess is refundable. The refundable excess is governed by the provisions governing a refund of an overpayment by the taxpayer of the tax imposed in that Article. In computing the amount of tax against which multiple credits are allowed, nonrefundable credits are subtracted before refundable credits.
Applicability. - This section applies only to taxable years 2010 and 2011.

History

(2010-31, s. 31.1A(a).)

Editor's Note. - Session Laws 2010-31, s. 31.1A(b), provides: "This act is effective for taxes imposed for taxable years beginning on or after January 1, 2010."

Session Laws 2010-31, s. 1.1, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2010'."

Session Laws 2010-31, s. 32.6 is a severability clause.

§ 105-129.17. Tax election; cap.

Tax Election. - The credit allowed in G.S. 105-129.16A is allowed against the franchise tax levied in Article 3 of this Chapter, the income taxes levied in Article 4 of this Chapter, or the gross premiums tax levied in Article 8B of this Chapter. All other credits allowed in this Article are allowed against the franchise tax levied in Article 3 of this Chapter or the income taxes levied in Article 4 of this Chapter. The taxpayer must elect the tax against which a credit will be claimed when filing the return on which the first installment of the credit is claimed. This election is binding. Any carryforwards of a credit must be claimed against the same tax.
Cap. - The credits allowed in this Article may not exceed fifty percent (50%) of the tax against which they are claimed for the taxable year, reduced by the sum of all other credits allowed against that tax, except tax payments made by or on behalf of the taxpayer. This limitation applies to the cumulative amount of credit, including carryforwards, claimed by the taxpayer under this Article against each tax for the taxable year. Any unused portion of the credits may be carried forward for the succeeding five years.

History

(1996, 2nd Ex. Sess., c. 13, s. 3.12; 1997-277, s. 3; 1999-342, s. 2; 1999-360, ss. 1, 13; 2000-140, ss. 63(a), 88; 2001-431, s. 3; 2002-87, s. 5; 2009-548, s. 3.)

Effect of Amendments. - Session Laws 2009-548, s. 3, effective for taxable years beginning on or after January 1, 2009, in subsection (a), added the present first sentence of the subsection and substituted "All other credits" for "The credits" at the beginning of the present second sentence.

§ 105-129.18. Substantiation.

To claim a credit allowed by this Article, the taxpayer must provide any information required by the Secretary of Revenue. Every taxpayer claiming a credit under this Article must maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which the taxpayer is entitled. The burden of proving eligibility for a credit and the amount of the credit rests upon the taxpayer, and no credit may be allowed to a taxpayer that fails to maintain adequate records or to make them available for inspection.

History

(1996, 2nd Ex. Sess., c. 13, s. 3.12; 1997-277, s. 3; 1999-342, s. 2; 1999-360, ss. 1, 14; 2000-140, ss. 63(b), 88.)

§ 105-129.19. Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by credit and by taxpayer:

The number of taxpayers that took the credits allowed in this Article.
The cost of renewable energy property with respect to which credits were taken.
Repealed by Session Laws 2002-87, s. 6, effective August 22, 2002.
The total cost to the General Fund of the credits taken.

History

(1996, 2nd Ex. Sess., c. 13, s. 3.12; 1997-277, s. 3; 1999-342, s. 2; 1999-360, ss. 1, 15; 2000-140, ss. 63(c), 88; 2001-414, s. 10; 2002-87, s. 6; 2005-429, s. 2.3; 2010-166, s. 1.2.)

Editor's Note. - Session Laws 2010-166, s. 4, provides in part, "The first claim for refund by a taxpayer whose sales tax refund period is changed by this act is due within six months after July 1, 2010, and applies to purchases during the time period not covered by the taxpayer's last claim for refund."

Effect of Amendments. - Session Laws 2005-429, s. 2.3, effective January 1, 2007, rewrote the introductory paragraph and made minor stylistic changes throughout.

Session Laws 2010-166, s. 1.2, effective July 1, 2010, in the section catchline, substituted "Report" for "Reports"; rewrote the introductory paragraph, which formerly read: "The Department of Revenue must publish by May 1 of each year the following information for the 12-month period ending the preceding December 31"; and deleted "business property and" preceding "renewable energy" in subdivision (2).

§§ 105-129.20 through 105-129.24: Reserved for future codification purposes.

ARTICLE 3C. Tax Incentives for Recycling Facilities.

Sec.

§ 105-129.25. Definitions.

The following definitions apply in this Article:

Reserved.
Reserved.
Repealed by Session Laws 2010-166, s. 2.1, effective July 1, 2010.
Machinery and equipment. - Engines, machinery, tools, and implements used or designed to be used in the business for which the credit is claimed. The term does not include real property as defined in G.S. 105-273 or rolling stock as defined in G.S. 105-333.
Major recycling facility. - A recycling facility that qualifies under G.S. 105-129.26(a).
Owner. - A person who owns or leases a recycling facility.
Post-consumer waste material. - Any product that was generated by a business or consumer, has served its intended end use, and has been separated from the solid waste stream for the purpose of recycling. The term includes material acquired by a recycling facility either directly or indirectly, such as through a broker or an agent.
Purchase. - Defined in section 179 of the Code.
Recycling facility. - A manufacturing plant at least three-fourths of whose products are made of at least fifty percent (50%) post-consumer waste material measured by weight or volume. The term includes real and personal property located at or on land in the same county and reasonably near the plant site and used to perform business functions related to the plant or to transport materials and products to or from the plant. The term also includes utility infrastructure and transportation infrastructure to and from the plant.

History

(1998-55, s. 12; 2010-166, s. 2.1.)

Effect of Amendments. - Session Laws 2010-166, s. 2.1, effective July 1, 2010, deleted subdivision (3), which was the definition for "large recycling facility."

§ 105-129.26. Qualification; forfeiture.

Major Recycling Facility. - A recycling facility qualifies for the tax benefits provided in this Article and in Article 5 of this Chapter for major recycling facilities if it meets all of the following conditions:
1. The facility is located in an area that, at the time the owner began construction of the facility, was a development tier one area as defined in G.S. 143B-437.08.
2. The Secretary of Commerce has certified that the owner will, by the end of the fourth year after the year the owner begins construction of the recycling facility, invest at least three hundred million dollars ($300,000,000) in the facility and create at least 250 new, full-time jobs at the facility.
3. Repealed by Session Laws 2014-3, s. 14.2, effective May 29, 2014.
Repealed by Session Laws 2010-166, s. 2.1, effective July 1, 2010.
Forfeiture. - If the owner of a major recycling facility fails to make the required minimum investment or create the required number of new jobs within the period certified by the Secretary of Commerce under this section, the recycling facility no longer qualifies for the applicable recycling facility tax benefits provided in this Article and in Article 5 of this Chapter and forfeits all tax benefits previously received under those Articles. Forfeiture does not occur, however, if the failure was due to events beyond the owner's control. Upon forfeiture of tax benefits previously received, the owner is liable under Part 1 of Article 4 of this Chapter for a tax equal to the amount of all past taxes under Articles 3, 4, and 5 previously avoided as a result of the tax benefits received plus interest at the rate established in G.S. 105-241.21, computed from the date the taxes would have been due if the tax benefits had not been received. The tax and interest are due 30 days after the date of the forfeiture. An owner that fails to pay the tax and interest is subject to the penalties provided in G.S. 105-236.
Substantiation. - To claim a credit allowed by this Article, the owner must provide any information required by the Secretary of Revenue. Every owner claiming a credit under this Article shall maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which the owner is entitled. The burden of proving eligibility for the credit and the amount of the credit shall rest upon the owner, and no credit shall be allowed to an owner that fails to maintain adequate records or to make them available for inspection.
Report. - The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:
1. The number and location of major recycling facilities qualified under this Article.
2. The number of new jobs created by each recycling facility.
3. The amount of investment in each recycling facility.
4. The amount of credits taken under this Article.

History

(1998-55, s. 12; 2005-429, s. 2.4; 2007-491, s. 44(1)a; 2010-166, ss. 1.3, 2.1; 2013-414, s. 33; 2014-3, s. 14.2.)

Editor's Note. - Session Laws 2007-491, s. 47 provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Session Laws 2010-166, s. 4, provides in part, "The first claim for refund by a taxpayer whose sales tax refund period is changed by this act is due within six months after July 1, 2010, and applies to purchases during the time period not covered by the taxpayer's last claim for refund."

Effect of Amendments. - Session Laws 2005-429, s. 2.4, effective January 1, 2007, rewrote subsection (e) and subdivision (e)(4).

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the third sentence of subsection (c). For applicability, see Editor's note.

Session Laws 2010-166, ss. 1.3 and 2.1, effective July 1, 2010, deleted subsection (b), which was the definition for "large recycling facility"; rewrote the introductory paragraph of subsection (e), which formerly read: "Reports. - The Department of Commerce and the Department of Revenue shall jointly publish by May 1 of each year the following information itemized by taxpayer for the 12-month period ending the preceding December 31:"; and, in subdivision (e)(1), deleted "large and" preceding "major recycling facilities."

Session Laws 2013-414, s. 33, effective August 23, 2013, deleted "large or" preceding "major recycling" near the beginning of subsection (c).

Session Laws 2014-3, s. 14.2, effective May 29, 2014, in subsection (a), substituted "a development tier one area as defined in G.S. 143B-437.08" for "an enterprise tier one area pursuant to G.S. 105-129.3" in subdivision (a)(1), and deleted former subdivision (a)(3), which read: "The jobs at the recycling facility meet the wage standard in effect pursuant to G.S. 105-129.4(b) as of the date the owner begins construction of the facility."

§ 105-129.27. Credit for investing in major recycling facility.

Credit. - An owner that purchases or leases machinery and equipment for a major recycling facility in this State during the taxable year is allowed a credit equal to fifty percent (50%) of the amount payable by the owner during the taxable year to purchase or lease the machinery and equipment.
Taxes Credited. - The credit provided in this section is allowed against the franchise tax levied in Article 3 of this Chapter and the income tax levied in Part 1 of Article 4 of this Chapter. Any other nonrefundable credits allowed the owner are subtracted before the credit allowed by this section.
Carryforwards. - The credit provided in this section may not exceed the amount of tax against which it is claimed for the taxable year, reduced by the sum of all other credits allowed against that tax, except tax payments made by or on behalf of the owner. Any unused portion of the credit may be carried forward for the succeeding 25 years.
Change in Ownership of Facility. - The sale, merger, consolidation, conversion, acquisition, or bankruptcy of a recycling facility, or any transaction by which the facility is reformulated as another business, does not create new eligibility in a succeeding owner with respect to a credit for which the predecessor was not eligible under this section. A successor business may, however, take any carried-over portion of a credit that its predecessor could have taken if it had a tax liability.
Forfeiture. - If any machinery or equipment for which a credit was allowed under this section is not placed in service within 30 months after the credit was allowed, the credit is forfeited. A taxpayer that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited; a taxpayer that fails to pay the past taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.
No Double Credit. - A recycling facility that is eligible for the credit allowed in this section is not allowed the credit for investing in machinery and equipment provided in G.S. 105-129.9 or G.S. 105-129.88.

History

(1998-55, s. 12; 1999-369, s. 5.3; 2007-491, s. 44(1)a; 2009-445, s. 3(a); 2010-166, s. 2.1.)

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the second sentence of subsection (e). For applicability, see Editor's note.

Session Laws 2009-445, s. 3(a), effective for taxable years beginning on or after January 1, 2007, substituted "G.S. 105-129.9 or G.S. 105-129.88" for "G.S. 105-129.9" in subsection (f).

Session Laws 2010-166, s. 2.1, effective July 1, 2010, in the section heading, deleted "large or" preceding "major"; and, in subsection (a), deleted the last sentence, which read: "An owner that purchases or leases machinery and equipment for a large recycling facility in this State during the taxable year is allowed a credit equal to twenty percent (20%) of the amount payable by the owner during the taxable year to purchase or lease the machinery and equipment."

Legal Periodicals. - See legislative survey, 21 Campbell L. Rev. 323 (1999).

§ 105-129.28: Repealed by Session Laws 1998-55, s. 19, effective for taxable years beginning on or after January 1, 2008.

History

(1998-55, s. 12; repealed by 1998-55, s. 19, effective for taxable years beginning on or after January 1, 2008.)

Editor's Note. - Former G.S. 105-129.28 pertained to credit for reinvestment.

§§ 105-129.29 through 105-129.34: Reserved for future codification purposes.

ARTICLE 3D. Historic Rehabilitation Tax Credits.

(See G.S. 105-129.39 for repeal of this Article.)

Sec.

§ 105-129.35. (See note for repeal) Credit for rehabilitating income-producing historic structure.

Credit. - A taxpayer who is allowed a federal income tax credit under section 47 of the Code for making qualified rehabilitation expenditures for a certified historic structure located in this State is allowed a credit equal to twenty percent (20%) of the expenditures that qualify for the federal credit. If the certified historic structure is a facility that at one time served as a State training school for juvenile offenders, the amount of the credit is equal to forty percent (40%) of the expenditures that qualify for the federal credit. To claim the credit allowed by this subsection, the taxpayer must provide a copy of the certification obtained from the State Historic Preservation Officer verifying that the historic structure has been rehabilitated in accordance with this subsection.
Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this section may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass-through entity, as determined under the Code, at the end of the taxable year in which the certified historic structure is placed in service, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass-through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass-through entity and the allocation that would have been required under G.S. 105-131.8 or G.S. 105-269.15.
Definitions. - The following definitions apply in this section:
1. Certified historic structure. - Defined in section 47 of the Code.
2. Pass-through entity. - Defined in G.S. 105-228.90.
3. Qualified rehabilitation expenditures. - Defined in section 47 of the Code.
4. State Historic Preservation Officer. - Defined in G.S. 105-129.36.

History

(1993, c. 527, ss. 1, 2; 1997-139, ss. 1, 2; 1998-98, ss. 36, 69; 1999-389, ss. 2, 5, 6; 2001-476, s. 19(a); 2003-284, s. 35A.1; 2003-415, ss. 1, 2; 2003-416, s. 4(c); 2004-170, s. 14; 2006-40, s. 2; 2007-461, s. 1.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.39.

Editor's note. - Session Laws 1999-389, s. 6, provides that Article 3D of Chapter 105 of the General Statutes, as amended by this act, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

Session Laws 1999-389, s. 9, as amended by Session Laws 2001-476, s. 19(a), and as amended by Session Laws 2003-415, s. 1, provides that G.S. 105-129.35(b), as amended by Session Laws 1999-389, is repealed effective January 1, 2008, for property placed in service on or after that date. Session Laws 2007-461, s. 1, effective August 28, 2007, removed the sunset provision applicable to subsection (b).

Effect of Amendments. - Session Laws 2003-284, s. 35A.1, effective July 15, 2003, added the last sentence in subsection (a); and added subdivision (c)(4).

Session Laws 2003-415, s. 2, effective for taxable years beginning on or after January 1, 2003, in the first sentence of subsection (b), deleted "the amount of credit allocated to an owner does not exceed" following "discretion as long as," substituted "an owner's" for "the owner's," and inserted "is at least forty percent (40%) of the amount of credit allocated to that owner" following "is placed in service."

Session Laws 2003-416, s. 4.(c), effective August 14, 2003, rewrote subdivision (c)(2).

Session Laws 2004-170, s. 14, effective August 2, 2004, substituted "105-129.36" for "105-129.6" in subdivision (c)(4).

Session Laws 2006-40, s. 2, effective for taxable years beginning on or after January 1, 2006, and applicable to eligible sites placed into service on or after July 1, 2006, added the second sentence in subsection (a).

§ 105-129.36. (See note for repeal) Credit for rehabilitating nonincome-producing historic structure.

Credit. - A taxpayer who is not allowed a federal income tax credit under section 47 of the Code and who makes rehabilitation expenses for a State-certified historic structure located in this State is allowed a credit equal to thirty percent (30%) of the rehabilitation expenses. If the certified historic structure is a facility that at one time served as a State training school for juvenile offenders, the amount of the credit is equal to forty percent (40%) of the expenditures that qualify for the federal credit. To qualify for the credit, the taxpayer's rehabilitation expenses must exceed twenty-five thousand dollars ($25,000) within a 24-month period. To claim the credit allowed by this subsection, the taxpayer must provide a copy of the certification obtained from the State Historic Preservation Officer verifying that the historic structure has been rehabilitated in accordance with this subsection.
Definitions. - The following definitions apply in this section:
1. Certified rehabilitation. - Repairs or alterations consistent with the Secretary of the Interior's Standards for Rehabilitation and certified as such by the State Historic Preservation Officer.
2. Rehabilitation expenses. - Expenses incurred in the certified rehabilitation of a certified historic structure and added to the property's basis. The term does not include the cost of acquiring the property, the cost attributable to the enlargement of an existing building, the cost of sitework expenditures, or the cost of personal property.
3. State-certified historic structure. - A structure that is individually listed in the National Register of Historic Places or is certified by the State Historic Preservation Officer as contributing to the historic significance of a National Register Historic District or a locally designated historic district certified by the United States Department of the Interior.
4. State Historic Preservation Officer. - The Deputy Secretary of Archives and History or the Deputy Secretary's designee who acts to administer the historic preservation programs within the State.
Recodified as G.S. 105-129.36A by Session Laws 2003-284, s. 35A.2, effective July 15, 2003.

History

(1993, c. 527, ss. 1, 2; 1997-139, ss. 1, 2; 1998-98, ss. 36, 69; 1999-389, ss. 3, 5, 6; 2002-159, s. 35(e); 2003-284, ss. 35A.2, 35A.3; 2006-40, ss. 3, 4.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.39.

Editor's note. - Session Laws 1999-389, s. 6, provides that Article 3D of Chapter 105 of the General Statutes, as amended by this act, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

Subdivisions (b)(1) to (b)(3) were designated as such by the Revisor of Statutes, the designations in Session Laws 1999-389, s. 5 having been subdivisions (b)(2), (b)(3), and (b)(3a).

Effect of Amendments. - Session Laws 2003-284, ss. 35A.2 and 35A.3, effective July 15, 2003, in the third sentence of subsection (a), substituted "provide" for "attach to the return"; and recodified and rewrote former subsection (c) as present G.S. 105-129.36A.

Session Laws 2006-40, ss. 3 and 4, effective for taxable years beginning on or after January 1, 2006, and applicable to eligible sites placed into service on or after July 1, 2006, added the second sentence in subsection (a) and substituted "Officer" for "Officer prior to the commencement of the work" in subdivision (b)(1).

§ 105-129.36A. (See note for repeal) Rules; fees.

Rules. - The North Carolina Historical Commission, in consultation with the State Historic Preservation Officer, may adopt rules needed to administer the certification process required by this section.
Fees.- The North Carolina Historical Commission, in consultation with the State Historic Preservation Officer, may adopt a schedule of fees for providing certifications required by this Article. In establishing the fee schedule, the Commission shall consider the administrative and personnel costs incurred by the Department of Natural and Cultural Resources. An application fee may not exceed one percent (1%) of the completed qualifying rehabilitation expenditures. The proceeds of the fees are receipts of the Department of Natural and Cultural Resources and must be used for performing its duties under this Article.

History

(1993, c. 527, ss. 1, 2; 1997-139, ss. 1, 2; 1998-98, ss. 36, 69; 1999-389, ss. 3, 5, 6; 2002-159, s. 35(e); 2003-284, s. 35A.2; 2015-241, s. 14.30(s).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.39.

Editor's note. - Session Laws 1999-389, s. 6, provides that Article 3D of Chapter 105 of the General Statutes, as amended by this act, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

Session Laws 2003-284, s. 48.1, provides: "Parts 32 through 47 of this act do not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by those parts before the effective date of its amendment or repeal; nor do they 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."

Session Laws 2003-284, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2003'."

Session Laws 2003-284, s. 49.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2003-2005 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2003-2005 fiscal biennium."

Session Laws 2003-284, s. 49.5 is a severability clause.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Effect of Amendments. - Session Laws 2003-284, s. 35A.2, effective July 15, 2003, recodified and rewrote former G.S. 105-129.36(c) as present G.S. 105-129.36A.

Session Laws 2015-241, s. 14.30(s), effective July 1, 2015, substituted "Department of Natural and Cultural Resources" for "Department of Cultural Resources" twice in subsection (b).

§ 105-129.37. (See note for repeal) Tax credited; credit limitations.

Tax Credited. - The credits provided in this Article are allowed against the income taxes levied in Article 4 of this Chapter.
Credit Limitations. - The entire credit may not be taken for the taxable year in which the property is placed in service but must be taken in five equal installments beginning with the taxable year in which the property is placed in service. Any unused portion of the credit may be carried forward for the succeeding five years. A credit allowed under this Article may not exceed the amount of the tax against which it is claimed for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.
Forfeiture for Disposition. - A taxpayer who is required under section 50 of the Code to recapture all or part of the federal credit for rehabilitating an income-producing historic structure located in this State forfeits the corresponding part of the State credit allowed under G.S. 105-129.35 with respect to that historic structure. If the credit was allocated among the owners of a pass-through entity, the forfeiture applies to the owners in the same proportion that the credit was allocated.
Forfeiture for Change in Ownership. - If an owner of a pass-through entity that has qualified for the credit allowed under G.S. 105-129.35 disposes of all or a portion of the owner's interest in the pass-through entity within five years from the date the rehabilitated historic structure is placed in service and the owner's interest in the pass-through entity is reduced to less than two-thirds of the owner's interest in the pass-through entity at the time the historic structure was placed in service, the owner forfeits a portion of the credit. The amount forfeited is determined by multiplying the amount of credit by the percentage reduction in ownership and then multiplying that product by the forfeiture percentage. The forfeiture percentage equals the recapture percentage found in the table in section 50(a)(1)(B) of the Code. The remaining allowable credit is allocated equally among the five years in which the credit is claimed.
Exceptions to Forfeiture. - Forfeiture as provided in subsection (d) of this section is not required if the change in ownership is the result of any of the following:
1. The death of the owner.
2. A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
Liability From Forfeiture. - A taxpayer or an owner of a pass-through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass-through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

History

(1993, c. 527, ss. 1, 2; 1997-139, ss. 1, 2; 1998-98, ss. 36, 69; 1999-389, ss. 4, 5, 6; 2007-491, s. 44(1)a.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.39.

Editor's note. - Session Laws 1999-389, s. 6, provides that Article 3D of Chapter 105 of the General Statutes, as amended by this act, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

Session Laws 2007-491, s. 47 provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (f). For applicability, see Editor's note.

§ 105-129.38. (See note for repeal) Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:

The number of taxpayers that took the credits allowed in this Article.
The amount of rehabilitation expenses and qualified rehabilitation expenditures with respect to which credits were taken.
The total cost to the General Fund of the credits taken.

History

(2005-429, s. 2.5; 2010-166, s. 1.4.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.39.

Editor's Note. - Session Laws 2005-429, s. 4, made this section effective January 1, 2007.

Effect of Amendments. - Session Laws 2010-166, s. 1.4, effective July 1, 2010, in the section catchline, substituted "Report" for "Reports"; and rewrote the introductory paragraph, which formerly read: "The Department of Revenue must publish by May 1 of each year the following information for the 12-month period ending the preceding December 31."

§ 105-129.39. Sunset.

This Article expires for qualified rehabilitation expenditures and rehabilitation expenses incurred on or after January 1, 2015. For qualified rehabilitation expenditures and rehabilitation expenses incurred prior to January 1, 2015, this Article expires for property not placed in service by January 1, 2023.

History

(2010-166, s. 1.5; 2012-36, s. 12(a); 2018-5, s. 38.10(j).)

Editor's Note. - Session Laws 2010-166, s. 4, made this section effective July 1, 2010.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2012-36, s. 12(a), effective June 20, 2012, substituted "January 1, 2015" for "January 1, 2014".

Session Laws 2018-5, s. 38.10(j), effective June 12, 2018, added the second sentence.

CASE NOTES

Bankruptcy. - Debtor was not entitled to modify her confirmed plan to afford her additional time to market and sell certain encumbered real estate because the "change" was prospective discontinuation of tax credits impacting property and that change was neither substantial nor unforeseeable, particularly since parties were on notice that tax credit statute was set to expire. In re Gardner, 522 B.R. 137 (Bankr. W.D.N.C. 2014).

ARTICLE 3E. Low-Income Housing Tax Credits.

(See note for repeal of this Article.)

Sec.

§ 105-129.40. (See note for repeal) Scope and definitions.

Scope. - G.S. 105-129.41 applies to buildings that are awarded a federal credit allocation before January 1, 2003. G.S. 105-129.42 applies to buildings that are awarded a federal credit allocation on or after January 1, 2003.
Definitions. - The definitions in section 42 of the Code and the following definitions apply in this Article:
1. Housing Finance Agency. - The North Carolina Housing Finance Agency established in G.S. 122A-4.
2. Pass-through entity. - Defined in G.S. 105-228.90.

History

(2002-87, s. 1; 2003-416, s. 3.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.45.

Effect of Amendments. - Session Laws 2003-416, s. 3, effective August 14, 2003, rewrote the section.

§ 105-129.41. (See note for repeal) Credit for low-income housing awarded a federal credit allocation before January 1, 2003.

Credit. - A taxpayer that is allowed for the taxable year a federal income tax credit for low-income housing under section 42 of the Code with respect to a qualified North Carolina low-income building, is allowed a credit under this Article equal to a percentage of the total federal credit allowed with respect to that building. For the purposes of this section, the total federal credit allowed is the total allowed during the 10-year federal credit period plus the disallowed first-year credit allowed in the 11th year. For the purposes of this section, the total federal credit is calculated based on qualified basis as of the end of the first year of the credit period and is not recalculated to reflect subsequent increases in qualified basis. For buildings that meet condition (c)(1) or (c)(1a) of this section, the credit percentage is seventy-five percent (75%). For other buildings, the credit percentage is twenty-five percent (25%).
Tax Election. - The credit allowed in this section is allowed against the franchise tax levied in Article 3 of this Chapter, the income taxes levied in Article 4 of this Chapter, or the gross premiums tax levied in Article 8B of this Chapter. The taxpayer must elect the tax against which the credit will be claimed when filing the return on which the first installment of the credit is claimed. This election is binding. Any carryforwards of the credit must be claimed against the same tax.
Cap. - The credit allowed in this section may not exceed fifty percent (50%) of the tax against which it is claimed for the taxable year, reduced by the sum of all other credits made by or on behalf of the taxpayer. This limitation applies to the cumulative amount of credit, including carryforwards, claimed by the taxpayer under this section against each tax for the taxable year. Any unused portion of the credit may be carried forward for the succeeding five years.
Timing. - The credit must be taken in equal installments over the five years beginning in the first taxable year in which the federal credit is claimed for that building. During the first taxable year in which the credit allowed under this section may be taken with respect to a building, the amount of the installment must be multiplied by the applicable fraction under section 42(f)(2)(A) of the Code. Any reduction in the amount of the first installment as a result of this multiplication is carried forward and may be taken in the first taxable year after the fifth installment is allowed under this section.
Allocation. - Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this section may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass-through entity, as determined under the Code at the end of the taxable year in which the federal credit is first claimed, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass-through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass-through entity and the allocation that would have been required under G.S. 105-131.8 or G.S. 105-269.15.
Qualifying Buildings. As used in this section the term "qualified North Carolina low-income building" means a qualified low-income building that was allocated a federal credit under section 42(h)(1) of the Code, was not allowed a federal credit under section 42(h)(4) of the Code, and meets any of the following conditions:
1. It is located in an area that, at the time the federal credit is allocated to the building, is a tier one or two enterprise area, as defined in G.S. 105-129.3.
2. Expired pursuant to Session Laws 2000-56, s. 10(f), effective January 1, 2005.
3. It is located in an area that, at the time the federal credit is allocated to the building, is a tier three or four enterprise area, and forty percent (40%) of its residential units are both rent-restricted and occupied by individuals whose income is fifty percent (50%) or less of area median gross income as defined in the Code.
4. It is located in an area that, at the time the federal credit is allocated to the building, is a tier five enterprise area, and forty percent (40%) of its residential units are both rent-restricted and occupied by individuals whose income is thirty-five percent (35%) or less of area median gross income as defined in the Code.
Expiration. If, in one of the five years in which an installment of the credit under this section accrues, the taxpayer is no longer eligible for the corresponding federal credit with respect to the same qualified North Carolina low-income building, then the credit under this section expires and the taxpayer may not take any remaining installment of the credit. If, in one of the five years in which an installment of the credit under this section accrues, the building no longer qualifies as a low-income building under subdivision (2) or (3) of subsection (c) of this section because less than forty percent (40%) of its residential units are both rent-restricted and occupied by individuals who meet the income requirements, then the credit under this section expires and the taxpayer may not take any remaining installments of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.17.
Forfeiture for Disposition. If the taxpayer is required under section 42(j) of the Code to recapture all or part of a federal credit under that section with respect to a qualified North Carolina low-income building, the taxpayer must report the recapture event to the Secretary and to the Housing Finance Agency. The taxpayer forfeits the corresponding part of the credit allowed under this section with respect to that qualified North Carolina low-income building. If the credit was allocated among the owners of a pass-through entity, the forfeiture applies to the owners in the same proportion that the credit was allocated. This subsection does not apply when the recapture of part or all of the federal credit is the result of an event that occurs after the credit period described in subsection (b) of this section.
Forfeiture for Change in Ownership. - If an owner of a pass-through entity that has qualified for the credit allowed under this section disposes of all or a portion of the owner's interest in the pass-through entity within five years from the date the federal credit is first claimed and the owner's interest in the pass-through entity is reduced to less than two-thirds of the owner's interest in the pass-through entity at the time the federal credit is first claimed, the owner must report the change to the Secretary and to the Housing Finance Agency. The owner forfeits a portion of the credit. The amount forfeited is determined by multiplying the amount of credit by the percentage reduction in ownership and then multiplying that product by the forfeiture percentage. The forfeiture percentage equals the recapture percentage found in the table in section 50(a)(1)(B) of the Code. The remaining allowable credit is allocated equally among the five years in which the credit is claimed. Forfeiture as provided in this subsection is not required if the change in ownership is the result of any of the following:
1. The death of the owner.
2. A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
Liability From Forfeiture. - A taxpayer or an owner of a pass-through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass-through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

History

(1999-360, s. 11; 2000-56, s. 7; 2000-140, s. 88; 2001-431, s. 2; 2002-87, s. 2; 2003-416, s. 1; 2007-491, s. 44(1)a.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.45.

Editor's Note. - The number of this section was assigned by the Revisor of Statutes, the number in Session Laws 1999-360, s. 11 having been G.S. 105-129.16A.

Session Laws 2000-56, s. 10(f), as amended by Session Laws 2002-126, s. 30H, makes the amendment to subsection (d) by s. 7 of the act effective for taxable years beginning on or after January 1, 2000, and makes the amendment to subsection (a) and the addition of subdivision (c)(1a) effective for taxable years beginning on or after January 1, 2001, and applicable to buildings to which federal credits are allocated on or after January 1, 2000. Session Laws 2000-56, s. 10(f) had provided for the expiration of the amendment to subsection (a) by that act, and for the expiration of subdivision (c)(1a) on January 1, 2005. However, Session Laws 2002-87, s. 2 apparently superseded the sunset date as to subsection (a) by striking through the statutory language of the second version, but in subdivision (c)(1a) simply deleted the editorially inserted parenthetical reflecting the sunset date. At the direction of the Revisor of Statutes, subdivision (c)(1a) is now shown as having expired effective January 1, 2005.

Session Laws 2002-87, s. 1, which enacted Article 3E, G.S. 105-129.40 et seq., originally designated this section as "Reserved."

Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2000-56, s. 7, effective for taxable years beginning on or after January 1, 2001, and applicable to buildings to which federal credits are allocated on or after January 1, 2000, in the last sentence of subsection (a), inserted "or (c)(1a)" following "condition (c)(1)"; and added subdivision (c)(1a).

Session Laws 2002-87, s. 2, as amended by Session Laws 2003-416, s. 1, effective August 22, 2002, and applicable to credits for buildings for which a federal tax credit is first claimed for a taxable year beginning on or after January 1, 2002, recodified former G.S. 105-129.16B as this section and in the section, added "awarded a federal credit allocation before January 1, 2003" in the catchline; deleted the version of subsection (a) that would have gone into effect on January 1, 2005; added subsections (a1) and (a2); at the end of the first sentence of subsection (b1), substituted "an owner's adjusted basis in the pass-through entity ... credit allocated to that owner" for "the amount of credit allocated to an owner does not exceed the owner's adjusted basis in the pass-through entity, as determined under the Code, at the end of the taxable year in which the federal credit is first claimed"; substituted "Qualifying Buildings - As" for "Definitions - The definitions in section 42 of the Code apply to this section. In addition, as" at the beginning of subsection (c); deleted "(Expires January 1, 2005)" at the beginning of subdivision (c)(1a); in subsection (e), inserted "must report the recapture event to the Secretary and to the Housing Finance Agency. The taxpayer" and inserted the last sentence; and in subsection (f), inserted "must report the change to the Secretary and to the Housing Finance Agency. The owner." See editor's note.

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (g). For applicability, see Editor's note.

§ 105-129.42. (See note for repeal) Credit for low-income housing awarded a federal credit allocation on or after January 1, 2003.

Definitions. - The following definitions apply in this section:
1. Qualified Allocation Plan. - The plan governing the allocation of federal low-income housing tax credits for a particular year, as approved by the Governor after a public hearing and publication in the North Carolina Register.
2. Qualified North Carolina low-income housing development. - A qualified low-income project or building that is allocated a federal tax credit under section 42(h)(1) of the Code and is described in subsection (c) of this section.
3. Qualified residential unit. - A housing unit that meets the requirements of section 42 of the Code.
Credit. - A taxpayer who is allocated a federal low-income housing tax credit under section 42 of the Code to construct or substantially rehabilitate a qualified North Carolina low-income housing development is allowed a credit equal to a percentage of the development's qualified basis, as determined pursuant to section 42 of the Code. For the purpose of this section, qualified basis is calculated based on the information contained in the carryover allocation and is not recalculated to reflect subsequent increases or decreases. No credit is allowed for a development that uses tax-exempt bond financing.
Developments and Amounts. The following table sets out the housing developments that are qualified North Carolina low-income housing developments and are allowed a credit under this section. The table also sets out the percentage of the development's qualified basis for which a credit is allowed. The designation of a county or city as Low Income, Moderate Income, or High Income and determinations of affordability are made by the Housing Finance Agency in accordance with the Qualified Allocation Plan in effect as of the time the federal credit is allocated. A change in the income designation of a county or city after a federal credit is allocated does not affect the percentage of the developer's qualified basis for which a credit is allowed. The affordability requirements set out in the chart apply for the duration of the federal tax credit compliance period. If in any year a taxpayer fails to meet these affordability requirements, the credit is forfeited under subsection (h) of this section.
Election. - When a taxpayer to whom a federal low-income housing credit is allocated submits to the Housing Finance Agency a request to receive a carryover allocation for that credit, the taxpayer must elect a method for receiving the tax credit allowed by this section. A taxpayer may elect to receive the credit in the form of either a direct tax refund or a loan generated by transferring the credit to the Housing Finance Agency. Neither a direct tax refund nor a loan received as the result of the transfer of the credit is considered taxable income under this Chapter.
Exception When No Carryover. - If a taxpayer does not submit to the Housing Finance Agency a request to receive a carryover allocation, the taxpayer must elect the method for receiving the credit allowed by this section when the taxpayer submits to the Agency federal Form 8609. A taxpayer to whom this subsection applies claims the credit for the taxable year in which the taxpayer submits federal Form 8609.
Pass-Through Entity. - Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this Article does not distribute the credit among any of its owners. The pass-through entity is considered the taxpayer for purposes of claiming the credit allowed by this Article. If a return filed by a pass-through entity indicates that the entity is paying tax on behalf of the owners of the entity, the credit allowed under this Article does not affect the entity's payment of tax on behalf of its owners.
Return and Payment. - A taxpayer may claim the credit allowed by this section on a return filed for the taxable year in which the taxpayer receives a carryover allocation of a federal low-income housing credit. The return must state the name and location of the qualified low-income housing development for which the credit is claimed.
1. The Agency determines that the taxpayer has complied with the Qualified Allocation Plan and has completed at least fifty percent (50%) of the activities included in the development's qualified basis.
2. Within 30 days after the date the development is placed in service.
Forfeiture. - A taxpayer that receives a credit under this section must immediately report any recapture event under section 42 of the Code to the Housing Finance Agency. If the taxpayer or any of its owners are required under section 42(j) of the Code to recapture all or part of a federal credit with respect to a qualified North Carolina low-income development, the taxpayer forfeits the corresponding part of the credit allowed under this section. This requirement does not apply in the following circumstances:
1. When the recapture of part or all of the federal credit is the result of an event that occurs in the sixth or a subsequent calendar year after the calendar year in which the development was awarded a federal credit allocation.
2. The taxpayer elected to transfer the credit allowed by this section to the Housing Finance Agency.
Liability From Forfeiture. - A taxpayer that forfeits all or part of the credit allowed under this section is liable for all past taxes avoided and any refund claimed as a result of the credit plus interest at the rate established under G.S. 105-241.21. The interest is computed from the date the Secretary transferred the credit amount to the Housing Finance Agency. The past taxes, refund, and interest are due 30 days after the date the credit is forfeited. A taxpayer that fails to pay the taxes, refund, and interest by the due date is subject to the penalties provided in G.S. 105-236.

Type of Development Percentage of Basis for Which Credit Is Allowed Forty percent (40%) of the qualified residential units are affordable to households whose income is fifty percent (50%) or less of area median income and the units are in a Low-Income county or city. Thirty percent (30%) Fifty percent (50%) of the qualified residential units are affordable to households whose income is fifty percent (50%) or less of the area median income and the units are in a Moderate-Income county or city. Twenty percent (20%) Fifty percent (50%) of the qualified residential units are affordable to households whose income is forty percent (40%) or less of the area median income and the units are in a High-Income county or city. Ten percent (10%) Twenty-five percent (25%) of the qualified residential units are affordable to households whose income is thirty percent (30%) or less of the area median income and the units are in a High-Income county or city. Ten percent (10%)

Under the direct tax refund method, a taxpayer elects to apply the credit allowed by this section to the taxpayer's liability under Article 4 of this Chapter. If the credit allowed by this section exceeds the amount of tax imposed by Article 4 for the taxable year, reduced by the sum of all other credits allowable, the Secretary must refund the excess. In computing the amount of tax against which multiple credits are allowed, nonrefundable credits are subtracted before this credit. The provisions that apply to an overpayment of tax apply to the refundable excess of a credit allowed under this section.

Under the loan method, a taxpayer elects to transfer the credit allowed by this section to the Housing Finance Agency and receive a loan from that Agency for the amount of the credit. The terms of the loan are specified by the Housing Finance Agency in accordance with the Qualified Allocation Plan.

If a taxpayer chooses the loan method for receiving the credit allowed under this section, the Secretary must transfer to the Housing Finance Agency the amount of credit allowed the taxpayer. The Agency must loan the taxpayer the amount of the credit on terms consistent with the Qualified Allocation Plan. The Housing Finance Agency is not required to make a loan to a qualified North Carolina low-income housing development until the Secretary transfers the credit amount to the Agency.

If the taxpayer chooses the direct tax refund method for receiving the credit allowed under this section, the Secretary must transfer to the Housing Finance Agency the refundable excess of the credit allowed the taxpayer. The Agency holds the refund due the taxpayer in escrow, with no interest accruing to the taxpayer during the escrow period. The Agency must release the refund to the taxpayer upon the occurrence of the earlier of the following:

History

(2002-87, s. 1; 2003-416, ss. 6-8; 2004-110, s. 4.2; 2007-491, s. 44(1)a.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.45.

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2003-416, ss. 6, 7, and 8, effective August 14, 2003, in subdivision (a)(3), made minor stylistic changes; in subdivision (g)(2), inserted "date the" following "after the," and deleted "date" following "service"; in the second sentence of subsection (i), deleted "rate" following "interest."

Session Laws 2004-110, s. 4.2, effective July 17, 2004, substituted "qualified" for "eligible" throughout subsections (b) and (c) and once in subdivision (g)(1).

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (i). For applicability, see Editor's note.

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (g). For applicability, see Editor's note.

§ 105-129.43. (See note for repeal) Substantiation.

A taxpayer allowed a credit under this Article must maintain and make available for inspection any information or records required by the Secretary of Revenue or the Housing Finance Agency. The burden of proving eligibility for a credit and the amount of the credit rests upon the taxpayer.

History

(2002-87, s. 1.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.45.

§ 105-129.44. (See note for repeal) Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:

The number of taxpayers that took the credit allowed in this Article.
The location of each qualified North Carolina low-income building or housing development for which a credit was taken.
The total cost to the General Fund of the credits taken.

History

(2002-87, s. 1; 2005-429, s. 2.6; 2010-166, s. 1.6.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.45.

Effect of Amendments. - Session Laws 2005-429, s. 2.6, effective January 1, 2007, rewrote the introductory language and made minor stylistic changes throughout.

Session Laws 2010-166, s. 1.6, effective July 1, 2010, rewrote the introductory paragraph, which formerly read: "The Department of Revenue must publish by May 1 of each year the following information for the 12-month period ending the preceding December 31."

§ 105-129.45. Sunset.

This Article is repealed effective January 1, 2015. The repeal applies to developments to which federal credits are allocated on or after January 1, 2015.

History

(2002-87, s. 1; 2004-110, s. 4.1; 2008-107, s. 28.3(a).)

Effect of Amendments. - Session Laws 2004-110, s. 4.1, effective July 17, 2004, substituted "2010" for "2006" twice.

Session Laws 2008-107, s. 28.3(a), effective July 16, 2008, substituted "January 1, 2015" for "January 1, 2010" twice.

§§ 105-129.46 through 105-129.49: Reserved for future codification purposes.

ARTICLE 3F. Research and Development.

(See note for repeal of this Article.)

Sec.

§ 105-129.50. (See note for repeal) Definitions.

The definitions in section 41 of the Code apply in this Article. In addition, the following definitions apply in this Article:

Development tier one area. - Defined in G.S. 143B-437.08.
Full-time job. - Defined in G.S. 105-129.81.
Reserved.
North Carolina university research expenses. - Any amount the taxpayer paid or incurred to a research university for qualified research performed in this State or basic research performed in this State.
Repealed by Session Laws 2013-316, s. 2.3(b), effective for taxable years beginning on or after January 1, 2014.
Period of measurement. - Defined in the Small Business Size Regulations of the federal Small Business Administration.
Qualified North Carolina research expenses. - Qualified research expenses, other than North Carolina university research expenses, for research performed in this State.
Receipts. - Defined in the Small Business Size Regulations of the federal Small Business Administration.
Related person. - Defined in G.S. 105-163.010.
Research university. - An institution of higher education that meets one or both of the following conditions:
1. It is classified as one of the following in the most recent edition of "A Classification of Institutions of Higher Education", the official report of The Carnegie Foundation for the Advancement of Teaching:
  1. Doctoral/Research Universities, Extensive or Intensive.
  2. Masters Colleges and Universities, I or II.
  3. Baccalaureate Colleges, Liberal Arts or General.
2. It is a constituent institution of The University of North Carolina.
Small business. - A business whose annual receipts, combined with the annual receipts of all related persons, for the applicable period of measurement did not exceed one million dollars ($1,000,000).

History

(2004-124, s. 32D.2; 2010-147, s. 3.2; 2011-330, s. 4; 2013-316, s. 2.3(b).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105- 129.51(b).

Editor's Note. - Session Laws 2010-147, s. 3.1, effective for taxable years beginning on or after January 1, 2011, rewrote the Article 3F heading, which formerly read "Research and Development."

Effect of Amendments. - Session Laws 2010-147, s. 3.2, effective for taxable years beginning on or after January 1, 2011, added subdivisions (2) and (3) and made a conforming change in subdivision (1); and added subdivision (4a).

Session Laws 2011-330, s. 4, effective June 27, 2011, added subdivision (1).

Session Laws 2013-316, s. 2.3(b), effective for taxable years beginning on or after January 1, 2014, deleted subdivision (4a).

§ 105-129.51. (See note for repeal) Taxpayer standards and sunset.

A taxpayer is eligible for a credit allowed in this Article if it satisfies the requirements of G.S. 105-129.83(c), (d), (e), (f), and (g) relating to wage standard, health insurance, environmental impact, safety and health programs, and overdue tax debts, respectively.
This Article is repealed for taxable years beginning on or after January 1, 2016.
Repealed by Session Laws 2004-124, s. 32D.4, effective for taxable years beginning on or after January 1, 2006.

History

(2004-124, ss. 32D.2, s. 32D.4; 2006-252, s. 2.20; 2008-107, s. 28.2(a); 2010-147, s. 3.3; 2013-316, s. 2.3(c).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.51(b).

Editor's Note. - Session Laws 2013-316, s. 9(a), provides: "This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this act before the effective date of its amendment or repeal; nor does it 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."

Session Laws 2013-316, s. 2.3(c), which substituted "January 1, 2016" for "January 1, 2014" in subsection (b), was effective for taxable years beginning on or after January 1, 2014.

Effect of Amendments. - Session Laws 2004-124, s. 32D.4, effective for taxable years beginning on or after January 1, 2006, repealed subsection (c).

Session Laws 2006-252, s. 2.20, effective January 1, 2007, substituted "G.S. 105-129.83(c), (d), (e), and (f)" for "G.S. 105-129.4(b), (b2), (b3), and (b4)" in subsection (a).

Session Laws 2008-107, s. 28.2(a), effective July 16, 2008, substituted "January 1, 2014" for "January 1, 2009" in subsection (b).

Session Laws 2010-147, s. 3.3, effective for taxable years beginning on or after January 1, 2011, rewrote the section catchline, which formerly read: "Administration; sunset"; and in subsection (a), substituted "a credit" for "the credit," substituted "G.S. 105-129.83(c), (d), (e), (f), and (g)" for "G.S. 105-129.83(c), (d), (e), and (f)," inserted "and overdue tax debts," and made related grammatical changes.

Session Laws 2013-316, s. 2.3(c), effective for taxable years beginning on or after January 1, 2014, substituted "January 1, 2016" for "January 1, 2014" in subsection (b).

§ 105-129.52. (See note for repeal) Tax election; cap.

Tax Election. - A credit allowed in this Article is allowed against the franchise tax levied in Article 3 of this Chapter or the income taxes levied in Article 4 of this Chapter. The taxpayer must elect the tax against which a credit will be claimed when filing the return on which the credit is first claimed. This election is binding. Any carryforwards of a credit must be claimed against the same tax.
Cap. - A credit allowed in this Article may not exceed fifty percent (50%) of the amount of tax against which it is claimed for the taxable year, reduced by the sum of all other credits allowed against that tax, except tax payments made by or on behalf of the taxpayer. This limitation applies to the cumulative amount of credit, including carryforwards, claimed by the taxpayer under this Article against each tax for the taxable year. Any unused portion of a credit allowed in this Article may be carried forward for the succeeding 15 years.

History

(2004-124, s. 32D.2; 2010-96, s. 40.3; 2010-147, s. 3.4.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3F, see G.S. 105-129.51(b).

Editor's Note. - Session Laws 2010-147, s. 3.4, stated in its prefatory language that "G.S. 150-129.52 reads as rewritten." The prefatory language was amended by Session Laws 2010-96, s. 40.3, to read "G.S. 105-129.52 reads as rewritten."

Session Laws 2010-96, s. 40.3 was contingent upon House Bill 1973, 2009 Regular Session, becoming law. House Bill 1973 was enacted as Session Laws 2010-147.

Effect of Amendments. - Session Laws 2010-147, s. 3.4, as amended by Session Laws 2010-96, s. 40.3, effective July 20, 2010, substituted "A credit" for "The credit" at the beginning of subsection (a).

§ 105-129.53. (See note for repeal) Substantiation.

To claim a credit allowed by this Article, the taxpayer must provide any information required by the Secretary. Every taxpayer claiming a credit under this Article must maintain and make available for inspection by the Secretary any records the Secretary considers necessary to determine and verify the amount of the credit to which the taxpayer is entitled. The burden of proving eligibility for a credit and the amount of the credit rests upon the taxpayer, and no credit may be allowed to a taxpayer that fails to maintain adequate records or to make them available for inspection.

History

(2004-124, s. 32D.2.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3F, see G.S. 105-129.51(b).

Editor's Note. - Session Laws 2010-147, ss. 3.1 through 3.6 and 5.5, effective for taxable years beginning on or after January 1, 2011, rewrote the Article 3F heading, amended G.S. 105-129.50 through 105-129.52 and G.S. 105-129.54 through 105- 129.55, and enacted G.S. 105-129.56. G.S. 105- 129.53 was not amended by Session Laws 2010- 147.

§ 105-129.54. (See note for repeal) Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by credit and by taxpayer:

The number of taxpayers that took a credit allowed in this Article, itemized by the categories of small business, low-tier, university research, Eco-Industrial Park, and other.
The amount of each credit taken in each category.
The total cost to the General Fund of the credits taken.

History

(2004-124, s. 32D.2; 2005-429, s. 2.7; 2010- 147, s. 3.5; 2010-166, s. 1.7; 2013-316, s. 2.3(d).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.51(b).

Session Laws 2013-316, s. 9(a), provides: "This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this act before the effective date of its amendment or repeal; nor does it 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."

Effect of Amendments. - Session Laws 2005-429, s. 2.6, effective January 1, 2007, in the introductory language, substituted "publish" for "report to the Revenue Laws Study Committee and the Fiscal Research Division of the General Assembly" and "December 31" for "April 1"; substituted "took" for "claimed" in subdivision (1); and substituted "taken" for "claimed" in subdivisions (2) and (3).

Session Laws 2010-147, s. 3.5, effective for taxable years beginning on or after January 1, 2011, in the introductory language, inserted "credit and by"; and rewrote subdivision (1), which formerly read: "The number of taxpayers that took a credit allowed in this Article, itemized by the categories of small business, low-tier, other, and university research."

Session Laws 2010-166, s. 1.7, effective July 1, 2010, in the section catchline, substituted "Report" for "Reports"; and rewrote the introductory paragraph, which formerly read: "The Department of Revenue must publish by May 1 of each year the following information itemized by taxpayer for the 12-month period ending the preceding December 31."

Session Laws 2013-316, s. 2.3(d), effective for taxable years beginning on or after January 1, 2014, in subdivision (1), substituted "Article," for "Article. The credit allowed under G.S. 105-129.55 must be" and deleted the former third sentence, which read "The credit allowed under G.S. 105-129.56 must be itemized by the categories of higher education collaboration and other."

§ 105-129.55. (See note for repeal) Credit for North Carolina research and development.

Qualified North Carolina Research Expenses. - A taxpayer that has qualified North Carolina research expenses for the taxable year is allowed a credit equal to a percentage of the expenses, determined as provided in this section. Only one credit is allowed under this section with respect to the same expenses. If more than one subdivision of this section applies to the same expenses, then the credit is equal to the higher percentage, not both percentages combined. If part of the taxpayer's qualified North Carolina research expenses qualifies under more than one subdivision of this section, the applicable percentages apply separately to each part of the expenses.
1. Small business. - If the taxpayer was a small business as of the last day of the taxable year, the applicable percentage is three and one-quarter percent (3.25%).
2. Low-tier research. - For expenses with respect to research performed in a development tier one area, the applicable percentage is three and one-quarter percent (3.25%).
3. University research. - For North Carolina university research expenses, the applicable percentage is twenty percent (20%).
4. Eco-Industrial Park. - For expenses with respect to research performed in an Eco-Industrial Park certified under G.S. 143B-437.08, the applicable percentage is thirty-five percent (35%).
5. Other research. - For expenses not covered under another subdivision of this section, the percentages provided in the table below apply to the taxpayer's qualified North Carolina research expenses during the taxable year at the following levels:
Repealed by Session Laws 2010-147, s. 5.5, effective January 1, 2011.

Expenses Over Up To Rate -0- $50 million 1.25% $50 million $200 million 2.25% $200 million - 3.25%

History

(2004-124, s. 32D.2; 2006-252, s. 2.1; 2007-323, s. 31.8(a); 2010-147, s. 5.5.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3F, see G.S. 105-129.51(b).

Session Laws 2006-252, s. 2.1, effective January 1, 2007, substituted "a development tier one" for "an enterprise tier one, two, or three" in subdivision (a)(2).

Session Laws 2007-323, s. 31.8(a), effective for taxable years beginning on or after January 1, 2007, in subsection (a), substituted "three and one-quarter percents (3.25%)" for "three percent (3%)" at the end of subdivisions (a)(1) and (a)(2), and, in the table in subdivision (a)(3), substituted "(1.25%)" for "(1%)," "(2.25%)" for "(2%)," and "(3.25%)" for "(3%)"; and substituted "twenty percent (20%)" for "fifteen percent (15%)" in subsection (b).

Session Laws 2010-147, s. 5.5, effective for taxable years beginning on or after January 1, 2011, in the first paragraph substituted "section" for "subsection" throughout, and in the last sentence, substituted "under more than one subdivision of this section" for "under subdivision (2) of this subsection and the remainder qualifies under subdivision (3) of this subsection"; added subdivisions (2a) and (2b); in subdivision (3), substituted "under another subdivision of this section" for "under subdivision (1) or (2) of this subsection"; and deleted subsection (b), which pertained to North Carolina University Research expenses.

§ 105-129.56: Repealed by Session Laws 2013-316, s. 2.3(b), effective for taxable years beginning on or after January 1, 2014.

History

(2010-147, s. 3.6; repealed by 2013-316, s. 2.3(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-129.56 pertained to interactive digital media.

§§ 105-129.57 through 105-129.59: Reserved for future codification purposes.

ARTICLE 3G. Tax Incentives for Major Computer Manufacturing Facilities.

§§ 105-129.60 through 105-129.66: Repealed by Session Laws 2010-166, s. 2.2, effective July 1, 2010.

History

(§§ 105-129.60, 105-129.61: 2004-204, 1st Ex. Sess., s. 1, repealed by 2010-166, s. 2.2, effective July 1, 2010. § 105-129.62: 2004-204, 1st Ex. Sess., s. 1; 2005-435, s. 29(a), (b), (c). § 105-129.63: 2004-204, 1st Ex. Sess., s. 1; 2005-435, s. 29(d); 2007-491, s. 44(1)a., repealed by 2010-166, s. 2.2, effective July 1, 2010. §§ 105-129.64, 105-129.65: 2004-204, 1st Ex. Sess., s. 1, repealed by 2010-166, s. 2.2, effective July 1, 2010. § 105-129.6A5: 2005-429, s. 2.8, repealed by 2010-166, s. 2.2, effective July 1, 2010. § 105-129.66: 2004-204, 1st Ex. Sess., s. 1, repealed by 2010-166, s. 2.2, effective July 1, 2010.)

Editor's Note. - Former G.S. 105-129.60 pertained to legislative findings. Former G.S. 105-129.61 pertained to definitions. Former G.S. 105-129.62 pertained to eligibility. Former G.S. 105-129.63 pertained to determinations by the Secretary of Commerce. Former G.S. 105-129.64 pertained to credit for major computer manufacturing facilities. Former G.S. 105-129.65 pertained to allocation; cap; makeup; and carryforward. Former G.S. 105-129.65A pertained to reports. Former G.S. 105-129.66 was a sunset provision for Article 3G.

§§ 105-129.67 through 105-129.69: Reserved for future codification purposes.

ARTICLE 3H. Mill Rehabilitation Tax Credit.

(See G.S. 105-129.75 for repeal of this Article.)

Sec.

§ 105-129.70. (See note for repeal) Definitions.

The following definitions apply in this Article:

Certified historic structure. - Defined in section 47 of the Code.
Certified rehabilitation. - Defined in G.S. 105-129.36.
Cost certification. - The certification obtained by the State Historic Preservation Officer from the taxpayer of the amount of the qualified rehabilitation expenditures or the rehabilitation expenses incurred with respect to a certified rehabilitation of an eligible site.
Development tier area. - Defined in G.S. 143B-437.08.
Eligibility certification. - The certification obtained from the State Historic Preservation Officer that the applicable facility comprises an eligible site.
Eligible site. - A site located in this State that satisfies all of the following conditions:
1. It was used as a manufacturing facility or for purposes ancillary to manufacturing, as a warehouse for selling agricultural products, or as a public or private utility.
2. It is a certified historic structure or a State-certified historic structure.
3. It has been at least eighty percent (80%) vacant for a period of at least two years immediately preceding the date the eligibility certification is made.
4. Repealed by Session Laws 2008-107, s. 28.4(a), effective for taxable years beginning on or after January 1, 2008.
Repealed by Session Laws 2006-252, s. 2.22, effective January 1, 2007.
Pass-through entity. - Defined in G.S. 105-228.90.
Qualified rehabilitation expenditures. - Defined in section 47 of the Code.
Rehabilitation expenses. - Defined in G.S. 105-129.36.
State-certified historic structure. - Defined in G.S. 105-129.36.
State Historic Preservation Officer. - Defined in G.S. 105-129.36.

History

(2006-40, s. 1; 2006-252, s. 2.22; 2008-107, s. 28.4(a).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.75.

Effect of Amendments. - Session Laws 2006-252, s. 2.22, effective January 1, 2007, added subdivision (3a) and deleted subdivision (6), which read: "Enterprise tier area. - Defined in G.S. 105-129.3."

Session Laws 2008-107, s. 28.4(a), effective for taxable years beginning on or after January 1, 2008, in subdivision (3), inserted "a certified rehabilitation of"; in subdivision (4), deleted "and that the rehabilitation is a certified rehabilitation" from the end; and deleted subdivision (5)d, which read: "The cost certification documents that the qualified rehabilitation expenditures for a site for which a taxpayer is allowed a credit under section 47 of the Code or the rehabilitation expenses for a site for which the taxpayer is not allowed a credit under section 47 of the Code exceed three million dollars ($3,000,000) for the site as a whole."

§ 105-129.71. (See note for repeal) Credit for income-producing rehabilitated mill property.

Credit. - A taxpayer who is allowed a credit under section 47 of the Code for making qualified rehabilitation expenditures of at least three million dollars ($3,000,000) with respect to a certified rehabilitation of an eligible site is allowed a credit equal to a percentage of the expenditures that qualify for the federal credit. The credit may be claimed in the year in which the eligible site is placed into service. When the eligible site is placed into service in two or more phases in different years, the amount of credit that may be claimed in a year is the amount based on the qualified rehabilitation expenditures associated with the phase placed into service during that year. In order to be eligible for a credit allowed by this Article, the taxpayer must provide to the Secretary a copy of the eligibility certification and the cost certification. The amount of the credit is as follows:
1. For an eligible site located in a development tier one or two area, determined as of the date of the eligibility certification, the amount of the credit is equal to forty percent (40%) of the qualified rehabilitation expenditures.
2. For an eligible site located in a development tier three area, determined as of the date of the eligibility certification, the amount of the credit is equal to thirty percent (30%) of the qualified rehabilitation expenditures.
Credit for Rehabilitated Railroad Station. - A taxpayer who is allowed a credit under section 47 of the Code for making qualified rehabilitation expenditures of at least ten million dollars ($10,000,000) with respect to a certified rehabilitation of an eligible railroad station is allowed a credit equal to a percentage of the expenditures that qualify for the federal credit. In order to be eligible for a credit allowed by this Article, the taxpayer must provide to the Secretary a copy of the eligibility certification and the cost certification. The amount of the credit is equal to forty percent (40%) of the qualified rehabilitation expenditures. The credit cannot be claimed for a taxable year beginning prior to January 1, 2021. The tax credit must be taken in two equal installments on returns filed for taxable years 2021 and 2022. The sum of the two installments is equal to the credit amount allowed for qualified rehabilitation expenditures incurred in taxable years 2019, 2020, and 2021.
1. It was used as a manufacturing facility and either (i) was used as a railroad station or (ii) is located adjacent to a site that is or was used as a railroad station.
2. It is a certified historic structure or a State-certified historic structure.
3. It has been at least eighty percent (80%) vacant for a period of at least two years immediately preceding the date the eligibility certification is made.
4. It is a designated local landmark as certified by a city on or before June 30, 2019.
5. It is located in a development tier one or tier two area, determined as of the date of the eligibility certification.
6. It is located in a designated qualified opportunity zone under sections 1400Z-1 and 1400Z-2 of the Code, determined as of the date of the eligibility certification.
7. It is issued a certificate of occupancy on or before December 31, 2021.
Allocation. - Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this section may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass-through entity, as determined under the Code, at the end of the taxable year in which the eligible site is placed in service, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass-through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass-through entity and the allocation that would have been required under G.S. 105-131.8 or G.S. 105-269.15.
Forfeiture for Change in Ownership. - If an owner of a pass-through entity that has qualified for the credit allowed under this section disposes of all or a portion of the owner's interest in the pass-through entity within five years from the date the eligible site is placed in service and the owner's interest in the pass-through entity is reduced to less than two-thirds of the owner's interest in the pass-through entity at the time the eligible site was placed in service, the owner forfeits a portion of the credit. The amount forfeited is determined by multiplying the amount of credit by the percentage reduction in ownership and then multiplying that product by the forfeiture percentage. The forfeiture percentage equals the recapture percentage found in the table in section 50(a)(1)(B) of the Code.
Exceptions to Forfeiture. - Forfeiture as provided in subsection (c) of this section is not required if the change in ownership is the result of any of the following:
1. The death of the owner.
2. A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
Liability from Forfeiture. - A taxpayer or an owner of a pass-through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass-through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

For purposes of this subsection, the term "eligible railroad station" is a site located in this State that satisfies all of the following conditions:

History

(2006-40, s. 1; 2006-252, s. 2.23; 2006-259, s. 47.5; 2007-491, s. 44(1)a; 2008-107, s. 28.4(b); 2019-237, s. 3(b).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3H, see G.S. 105-129.75.

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Effect of Amendments. - Session Laws 2006-252, s. 2.23, as amended by Session Laws 2006-259, s. 47.5, effective January 1, 2007, substituted "a development tier one or two" for "an enterprise tier one, two, or three" in subdivision (a)(1) and "a development tier three" for "an enterprise tier four or five" in subdivision (a)(2).

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (e). For applicability, see Editor's note.

Session Laws 2008-107, s. 28.4(b), effective for taxable years beginning on or after January 1, 2008, in subsection (a), inserted "of at least three million dollars ($3,000,000)" and "a certified rehabilitation of" in the first sentence; and in subdivisions (a)(1) and (a)(2), inserted "the eligibility".

Session Laws 2019-237, s. 3(b), effective November 1, 2019, added subsection (a1).

§ 105-129.72. (See note for repeal) Credit for nonincome-producing rehabilitated mill property.

Credit. - A taxpayer who is not allowed a federal income tax credit under section 47 of the Code and who makes rehabilitation expenses of at least three million dollars ($3,000,000) with respect to a certified rehabilitation of an eligible site is allowed a credit equal to a percentage of the rehabilitation expenses. The entire credit may not be taken for the taxable year in which the property is placed in service, but must be taken in five equal installments beginning with the taxable year in which the property is placed in service. When the eligible site is placed into service in two or more phases in different years, the amount of credit that may be claimed in a year is the amount based on the rehabilitation expenses associated with the phase placed into service during that year. In order to be eligible for a credit allowed by this Article, the taxpayer must provide to the Secretary a copy of the eligibility certification and the cost certification. For an eligible site located in a development tier one or two area, determined as of the date of the eligibility certification, the amount of the credit is equal to forty percent (40%) of the rehabilitation expenses. No credit is allowed for a site located in a development tier three area.
Allocation. - Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this section may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass-through entity, as determined under the Code, at the end of the taxable year in which the eligible site is placed in service, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass-through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass-through entity and the allocation that would have been required under G.S. 105-131.8 or G.S. 105-269.15.
Forfeiture for Change in Ownership. - If an owner of a pass-through entity that has qualified for the credit allowed under this section disposes of all or a portion of the owner's interest in the pass-through entity within five years from the date the eligible site is placed in service and the owner's interest in the pass-through entity is reduced to less than two-thirds of the owner's interest in the pass-through entity at the time the eligible site was placed in service, the owner forfeits a portion of the credit. The amount forfeited is determined by multiplying the amount of credit by the percentage reduction in ownership and then multiplying that product by the forfeiture percentage. The forfeiture percentage equals the recapture percentage found in the table in section 50(a)(1)(B) of the Code. The remaining allocable credit is allocated equally among the five years in which the credit is claimed.
Exceptions to Forfeiture. - Forfeiture as provided in subsection (c) of this section is not required if the change in ownership is the result of any of the following:
1. The death of the owner.
2. A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
Liability from Forfeiture. - A taxpayer or an owner of a pass-through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass-through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

History

(2006-40, s. 1; 2006-252, s. 2.24; 2007-491, s. 44(1)a; 2008-107, s. 28.4(c).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3H, see G.S. 105-129.75.

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2006-252, s. 2.24, effective January 1, 2007, in subsection (a), substituted "a development tier one or two" for "an enterprise tier one, two, or three" in the next-to-last sentence and "a development tier three" for "an enterprise tier four or five" in the last sentence.

Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the first sentence of subsection (e). For applicability, see Editor's note.

Session Laws 2008-107, s. 28.4(c), effective for taxable years beginning on or after January 1, 2008, in subsection (a), in the first sentence, inserted "of at least three million dollars ($3,000,000)" and "a certified rehabilitation of," and in the next to last sentence, inserted "the eligibility."

§ 105-129.73. (See note for repeal) Tax credited; cap.

Taxes Credited. - The credits allowed by this Article may be claimed against the franchise tax imposed under Article 3 of this Chapter, the income taxes imposed under Article 4 of this Chapter, or the gross premiums tax imposed under Article 8B of this Chapter. The taxpayer may take the credits allowed by this Article against only one of the taxes against which it is allowed. The taxpayer must elect the tax against which a credit will be claimed when filing the return on which it is claimed. This election is binding. Any carryforwards of the credit must be claimed against the same tax.
Cap. - A credit allowed under this Article may not exceed the amount of the tax against which it is claimed for the taxable year reduced by the sum of all credits allowed, except payment of tax made by or on behalf of the taxpayer. Any unused portion of the credit may be carried forward for the succeeding nine years.

History

(2006-40, s. 1.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3H, see G.S. 105-129.75.

§ 105-129.74. Coordination with Historic Rehabilitation Tax Credit.

A taxpayer that claims a credit under this Article may not also claim a credit under Article 3D or 3L of this Chapter with respect to the same activity. The rules and fee schedule adopted under G.S. 105-129.36A or G.S. 105-129.107 apply to this Article.

History

(2006-40, s. 1; 2019-237, s. 3(c).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3H, see G.S. 105-129.75.

Editor's Note. - Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Effect of Amendments. - Session Laws 2019-237, s. 3(c), effective November 1, 2019, substituted "Historic Rehabilitation Tax Credit" for "Article 3D of this Chapter" in the section heading; inserted "or 3L" in the first sentence; and inserted "or G.S. 105-129.107" in the second sentence.

§ 105-129.75. Sunset and applicable expenditures.

Sunset. - Except for credits allowed under G.S. 105-129.71(a1), this Article expires January 1, 2015, for rehabilitation projects for which an application for an eligibility certification is submitted on or after that date. Eligibility certifications under this Article expire January 1, 2023.
Delayed Sunset and Applicable Expenditures. - For credits allowed under G.S. 105-129.71(a1), the following applies:
1. The qualified rehabilitation expenditures must be incurred on or after January 1, 2019, and before January 1, 2022.
2. This Article expires, and a tax credit allowed under G.S. 105-127.71(a1) may not be claimed, for rehabilitation projects not completed and placed in service prior to January 1, 2022.

History

(2006-40, s. 1; 2008-107, s. 28.4(d); 2010-31, s. 31.5(a); 2012-36, s. 12(b); 2015-241, s. 32.3(b); 2019-237, s. 3(d).)

Editor's Note. - Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Effect of Amendments. - Session Laws 2008-107, s. 28.4(d), effective for taxable years beginning on or after January 1, 2008, substituted "January 1, 2011, for rehabilitation projects for which an application for an eligibility certification is submitted on or after that date" for "for qualified rehabilitation expenditures and rehabilitation expenses incurred on or after January 1, 2011."

Session Laws 2010-31, s. 31.5(a), effective June 30, 2010, substituted "January 1, 2014" for "January 1, 2011."

Session Laws 2012-36, s. 12(b), effective June 20, 2012, substituted "January 1, 2015" for "January 1, 2014".

Session Laws 2015-241, s. 32.3(b), effective September 18, 2015, added the last sentence.

Session Laws 2019-237, s. 3(d), effective November 1, 2019, added "and applicable expenditures" in the section heading; designated the existing provision as present subsection (a) and substituted "Sunset. - Except for credits allowed under G.S. 105-129.71(a1), this" for "This" at the beginning; and added subsection (b).

§ 105-129.75A. (See note for repeal) Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:

The number of taxpayers that took the credits allowed in this Article.
The amount of rehabilitation expenses and qualified rehabilitation expenditures with respect to which credits were taken.
The total cost to the General Fund of the credits taken.

History

(2010-166, s. 1.8.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.75.

ARTICLE 3I.

§§ 105-129.76 through 105-129.79: Reserved for future codification purposes.

ARTICLE 3J. Tax Credits for Growing Businesses.

(See G.S. 105-129.82(a) for repeal of Article.)

Sec.

§ 105-129.80. (See notes) Legislative findings.

The General Assembly finds that:

It is the policy of the State of North Carolina to stimulate economic activity and to create new jobs for the citizens of the State by encouraging and promoting the expansion of existing business and industry within the State and by recruiting and attracting new business and industry to the State.
Both short-term and long-term economic trends at the State, national, and international levels have made the successful implementation of the State's economic development policy and programs both more critical and more challenging, and the decline in the State's traditional industries, and the resulting adverse impact upon the State and its citizens, have been exacerbated in recent years by adverse national and State economic trends that contribute to the reduction in the State's industrial base and that inhibit the State's ability to sustain or attract new and expanding businesses.
The economic condition of the State is not static, and recent changes in the State's economic condition have created economic distress that requires a reevaluation of certain existing State programs and the enactment of a new program as provided in this Article that is designed to stimulate new economic activity and to create new jobs within the State.
The enactment of this Article is necessary to stimulate the economy and create new jobs in North Carolina, and this Article will promote the general welfare and confer, as its primary purpose and effect, benefits on citizens throughout the State through the creation of new jobs, an enlargement of the overall tax base, an expansion and diversification of the State's industrial base, and an increase in revenue to the State and its political subdivisions.
The purpose of this Article is to stimulate economic activity and to create new jobs within the State.
The State is in need of a focused tax credit program that encourages and facilitates economic growth and development within the State.
The resources of the State are not evenly distributed throughout the State and different communities have different abilities and needs in attracting and maintaining new and expanding business and industry.

History

(2006-252, s. 1.1.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.82(a).

Temporary 20-year Carryforward For Article 3J Tax Credits. - Session Laws 2012-74, s. 5(c), provides: "Notwithstanding the investment requirement of G.S. 105-129.84(c), if the Secretary of Commerce makes a written determination that the taxpayer is expected to purchase or lease, and place in service in connection with an eligible business within a two-year period, at least one hundred million dollars ($100,000,000) worth of business and real property in a development tier one area, any unused portion of a credit under Article 3J of Chapter 105 of the General Statutes with respect to the establishment that satisfies that condition may be carried forward for the succeeding 20 years. If the taxpayer does not make the required level of investment, the taxpayer shall apply the five-year carryforward period rather than the 20-year carryforward period. This section is effective for taxable years beginning on or after January 1, 2012, and expires for taxable years beginning on or after January 1, 2013."

Editor's Note. - Session Laws 2006-252, s. 1.5, made this Article effective for taxable years beginning on or after January 1, 2007.

Session Laws 2006-252, s. 1.4, provides: "The Department of Commerce shall, in consultation with the North Carolina Rural Center, Inc. and lower-tiered counties, develop additional strategies to enhance economic growth and development in economically distressed areas. The Department shall report on the results of this study to the Joint Legislation Economic Development Oversight Committee by January 1, 2007. For the purposes of this section, 'economically distressed areas' means enterprise tier one areas as defined in G.S. 105-129.3."

Session Laws 2008-134, s. 78, provides: "An employee of the State may provide tax information about tax credits claimed under former Article 3A or current Article 3J of Chapter 105 of the General Statutes to the University of North Carolina at Chapel Hill (University) to enable the University to compile statistical information to fulfill a contractual obligation between the University and the North Carolina General Assembly, on behalf of the Joint Select Committee on Economic Development Incentives established by the President Pro Tempore of the Senate and the Speaker of the House of Representatives on March 2, 2007. In lieu of extracting the needed information from these tax returns, the State may provide a copy of the returns to the University so the University can extract the information. The disclosure allowed by this section is an exception to G.S. 105-259. A person to whom a disclosure is made under this section is subject to the same confidentiality requirements as an employee of the State who has access to tax information."

Legal Periodicals. - For article, "Blinson V. State and the Continued Erosion of the Public Purpose Doctrine in North Carolina," see 87 N.C.L. Rev. 644 (2009).

§ 105-129.81. (See notes) Definitions.

The following definitions apply in this Article:

Agrarian growth zone. - Defined in G.S. 143B-437.010.
Air courier services. - Defined in G.S. 143B-437.01.
Aircraft maintenance and repair. - The provision of specialized maintenance or repair services for commercial aircraft or the rebuilding of commercial aircraft.
Business property. - Tangible personal property that is used in a business and capitalized by the taxpayer for tax purposes under the Code.
Company headquarters. - Defined in G.S. 143B-437.01.
Cost. - In the case of property owned by the taxpayer, cost is determined pursuant to regulations adopted under section 1012 of the Code. In the case of property the taxpayer leases from another, cost is value as determined pursuant to G.S. 105-130.4(j)(2).
Customer service call center. - The provision of support service by a business to its customers by telephone or other electronic means to support products or services of the business. For the purposes of this definition, an establishment is primarily engaged in providing support services by telephone or other electronic means only if at least sixty percent (60%) of its calls are incoming or at least sixty percent (60%) of its other electronic communications are initiated by its customers.
Development tier. - The classification assigned to an area pursuant to G.S. 143B-437.08.
Electronic shopping and mail order houses. - An industry in electronic shopping and mail order houses industry group 4541 as defined by NAICS.
Environmental disqualifying event. - Any of the following occurrences:
1. During the tax year in which the activity occurred for which a credit is being claimed, a civil penalty was assessed against the taxpayer by the Department of Environmental Quality for failure to comply with an order issued by an agency of the Department to abate or remediate a violation of any program administered by the agency.
2. During the tax year in which the activity occurred for which a credit is being claimed or in the prior two tax years, any of the following:
  1. A finding was made by the Department of Environmental Quality that the taxpayer knowingly and willfully, as defined in G.S. 143-215.6B, including all limitations thereto, committed a violation of any program implemented by an agency of the Department.
  2. An assessment for damages to fish or wildlife pursuant to G.S. 143-215.3(a)(7) was made against the taxpayer.
  3. A judicial order for injunctive relief was issued against the taxpayer in connection with a violation of any program implemented by an agency of the Department of Environmental Quality.
3. During the tax year in which the activity occurred for which the credit is being claimed or in the prior four tax years, a criminal penalty was imposed on the taxpayer in connection with a violation of any program implemented by an agency of the Department of Environmental Quality.
Establishment. - Defined in 29 C.F.R. § 1904.46, as it existed on January 1, 2002.
Full-time job. - A position that requires at least 1,600 hours of work per year and is intended to be held by one employee during the entire year. A full-time employee is an employee who holds a full-time job.
Hub. - Defined in G.S. 105-164.3.
Information technology and services. - Defined in G.S. 143B-437.01.
Long-term unemployed worker. - An individual that has been totally unemployed for at least the preceding 26 consecutive weeks as evidenced by records maintained by the Division of Employment Security (DES) of the Department of Commerce.
Manufacturing. - Defined in G.S. 143B-437.01.
Motorsports facility. - A motorsports racetrack classified in the United States racetrack national industry 711212, as defined by NAICS.
Motorsports racing team. - A professional racing team primarily engaged in the research and development, design, manufacture, repair, maintenance, and operation of motor vehicles used in live motorsports racing events before a paying audience.
NAICS. - Defined in G.S. 105-228.90.
New job. - A full-time job that represents a net increase in the number of the taxpayer's employees statewide. A new employee is an employee who holds a new job. The term does not include a job currently located in this State that is transferred to the business from a related member of the business.
Overdue tax debt. - Defined in G.S. 105-243.1.
Port enhancement zone. - Defined in G.S. 143B-437.013.
Purchase. - Defined in section 179 of the Code.
Related member. - Defined in G.S. 105-130.7A.
Research and development. - An industry in scientific research and development services industry group 5417 as defined by NAICS.
Urban progress zone. - The classification assigned to an area pursuant to G.S. 143B-437.09.
Warehousing. - Defined in G.S. 143B-437.01.
Wholesale trade. - Defined in G.S. 143B-437.01.

History

(2006-252, s. 1.1; 2007-484, s. 33(b); 2010-147, s. 1.3; 2011-302, s. 6; 2011-330, s. 31(b); 2011-401, s. 5.1; 2012-79, s. 2.4; 2013-360, s. 15.18(b); 2015-241, s. 14.30(u).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Editor's Note. - Session Laws 2006-252, s. 1.1, enacted subdivisions (2) and (3) as subdivisions (3) and (2), respectively. They were redesignated at the direction of the Revisor of Statutes to preserve alphabetical order.

Effect of Amendments. - Session Laws 2007-484, s. 33(a), effective July 1, 2007, substituted "G.S. 143B-437.010" for "G.S. 143B-437.10" in subdivision (1).

Session Laws 2010-147, s. 1.3, effective for credits claimed for taxable years beginning on or after January 1, 2007, added subdivision (9a).

Session Laws 2011-302, s. 6, effective for taxable years beginning on or after January 1, 2013, added subdivision (20a).

Session Laws 2011-330, s. 31(b), effective June 27, 2011, in the introductory paragraph of subdivision (13), added "as defined by NAICS"; rewrote subdivision (13)a., which formerly read: "Internet service providers, Web search portals, and data processing subsector 518 as defined by NAICS"; in subdivisions (13)b. and (13)c., deleted "as defined by NAICS" from the end; added subdivision (13)d.; and rewrote the last sentence of subdivision (18), which formerly read: "The North American Industry Classification System adopted by the United States Office of Management and Budget as of December 31, 2002."

§ 105-129.82. (See notes) Sunset; studies.

Sunset. - This Article is repealed effective for business activities that occur on or after January 1, 2014.
Equity Study. - The Department of Commerce shall study the effect of the tax incentives provided in this Article on tax equity. This study shall include the following:
1. Reexamining the formula in G.S. 143B-437.08 used to define development tiers, to include consideration of alternative measures for more equitable treatment of counties in similar economic circumstances.
2. Considering whether the assignment of tiers and the applicable thresholds are equitable for smaller counties.
3. Compiling any available data on whether expanding North Carolina businesses receive fewer benefits than out-of-State businesses that locate to North Carolina.
Impact Study. - The Department of Commerce shall study the effectiveness of the tax incentives provided in this Article. This study shall include:
1. Studying the distribution of tax incentives across new and expanding businesses and industries.
2. Examining data on economic recruitment for the period from 2005 through the most recent year for which data are available by county, by industry type, by size of investment, and by number of jobs, and other relevant information to determine the pattern of business locations and expansions before and after the enactment of this Article.
3. Measuring the direct costs and benefits of the tax incentives.
4. Compiling available information on the current use of incentives by other states and whether that use is increasing or declining.
Report. - The Department of Commerce shall report the results of these studies and its recommendations to the General Assembly biennially with the first report due by June 1, 2009.

History

(2006-252, s. 1.1; 2010-147, s. 1.1; 2012-36, s. 5.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Effect of Amendments. - Session Laws 2010-147, s. 1.1, effective July 22, 2010, substituted "January 1, 2013 " for "January 1, 2011 " in subsection (a).

Session Laws 2012-36, s. 5, effective June 20, 2012, substituted "January 1, 2014 " for "January 1, 2013 " in subsection (a).

§ 105-129.83. (See notes) Eligibility; forfeiture.

Eligible Business. - A taxpayer is eligible for a credit under this Article only with respect to activities occurring at an establishment whose primary activity is listed in this subsection. The primary activity of an establishment is determined based on the establishment's principal product or group of products produced or distributed, or services rendered.
1. Air courier services hub.
2. Aircraft maintenance and repair.
3. Company headquarters, but only if the additional eligibility requirements of subsection (b) of this section are satisfied.
4. Customer service call centers.
5. Electronic shopping and mail order houses.
6. Information technology and services.
7. Manufacturing.
8. Motorsports facility.
9. Motorsports racing team.
10. Research and development.
11. Warehousing.
12. Wholesale trade.
Company Headquarters Eligibility. - A taxpayer is eligible for a credit under this Article with respect to a company headquarters only if the taxpayer creates at least 75 new jobs at the company headquarters within a 24-month period. A taxpayer that meets this job creation requirement is eligible for credits under this Article with respect to the company headquarters for three taxable years beginning with the year in which the job creation requirement is satisfied. A taxpayer that creates an additional 75 new jobs at the company headquarters in a 24-month period during a three-year eligibility period does not qualify for any extended eligibility period. However, a taxpayer that creates an additional 75 new jobs at the company headquarters in a 24-month period after the completion of a three-year eligibility period is eligible for credits with respect to the company headquarters for an additional three taxable years beginning in the year in which the additional job creation requirement is satisfied.
Wage Standard. - A taxpayer is eligible for a credit under this Article in a development tier two or three area only if the taxpayer satisfies a wage standard. The taxpayer is not required to satisfy a wage standard if the activity occurs in a development tier one area. Jobs that are located within an urban progress zone, a port enhancement zone, or an agrarian growth zone but not in a development tier one area satisfy the wage standard if they pay an average weekly wage that is at least equal to ninety percent (90%) of the lesser of the average wage for all insured private employers in the State and the average wage for all insured private employers in the county. All other jobs satisfy the wage standard if they pay an average weekly wage that is at least equal to the lesser of one hundred ten percent (110%) of the average wage for all insured private employers in the State and ninety percent (90%) of the average wage for all insured private employers in the county. The Department of Commerce shall annually publish the wage standard for each county.
Health Insurance. - A taxpayer is eligible for a credit under this Article only if the taxpayer provides health insurance for all of the full-time jobs at the establishment with respect to which the credit is claimed when the taxpayer engages in the activity that qualifies for the credit. For the purposes of this subsection, a taxpayer provides health insurance if it pays at least fifty percent (50%) of the premiums for health care coverage that equals or exceeds the minimum provisions of the basic health care plan of coverage recommended by the Small Employer Carrier Committee pursuant to G.S. 58-50-125.
Environmental Impact. - A taxpayer is eligible for a credit allowed under this Article only if the taxpayer certifies that, at the time the taxpayer claims the credit, there has not been a final determination unfavorable to the taxpayer with respect to an environmental disqualifying event. For the purposes of this section, a "final determination unfavorable to the taxpayer" occurs when there is no further opportunity for the taxpayer to seek administrative or judicial appeal, review, certiorari, or rehearing of the environmental disqualifying event and the disqualifying event has not been reversed or withdrawn. No later than January 31 of each year, the Secretary of Environmental Quality shall provide an annual report to the Department listing all environmental disqualifying events for which a final determination unfavorable to the taxpayer was made in the prior calendar year and shall provide the name of the taxpayer involved and the date that the disqualifying event occurred.
Safety and Health Programs. - A taxpayer is eligible for a credit allowed under this Article only if the taxpayer certifies that, as of the time the taxpayer claims the credit, at the establishment with respect to which the credit is claimed, the taxpayer has no citations under the Occupational Safety and Health Act that have become a final order within the past three years for willful serious violations or for failing to abate serious violations. For the purposes of this subsection, "serious violation" has the same meaning as in G.S. 95-127. The Commissioner of Labor shall notify the Department of Revenue annually of all employers who have had these citations become final orders within the past three years.
Overdue Tax Debts. - A taxpayer is not eligible for a credit allowed under this Article if, at the time the taxpayer claims the credit or an installment or carryforward of the credit, the taxpayer has received a notice of an overdue tax debt and that overdue tax debt has not been satisfied or otherwise resolved.
Expiration. -. If, during the period that installments of a credit under this Article accrue, the taxpayer is no longer engaged in one of the types of business described in subsection (a) of this section at the establishment for which the credit was claimed, the credit expires. If, during the period that installments of a credit under this Article accrue, the number of jobs of an eligible company headquarters falls below the minimum number required under subsection (b) of this section, any credit associated with that company headquarters expires. When a credit expires, the taxpayer may not take any remaining installments of the credit. The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.84. A change in the development tier designation of the location of an establishment does not result in expiration of a credit under this Article.
Forfeiture. - A taxpayer forfeits a credit allowed under this Article if the taxpayer was not eligible for the credit for the calendar year in which the taxpayer engaged in the activity for which the credit was claimed. A taxpayer forfeits a credit previously allowed under this Article if a final determination unfavorable to the taxpayer with respect to an environmental disqualifying event is made that is applicable to the year in which the activity occurred for which the credit was claimed. In addition, a taxpayer forfeits a credit for investment in real property under G.S. 105-129.89 if the taxpayer fails to timely create the number of required new jobs or to timely make the required level of investment under G.S. 105-129.89(b). A taxpayer that forfeits a credit under this Article is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited; a taxpayer that fails to pay the past taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.
Change in Ownership of Business. - As used in this subsection, the term "business" means a taxpayer or an establishment. The sale, merger, consolidation, conversion, acquisition, or bankruptcy of a business, or any transaction by which an existing business reformulates itself as another business, does not create new eligibility in a succeeding business with respect to credits for which the predecessor was not eligible under this Article. A successor business may, however, take any credit or carried-over portion of a credit that its predecessor could have taken if it had a tax liability. The acquisition of a business is a new investment that creates new eligibility in the acquiring taxpayer under this Article if any of the following conditions are met:
1. The business closed before it was acquired.
2. The business was required to file a notice of plant closing or mass layoff under the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, before it was acquired.
3. The business was acquired by its employees directly or indirectly through an acquisition company under an employee stock option transaction or another similar mechanism. For the purpose of this subdivision, "acquired" means that as part of the initial purchase of a business by the employees, the purchase included an agreement for the employees through the employee stock option transaction or another similar mechanism to obtain one of the following:
  1. Ownership of more than fifty percent (50%) of the business.
  2. Ownership of not less than forty percent (40%) of the business within seven years if the business has tangible assets with a net book value in excess of one hundred million dollars ($100,000,000) and has the majority of its operations located in a development tier one area.
Advisory Ruling. - A taxpayer may request in writing from the Secretary of Revenue specific advice regarding eligibility for a credit under this Article. G.S. 105-264 governs the effect of this advice. A taxpayer may not legally rely upon advice offered by any other State or local government official or employee acting in an official capacity regarding eligibility for a credit under this Article.
Planned Expansion. - A taxpayer that signs a letter of commitment with the Department of Commerce, after the Department has calculated the development tier designations for the next year but before the beginning of that year, to undertake specific activities at a specific site within the next two years may calculate the credit for which it qualifies based on the establishment's development tier designation and urban progress zone, port enhancement zone, or agrarian growth zone designation in the year in which the letter of commitment was signed by the taxpayer. If the taxpayer does not engage in the activities within the two-year period, the taxpayer does not qualify for the credit; however, if the taxpayer later engages in the activities, the taxpayer qualifies for the credit based on the development tier and urban progress zone, port enhancement zone, or agrarian growth zone designations in effect at that time.
Qualified Capital Intensive Corporations. - A corporation that is a qualified capital intensive corporation under G.S. 105-130.4(s1) is not eligible for any credit under this Article with respect to the facility that satisfies the condition of subdivision (2) of that subsection.

In making the wage calculation, the taxpayer shall include any jobs that were filled for at least 1,600 hours during the calendar year the taxpayer engages in the activity that qualifies for the credit even if those jobs are not filled at the time the taxpayer claims the credit. For a taxpayer with a taxable year other than a calendar year, the taxpayer shall use the wage standard for the calendar year in which the taxable year begins. Only full-time jobs are included when making the wage calculation.

Each year that a taxpayer claims a credit or carryforward of a credit allowed under this Article, the taxpayer shall provide with the tax return the taxpayer's certification that the taxpayer continues to provide health insurance for all the jobs at the establishment with respect to which the credit was claimed. If the taxpayer ceases to provide health insurance for the jobs during a taxable year, the credit expires, and the taxpayer may not take any remaining installment or carryforward of the credit.

History

(2006-252, s. 1.1; 2007-491, s. 44(1)a; 2009-54, s. 3; 2010-147, s. 1.4; 2011-302, s. 7; 2015-241, s. 14.30(v).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Editor's Note. - Session Laws 2006-252, s. 1.1, enacted subdivisions (a)(1) and (a)(2) as subdivisions (a)(2) and (a)(1), respectively. They were redesignated at the direction of the Revisor of Statutes to preserve alphabetical order.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Effect of Amendments. - Session Laws 2007-491, s. 44(1)a, effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in the next to last sentence in subsection (i). For applicability, see Editor's note.

Session Laws 2010-147, s. 1.4, effective for credits claimed for taxable years beginning on or after January 1, 2007, rewrote subsection (e); and added the second sentence in subsection (i).

Session Laws 2011-302, s. 7, effective for taxable years beginning on or after January 1, 2013, in the first paragraph of subsection (c), inserted "a port enhancement zone" in the fourth sentence; and in subsection ( l ), twice inserted "port enhancement zone."

Session Laws 2015-241, s. 14.30(v), effective July 1, 2015, substituted "Secretary of Environmental Quality" for "Secretary of Environment and Natural Resources" in the last sentence in subsection (e).

§ 105-129.84. (See notes) Tax election; cap; carryforwards; limitations.

Tax Election. - The credits provided in this Article are allowed against the franchise tax levied in Article 3 of this Chapter, the income taxes levied in Article 4 of this Chapter, and the gross premiums tax levied in Article 8B of this Chapter. The taxpayer may divide a credit between the taxes against which it is allowed. Carryforwards of a credit may be divided between the taxes against which it is allowed without regard to the original election regarding the division of the credit.
Cap. - The credits allowed under this Article may not exceed fifty percent (50%) of the cumulative amount of taxes against which they may be claimed for the taxable year, reduced by the sum of all other credits allowed against those taxes, except tax payments made by or on behalf of the taxpayer. This limitation applies to the cumulative amount of credit, including carryforwards, claimed by the taxpayer under this Article for the taxable year.
Carryforward. - Unless a longer carryforward period applies, any unused portion of a credit allowed under G.S. 105-129.87 or G.S. 105-129.88 may be carried forward for the succeeding five years, and any unused portion of a credit allowed under G.S. 105-129.89 may be carried forward for the succeeding 15 years. If the Secretary of Commerce makes a written determination that the taxpayer is expected to purchase or lease, and place in service in connection with an eligible business within a two-year period, at least one hundred fifty million dollars ($150,000,000) worth of business and real property, any unused portion of a credit under this Article with respect to the establishment that satisfies that condition may be carried forward for the succeeding 20 years. If the taxpayer does not make the required level of investment, the taxpayer shall apply the standard carryforward period rather than the 20-year carryforward period.
Statute of Limitations. - Notwithstanding Article 9 of this Chapter, a taxpayer shall claim a credit under this Article within six months after the date set by statute for the filing of the return, including any extensions of that date.
Credit Treated as Tax Payment. - The owner of a pass-through entity that claims a credit under this Article may treat some or all of the credit claimed as a tax payment made by or on behalf of the taxpayer. A credit claimed that is treated as a tax payment is subject to all provisions of this section. A credit claimed that is treated as a tax payment does not accrue interest under G.S. 105-241.21 if the payment is determined to be an overpayment. A taxpayer that elects to have a credit claimed under this Article treated as a tax payment must make this election when the return is filed.

History

(2006-252, s. 1.1; 2011-297, s. 4; 2013-414, s. 4.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Effect of Amendments. - Session Laws 2011-297, s. 4, effective for taxable years beginning on or after January 1, 2011, added subsection (e).

Session Laws 2013-414, s. 4, effective August 23, 2013, substituted "standard carryforward" for "five-year carryforward" in the last sentence of subsection (c).

§ 105-129.85. (See notes) Fees and reports.

Fee. - When filing a return for a taxable year in which the taxpayer engaged in activity for which the taxpayer is eligible for a credit under this Article, the taxpayer shall pay the Department of Revenue a fee of five hundred dollars ($500.00) for each type of credit the taxpayer claims or intends to claim with respect to an establishment. The fee is due at the time the return is due for the taxable year in which the taxpayer engaged in the activity for which the taxpayer is eligible for a credit. No credit is allowed under this Article for a taxable year until all outstanding fees have been paid. Fees collected under this section shall be credited to the General Fund.
Report. - The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by credit and by taxpayer:
1. The number and amount of credits generated and taken for each credit allowed in this Article.
2. The number and development tier area of new jobs with respect to which credits were generated and to which credits were taken.
3. The cost and development tier area of business property with respect to which credits were generated and to which credits were taken.
4. The cost and development tier area of real property investment with respect to which credits were generated and to which credits were taken.

History

(2006-252, s. 1.1; 2010-166, s. 1.9.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Session Laws 2010-166, s. 1.9, effective July 1, 2010, rewrote the introductory paragraph in subsection (b), which formerly read: "Reports. - The Department of Revenue shall publish by May 1 of each year the following information itemized by credit and by taxpayer for the 12-month period ending the preceding December 31."

§ 105-129.86. (See notes) Substantiation.

Records. - To claim a credit allowed by this Article, the taxpayer shall provide any information required by the Secretary of Revenue. Every taxpayer claiming a credit under this Article shall maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which the taxpayer is entitled. The burden of proving eligibility for the credit and the amount of the credit shall rest upon the taxpayer, and no credit shall be allowed to a taxpayer that fails to maintain adequate records or to make them available for inspection.
Documentation. - Each taxpayer shall provide with the tax return qualifying information for each credit claimed under this Article. The qualifying information shall be in the form prescribed by the Secretary and shall be signed and affirmed by the individual who signs the taxpayer's tax return. The information required by this subsection is information demonstrating that the taxpayer has met the conditions for qualifying for a credit and any carryforwards and includes the following:
1. The physical location of the jobs and investment with respect to which the credit is claimed, including the street address and the development tier designation of the establishment.
2. The type of business with respect to which the credit is claimed and the average weekly wage at the establishment with respect to which the credit is claimed.
3. Any other qualifying information related to a specific credit allowed under this Article.

History

(2006-252, s. 1.1.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

§ 105-129.87. (See notes) Credit for creating jobs.

Credit. - A taxpayer that meets the eligibility requirements set out in G.S. 105-129.83 and satisfies the threshold requirement for new job creation in this State under subsection (b) of this section during the taxable year is allowed a credit for creating jobs. The amount of the credit for each new job created is set out in the table below and is based on the development tier designation of the county in which the job is located. If the job is located in an urban progress zone, a port enhancement zone, or an agrarian growth zone, the amount of the credit is increased by one thousand dollars ($1,000) per job. In addition, if a job located in an urban progress zone, a port enhancement zone, or an agrarian growth zone is filled by a resident of that zone or by a long-term unemployed worker, the amount of the credit is increased by an additional two thousand dollars ($2,000) per job.
Threshold. - The applicable threshold is the appropriate amount set out in the following table based on the development tier designation of the county where the new jobs are created during the taxable year. If the taxpayer creates new jobs at more than one eligible establishment in a county during the taxable year, the threshold applies to the aggregate number of new jobs created at all eligible establishments within the county during that year. If the taxpayer creates new jobs at eligible establishments in different counties during the taxable year, the threshold applies separately to the aggregate number of new jobs created at eligible establishments in each county. If the taxpayer creates new jobs in an urban progress zone, a port enhancement zone, or an agrarian growth zone, the applicable threshold is the one for a development tier one area. New jobs created in an urban progress zone, a port enhancement zone, or an agrarian growth zone are not aggregated with jobs created at any other eligible establishments regardless of county.
Calculation. - A job is located in a county, an urban progress zone, a port enhancement zone, or an agrarian growth zone if more than fifty percent (50%) of the employee's duties are performed in the county or the zone. The number of new jobs a taxpayer creates during the taxable year is determined by subtracting the average number of full-time employees the taxpayer had in this State during the 12-month period preceding the beginning of the taxable year from the average number of full-time employees the taxpayer has in this State during the taxable year.
Installments. - The credit may not be taken in the taxable year in which the new jobs are created. Instead, the credit shall be taken in equal installments over the four years following the taxable year in which the new jobs were created and is conditional upon the continued maintenance of those jobs by the taxpayer. If, in one of the four years in which the installment of a credit accrues, a job is no longer filled, the credit with respect to that job expires, and the taxpayer may not take any remaining installment of the credit with respect to that job. If, in one of the years in which the installment of a credit accrues, the number of the taxpayer's full-time employees falls below the sum of the applicable threshold and the number of full-time employees the taxpayer had in the year before the year in which the taxpayer qualified for the credit, the credits with respect to all of the new jobs expire, and the taxpayer may not take any remaining installments of the credits. When a credit expires under this subsection, the taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.84.
Transferred Jobs. - Jobs transferred from one area in the State to another area in the State are not considered new jobs for purposes of this section. Jobs that were located in this State and that are transferred to the taxpayer from a related member of the taxpayer are not considered new jobs for purposes of this section. If, in one of the four years in which the installment of a credit accrues, the job with respect to which the credit was claimed is moved to an area in a higher-numbered development tier or out of an urban progress zone, a port enhancement zone, or an agrarian growth zone, the remaining installments of the credit are allowed only to the extent they would have been allowed if the job was initially created in the area to which it was moved. If, in one of the years in which the installment of a credit accrues, the job with respect to which the credit was claimed is moved to an area in a lower-numbered development tier or an urban progress zone, a port enhancement zone, or an agrarian growth zone, the remaining installments of the credit shall be calculated as if the job had been created initially in the area to which it was moved.
Wage Standard. -. For the purposes of this section, a taxpayer satisfies the wage standard requirement of G.S. 105-129.83 only if the taxpayer satisfies the requirement with respect to both the new jobs, considered collectively, for which a credit is claimed and all of the jobs at the establishment, considered collectively, with respect to which a credit is claimed.
No Double Credit. - A taxpayer may not claim a credit under this section with respect to jobs for which a taxpayer claims a credit under G.S. 105-129.8.

Area Development Tier Amount of Credit Tier One $12,500 Tier Two 5,000 Tier Three 750

Area Development Tier Threshold Tier One 5 Tier Two 10 Tier Three 15

History

(2006-252, s. 1.1; 2007-527, s. 6; 2011-302, s. 8.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Effect of Amendments. - Session Laws 2007-527, s. 6, effective August 31, 2007, added the sentence preceding the table in subsection (b).

Session Laws 2011-302, s. 8, effective for taxable years beginning on or after January 1, 2013, inserted "a port enhancement zone" throughout the section.

§ 105-129.88. (See notes) Credit for investing in business property.

General Credit. - A taxpayer that meets the eligibility requirements set out in G.S. 105-129.83 and that has purchased or leased business property and placed it in service in this State during the taxable year and that has satisfied the threshold requirements of subsection (c) of this section is allowed a credit equal to the applicable percentage of the excess of the eligible investment amount over the applicable threshold. If the taxpayer places business property in service in an urban progress zone, a port enhancement zone, or an agrarian growth zone, the applicable percentage is the one for a development tier one area. Business property is eligible if it is not leased to another party. The credit may not be taken for the taxable year in which the business property is placed in service but shall be taken in equal installments over the four years following the taxable year in which it is placed in service. The applicable percentage is as follows:
Eligible Investment Amount. -. The eligible investment amount is the lesser of (i) the cost of the eligible business property and (ii) the amount by which the cost of all of the taxpayer's eligible business property that is in service in this State on the last day of the taxable year exceeds the cost of all of the taxpayer's eligible business property that was in service in this State on the last day of the base year. The base year is that year, of the three immediately preceding taxable years, in which the taxpayer had the most eligible business property in service in this State.
Threshold. - The applicable threshold is the appropriate amount set out in the following table based on the development tier where the eligible business property is placed in service during the taxable year. If the taxpayer places business property in service in an urban progress zone, a port enhancement zone, or an agrarian growth zone, the applicable threshold is the one for a development tier one area. Business property placed in service in an urban progress zone, a port enhancement zone, or an agrarian growth zone is not aggregated with business property placed in service at any other eligible establishments regardless of county. If the taxpayer places eligible business property in service at more than one establishment in a county during the taxable year, the threshold applies to the aggregate amount of eligible business property placed in service during the taxable year at all establishments in the county. If the taxpayer places eligible business property in service at establishments in different counties, the threshold applies separately to the aggregate amount of eligible business property placed in service in each county. If the taxpayer places eligible business property in service at an establishment over the course of a two-year period, the applicable threshold for the second taxable year is reduced by the eligible investment amount for the previous taxable year.
Expiration. - As used in this subsection, the term "disposed of" means disposed of, taken out of service, or moved out of State. If, in one of the four years in which the installment of a credit accrues, the business property with respect to which the credit was claimed is disposed of, the credit expires, and the taxpayer may not take any remaining installment of the credit for that business property unless the cost of that business property is offset in the same taxable year by the taxpayer's new investment in eligible business property placed in service in the same county, as provided in this subsection. If, during the taxable year, the taxpayer disposed of the business property for which installments remain, there has been a net reduction in the cost of all the taxpayer's eligible business property that are in service in the same county as the business property that was disposed of, and the amount of this reduction is greater than twenty percent (20%) of the cost of the business property that was disposed of, then the credit for the business property that was disposed of expires. If the amount of the net reduction is equal to twenty percent (20%) or less of the cost of the business property that was disposed of, or if there is no net reduction, then the credit does not expire. In determining the amount of any net reduction during the taxable year, the cost of business property the taxpayer placed in service during the taxable year and for which the taxpayer claims a credit under Article 3A or Article 3B of this Chapter may not be included in the cost of all the taxpayer's eligible business property that is in service. If in a single taxable year business property with respect to two or more credits in the same county are disposed of, the net reduction in the cost of all the taxpayer's eligible business property that is in service in the same county is compared to the total cost of all the business property for which credits expired in order to determine whether the remaining installments of the credits are forfeited.
Transferred Property. - If, in one of the four years in which the installment of a credit accrues, the business property with respect to which the credit was claimed is moved to a county in a higher-numbered development tier or out of an urban progress zone, a port enhancement zone, or an agrarian growth zone, the remaining installments of the credit are allowed only to the extent they would have been allowed if the business property had been placed in service initially in the area to which it was moved. If, in one of the four years in which the installment of a credit accrues, the business property with respect to which a credit was claimed is moved to a county in a lower-numbered development tier or an urban progress zone, a port enhancement zone, or an agrarian growth zone, the remaining installments of the credit shall be calculated as if the business property had been placed in service initially in the area to which it was moved.
Wage Standard. -. For the purposes of this section, a taxpayer satisfies the wage standard requirement of G.S. 105-129.83 only if the taxpayer satisfies the requirement with respect to all of the jobs at the establishment, considered collectively, with respect to which a credit is claimed.
No Double Credit. - A taxpayer may not claim a credit under this section with respect to business property for which the taxpayer claims a credit under G.S. 105-129.9 or G.S. 105-129.9A.

Area Development Tier Applicable Percentage Tier One 7% Tier Two 5% Tier Three 3.5%

Area Development Tier Threshold Tier One $ -0- Tier Two 1,000,000 Tier Three 2,000,000

The expiration of a credit does not prevent the taxpayer from taking the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.84.

History

(2006-252, s. 1.1; 2007-527, ss. 7, 8; 2011-302, s. 9.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

Effect of Amendments. - Session Laws 2007-527, ss. 7 and 8, effective August 31, 2007, in subsection (c), added the third sentence, and substituted "business property" for "machinery and equipment" in the sentence preceding the table; and in subsection (e) substituted "out of an urban progress zone" for "to an urban progress zone" near the middle of the first sentence.

Session Laws 2011-302, s. 9, effective for taxable years beginning on or after January 1, 2013, in the third sentence of subsection (a) and twice in subsections (c) and (e), inserted "a port enhancement zone."

§ 105-129.89. (See notes) Credit for investment in real property.

Credit. - If a taxpayer that has purchased or leased real property in a development tier one area begins to use the property in an eligible business during the taxable year, the taxpayer is allowed a credit equal to thirty percent (30%) of the eligible investment amount if all of the eligibility requirements of G.S. 105-129.83 and of subsection (b) of this section are met. For the purposes of this section, property is located in a development tier one area if the area the property is located in was a development tier one area at the time the taxpayer made a written application for the determination required under subsection (b) of this section. The eligible investment amount is the lesser of (i) the cost of the property and (ii) the amount by which the cost of all of the real property the taxpayer is using in this State in an eligible business on the last day of the taxable year exceeds the cost of all of the real property the taxpayer was using in this State in an eligible business on the last day of the base year. The base year is that year, of the three immediately preceding taxable years, in which the taxpayer was using the most real property in this State in an eligible business. In the case of property that is leased, the cost of the property is not determined as provided in G.S. 105-129.81 but is considered to be the taxpayer's lease payments over a seven-year period, plus any expenditures made by the taxpayer to improve the property before it is used by the taxpayer if the expenditures are not reimbursed or credited by the lessor. The entire credit may not be taken for the taxable year in which the property is first used in an eligible business but shall be taken in equal installments over the seven years following the taxable year in which the property is first used in an eligible business. When part of the property is first used in an eligible business in one year and part is first used in an eligible business in a later year, separate credits may be claimed for the amount of property first used in an eligible business in each year. The basis in any real property for which a credit is allowed under this section shall be reduced by the amount of credit allowable.
Determination by the Secretary of Commerce. - A taxpayer is eligible for the credit allowed under this section with respect to an establishment only if the Secretary of Commerce makes a written determination that the taxpayer is expected to purchase or lease and use in an eligible business at that establishment within a three-year period at least ten million dollars ($10,000,000) of real property and that the establishment that is the subject of the credit will create at least 200 new jobs within two years of the time that the property is first used in an eligible business. If the taxpayer fails to timely make the required level of investment or fails to timely create the required number of new jobs, the taxpayer forfeits the credit as provided in G.S. 105-129.83.
Mixed Use Property. - If the taxpayer uses only part of the property in an eligible business, the amount of the credit allowed under this section is reduced by multiplying it by a fraction, the numerator of which is the square footage of the property used in an eligible business and the denominator of which is the total square footage of the property.
Expiration. - If, in one of the seven years in which the installment of a credit accrues, the property with respect to which the credit was claimed is no longer used in an eligible business, the credit expires, and the taxpayer may not take any remaining installment of the credit. If, in one of the seven years in which the installment of a credit accrues, part of the property with respect to which the credit was claimed is no longer used in an eligible business, the remaining installments of the credit shall be reduced by multiplying it by the fraction described in subsection (c) of this section. If, in one of the years in which the installment of a credit accrues and by which the taxpayer is required to have created 200 new jobs at the property, the total number of employees the taxpayer employs at the property with respect to which the credit is claimed is less than 200, the credit expires, and the taxpayer may not take any remaining installment of the credit.
No Double Credit. - A taxpayer may not claim a credit under this section with respect to real property for which a credit is claimed under G.S. 105-129.12 or G.S. 105-129.12A.

In each of these cases, the taxpayer may nonetheless take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under G.S. 105-129.84.

History

(2006-252, s. 1.1.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3J, see G.S. 105-129.82(a).

§§ 105-129.90 through 105-129.94: Reserved for future codification purposes.

ARTICLE 3K. Tax Incentives for Railroad Intermodal Facilities.

(Repealed for taxable years beginning on or after January 1, 2038. See G.S. 105-129.99.)

Sec.

§ 105-129.95. (Repealed for taxable years beginning on or after January 1, 2038 - see note) Definitions.

The following definitions apply in this Article:

Costs of construction. - The costs of acquiring and improving land, constructing buildings and other structures, equipping the facility, and constructing and equipping rail tracks to the railroad intermodal facility that are necessary to access and support facility operations. In the case of property owned or leased by the taxpayer, cost is determined pursuant to regulations adopted under section 1012 of the Code.
Eligible railroad intermodal facility. - A railroad intermodal facility whose costs of construction exceed thirty million dollars ($30,000,000).
Intermodal facility. - A facility where freight is transferred from one mode of transportation to another.
Railroad intermodal facility. - An intermodal facility whose primary purpose is to transfer freight between a railroad and another mode of transportation.

History

(2007-323, s. 31.23(a); 2007-345, s. 14.7(a).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3K, see G.S. 105-129.99.

Editor's Note. - Session Laws 2007-323, s. 31.23(e), made this Article effective for taxable years beginning on or after January 1, 2007, and applicable to eligible railroad intermodal facilities placed into service on or after January 1, 2007.

Session Laws 2007-323, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2007'."

Session Laws 2007-323, s. 32.5 is a severability clause.

Effect of Amendments. - Session Laws 2007-345, s. 14.7(a), effective for taxable years beginning on or after January 1, 2007, in subdivision (1), deleted "and" following "other structures" and inserted "and constructing and equipping rail tracks to the railroad intermodal facility that are necessary to access and support facility operations."

§ 105-129.96. (Repealed for taxable years beginning on or after January 1, 2038 - see note) Credit for constructing a railroad intermodal facility.

(Effective for taxable years beginning before January 1, 2017) Credit. - A taxpayer that constructs or leases an eligible railroad intermodal facility in this State and places it in service during the taxable year is allowed a tax credit equal to fifty percent (50%) of all amounts payable by the taxpayer towards the costs of construction or under the lease.

(Effective for taxable years beginning on or after January 1, 2017) Credit. - A taxpayer that constructs or leases an eligible railroad intermodal facility in this State is allowed a tax credit equal to fifty percent (50%) of all amounts payable by the taxpayer towards the costs of construction or under the lease if the facility is placed in service in this State during the taxable year. No credit is allowed under this section to the extent the cost of the eligible railroad intermodal facility was provided by public funds.
Taxes Credited. - The credit provided in this section is allowed against the franchise tax levied in Article 3 of this Chapter or the income taxes levied in Article 4 of this Chapter. The taxpayer must elect the tax against which a credit will be claimed when filing the return on which the first installment of the credit is claimed. This election is binding. The credit may not exceed fifty percent (50%) of the tax against which it is applied. Any unused portion of a credit may be carried forward for the succeeding 10 years. Any carryforwards of a credit must be claimed against the same tax.
(Effective for taxable years beginning on or after January 1, 2017) No Double Credit. - A taxpayer may not take the credit allowed in this section for an eligible railroad intermodal facility the taxpayer leases from another unless the taxpayer obtains the lessor's written certification that the lessor will not claim a credit under this Chapter with respect to the facility.

History

(2007-323, s. 31.23(a); 2017-39, s. 3(a).)

Subsection (a) Set Out Twice. - The first version of subsection (a) set out above is effective for taxable years beginning before January 1, 2017. The second version of subsection (a) set out above is effective for taxable years beginning on and after January 1, 2017.

Article has a Delayed Repeal Date. - For delayed repeal of Article 3K, see G.S. 105-129.99.

Effect of Amendments. - Session Laws 2017-39, s. 3, effective for taxable years beginning on or after January 1, 2017, in subsection (a), deleted "and places it in service during the taxable year" preceding "is allowed a tax," inserted "if the facility is placed in the service in this State during the taxable year" at the end of the first sentence, and added the last sentence; and added subsection (c).

§ 105-129.97. (Repealed for taxable years beginning on or after January 1, 2038 - see note) Substantiation.

To claim a credit allowed by this Article, the taxpayer must provide any information required by the Secretary. Each taxpayer claiming a credit under this Article must maintain and make available for inspection by the Secretary any records the Secretary considers necessary to determine and verify the amount of the credit to which the taxpayer is entitled. The burden of proving eligibility for a credit and the amount of the credit rests upon the taxpayer, and no credit may be allowed to a taxpayer that fails to maintain adequate records or to make them available for inspection.

History

(2007-323, s. 31.23(a).)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3K, see G.S. 105-129.99.

§ 105-129.98. (Repealed for taxable years beginning on or after January 1, 2038 - see note) Report.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:

The number of taxpayers that claimed a credit allowed in this Article.
The amount of each credit claimed and the taxes against which it was applied.
The total cost to the General Fund of the credits claimed.

History

(2007-323, s. 31.23(a); 2010-166, s. 1.10.)

Article has a Delayed Repeal Date. - For delayed repeal of Article 3K, see G.S. 105-129.99.

Effect of Amendments. - Session Laws 2010-166, s. 1.10, effective July 1, 2010, in the section catchline, substituted "Report" for "Reports"; and rewrote the introductory paragraph, which formerly read: "The Department of Revenue must publish by May 1 of each year the following information itemized by taxpayer for the 12-month period ending the preceding December 31."

§ 105-129.99. Sunset.

This Article is repealed effective for taxable years beginning on or after January 1, 2038.

History

(2007-323, s. 31.23(a).)

§§ 105-129.100 through 105-129.104: Reserved for future codification purposes.

ARTICLE 3L. Historic Rehabilitation Tax Credits Investment Program.

(See G.S. 105-129.110 for repeal of this Article.)

Sec.

§ 105-129.105. (See note for repeal) Credit for rehabilitating income-producing historic structure.

Credit. - A taxpayer who is allowed a federal income tax credit under section 47 of the Code for making qualified rehabilitation expenditures for a certified historic structure located in this State is allowed a credit equal to the sum of the following:
1. Base amount. - The percentage of qualified rehabilitation expenditures at the levels provided in the table below:
2. Development tier bonus. - An amount equal to five percent (5%) of qualified rehabilitation expenditures not exceeding twenty million dollars ($20,000,000) if the certified historic structure is located in a development tier one or two area.
3. Targeted investment bonus. - An amount equal to five percent (5%) of qualified rehabilitation expenditures not exceeding twenty million dollars ($20,000,000) if the certified historic structure is located on an eligible targeted investment site.
Pass-Through Entity. - Notwithstanding the provisions of G.S. 105-131.8 and G.S. 105-269.15, a pass-through entity that qualifies for the credit provided in this section may allocate the credit among any of its owners in its discretion as long as an owner's adjusted basis in the pass-through entity, as determined under the Code, at the end of the taxable year in which the certified historic structure is placed in service, is at least forty percent (40%) of the amount of credit allocated to that owner. Owners to whom a credit is allocated are allowed the credit as if they had qualified for the credit directly. A pass-through entity and its owners must include with their tax returns for every taxable year in which an allocated credit is claimed a statement of the allocation made by the pass-through entity and the allocation that would have been required under G.S. 105-131.8 or G.S. 105-269.15.
Definitions. - The following definitions apply in this section:
1. Certified historic structure. - Defined in section 47 of the Code.
2. Development tier area. - Defined in G.S. 143B-437.08.
3. Eligibility certification. - A certification obtained from the State Historic Preservation Officer that the site comprises an eligible targeted investment site.
4. Eligible targeted investment site. - A site located in this State that satisfies all of the following conditions:
  1. It was used as a manufacturing facility or for purposes ancillary to manufacturing, as a warehouse for selling agricultural products, or as a public or private utility.
  2. It is a certified historic structure.
  3. It has been at least sixty-five percent (65%) vacant for a period of at least two years immediately preceding the date the eligibility certification is made.
5. Pass-through entity. - Defined in G.S. 105-228.90.
6. Qualified rehabilitation expenditures. - Defined in section 47 of the Code.
7. State Historic Preservation Officer. - The Deputy Secretary of the Office of Archives and History of the North Carolina Department of Natural and Cultural Resources, or the Deputy Secretary's designee, who acts to administer the historic preservation programs within the State.
8. Targeted investment. - Qualified rehabilitation expenditures on a certified historic structure that is located on an eligible targeted investment site.
Limitations. - The amount of credit allowed under this section with respect to qualified rehabilitation expenditures for an income-producing certified historic structure may not exceed four million five hundred thousand dollars ($4,500,000).
2014 and 2015 Expenses. - A taxpayer is eligible for a credit under this section for taxable years beginning on or after January 1, 2016, for qualifying rehabilitation expenditures that were incurred in 2014 and 2015 if all of the following conditions are met:
1. The certified historic structure is located in a Tier 1 or a Tier 2 county.
2. The certified historic structure is owned by a city.
3. The qualifying rehabilitation activity commenced in 2014.
4. A certificate of occupancy is issued on or before December 31, 2015.
5. The taxpayer meets all of the other conditions in this section.

Expenses Up to Rate Over 0 $10 million 15.00% $10 million $20 million 10.00%

History

(2015-241, ss. 14.30(c), 32.3(a); 2015-264, s. 54.5(a), (b); 2017-102, s. 33.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.110.

Editor's Note. - Session Laws 2015-241, s. 32.3(c), as amended by Session Laws 2014-264, s. 54.5(b), as amended by Session Laws 2017-102, s. 33, provides, in part: "Subsection (a) of this section [which enacted this Article] becomes effective January 1, 2016, and applies to qualified rehabilitation expenditures and rehabilitation expenses incurred on or after that date, except as otherwise provided by law."

Session Laws 2015-241, s. 32.3(a), enacted this Article as G.S. 105-129.100 through 105-129.105. It has been redesignated as G.S. 105-129.105 through 105-129.110 at the direction of the Revisor of Statutes.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2015-264, s. 54.5(b), provided: "Section 32.2(c) of S.L. 2015-241 reads as rewritten:" when, in fact, it is Session Laws 2015-241, s. 32.3(c) that is set out in the text of the amendment. At the direction of the Revisor of Statutes, the amendment was not given effect. If the amendment had taken effect, the provision would have read, in part: "Subsection (a) of this section becomes effective January 1, 2016, and applies to qualified rehabilitation expenditures and rehabilitation expenses incurred on or after that date, except as otherwise provided by law." Session Laws 2017-102, s. 33, effective July 12, 2017, corrected the reference by substituting "Section 32.3(c)" for "Section 32.2(c)" in the lead-in language of Session Laws 2015-264, s. 54.5(b).

Session Laws 2015-264, s. 54.5(c) made the amendment to this section by Session Laws 2015-264, s. 54.5(a), applicable to credits that may be claimed for taxable years beginning on or after January 1, 2016.

Session Laws 2015-264, s. 91.7 is a severability clause.

Effect of Amendments. - Session Laws 2015-241, s. 14.30(c), effective July 1, 2015, substituted "Department of Natural and Cultural Resources" for "Department of Cultural Resources" in subdivision (c)(7).

Session Laws 2015-264, s. 54.5(a), effective October 1, 2015, added subsection (e). For applicability, see Editor's note.

§ 105-129.106. (See note for repeal) Credit for rehabilitating non-income-producing historic structure.

Credit. - A taxpayer who is not allowed a federal income tax credit under section 47 of the Code and who has rehabilitation expenses of at least ten thousand dollars ($10,000) for a State-certified historic structure located in this State is allowed a credit equal to fifteen percent (15%) of the rehabilitation expenses.
(Effective for taxable years beginning before January 1, 2017) Limitations. - The amount of credit allowed under this section with respect to rehabilitation expenses for a non-income-producing certified historic structure may not exceed twenty-two thousand five hundred dollars ($22,500) per discrete property parcel. In the event that the taxpayer is the transferee of a State-certified historic structure for which rehabilitation expenses were made, the taxpayer as transferee is allowed a credit under this section only if the transfer takes place before the structure is placed in service. In this event, no other taxpayer may claim such credit. A taxpayer is allowed to claim a credit under this section no more than once in any five-year period, carryovers notwithstanding.
(Effective for taxable years beginning on or after January 1, 2017) Limitations. - The amount of credit allowed under this section with respect to rehabilitation expenses for a non-income-producing certified historic structure may not exceed twenty-two thousand five hundred dollars ($22,500) per discrete property parcel. In the event that the taxpayer is the transferee of a State-certified historic structure for which rehabilitation expenses were made, the taxpayer as transferee is allowed a credit under this section for the rehabilitation expenses made by the transferor only if the transfer takes place before the structure is placed in service. In this event, the transferor must provide the transferee with documentation detailing the amount of rehabilitation expenses and credit. No other taxpayer may claim such credit. A taxpayer is allowed to claim a credit under this section no more than once in any five-year period, carryovers notwithstanding.
Definitions. - The following definitions apply in this section:
1. Certified rehabilitation. - Repairs or alterations consistent with the Secretary of the Interior's Standards for Rehabilitation and certified as such by the State Historic Preservation Officer.
2. Discrete property parcel. - A lot or tract described by metes and bounds, a deed or plat of which has been recorded in the deed records of the county in which the property is located, and on which a State-certified historic structure is located, or a single condominium unit in a State-certified historic structure.
3. Placed in service. - The later of the date on which the rehabilitation is completed or the date on which the property is used for its intended purpose.
4. Rehabilitation expenses. - Expenses incurred in the certified rehabilitation of a certified historic structure and added to the property's basis. The expenses must be incurred within any 24-month period per discrete property parcel. The term does not include the cost of acquiring the property, the cost attributable to the enlargement of an existing building, the cost of site work expenditures, or the cost of personal property.
5. State-certified historic structure. - A structure that is individually listed in the National Register of Historic Places or is certified by the State Historic Preservation Officer as contributing to the historic significance of a National Register Historic District or a locally designated historic district certified by the United States Department of the Interior.
6. State Historic Preservation Officer. - Defined in G.S. 105-129.105(c)(7).

History

(2015-241, s. 32.3(a); 2015-264, s. 54.5(b); 2017-102, s. 33; 2017-204, s. 1.4(a).)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.110.

Editor's Note. - Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2017-204, s. 1.4(a), effective for taxable years beginning on or after January 1, 2017, in subsection (b), inserted "for the rehabilitation expenses made by the transferor" in the first sentence, substituted "the transferor must provide the transferee with documentation detailing the amount of rehabilitation expenses and credit" for "no" in the second sentence, and added "No" at the beginning of the present third sentence.

§ 105-129.107. (See note for repeal) Rules; fees.

Rules. - The North Carolina Historical Commission, in consultation with the State Historic Preservation Officer, may adopt rules needed to administer any certification process required by this Article.
Fees. - The North Carolina Historical Commission, in consultation with the State Historic Preservation Officer, may adopt a schedule of fees for providing any certifications required by this Article, or Article 3D or 3H as they provided as of December 31, 2014. In establishing the fee schedule, the Commission shall consider the administrative and personnel costs incurred by the Department of Natural and Cultural Resources. An application fee may not exceed one percent (1%) of the completed qualifying rehabilitation expenditures. The proceeds of the fees are receipts of the Department of Natural and Cultural Resources and must be used for performing its duties under this Article.

History

(2015-241, ss. 14.30(c), 32.3(a); 2015-264, s. 54.5(b); 2017-102, s. 33.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.110.

§ 105-129.108. (See note for repeal) Tax credited; credit limitations.

Tax Credited. - The credits provided in this Article are allowed against the franchise tax imposed in Article 3 of this Chapter, the income taxes levied in Article 4 of this Chapter, or the gross premiums tax imposed in Article 8B of this Chapter. The taxpayer may take a credit allowed by this Article against only one of the taxes against which it is allowed. The taxpayer must elect the tax against which a credit will be claimed when filing the return on which it is claimed, and this election is binding. Any carryforwards of a credit must be claimed against the same tax.
Return. - A taxpayer may claim a credit allowed by this Article on a return filed for the taxable year in which the certified historic structure was placed into service. When an income-producing certified historic structure as defined in G.S. 105-129.105 is placed into service in two or more phases in different years, the amount of credit that may be claimed in a year is the amount based on the qualified rehabilitation expenditures associated with the phase placed into service during that year.
Cap. - A credit allowed under this Article may not exceed the amount of the tax against which it is claimed for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer. Any unused portion of the credit may be carried forward for the succeeding nine years.
Forfeiture for Disposition. - A taxpayer who is required under section 50 of the Code to recapture all or part of the federal credit for rehabilitating an income-producing historic structure located in this State forfeits the corresponding part of the State credit allowed under G.S. 105-129.105 with respect to that historic structure. If the credit was allocated among the owners of a pass-through entity, the forfeiture applies to the owners in the same proportion that the credit was allocated.
Forfeiture for Change in Ownership. - If an owner of a pass-through entity that has qualified for the credit allowed under G.S. 105-129.105 disposes of all or a portion of the owner's interest in the pass-through entity within five years from the date the rehabilitated historic structure is placed in service and the owner's interest in the pass-through entity is reduced to less than two-thirds of the owner's interest in the pass-through entity at the time the historic structure was placed in service, the owner forfeits a portion of the credit. The amount forfeited is determined by multiplying the amount of credit by the percentage reduction in ownership and then multiplying that product by the forfeiture percentage. The forfeiture percentage equals the recapture percentage found in the table in section 50(a)(1)(B) of the Code.
Exceptions to Forfeiture. - Forfeiture as provided in subsection (e) of this section is not required if the change in ownership is the result of any of the following:
1. The death of the owner.
2. A merger, consolidation, or similar transaction requiring approval by the shareholders, partners, or members of the taxpayer under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
Liability From Forfeiture. - A taxpayer or an owner of a pass-through entity that forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited. A taxpayer or owner of a pass-through entity that fails to pay the taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.
Substantiation. - To claim a credit allowed by this Article, the taxpayer must provide any information required by the Secretary of Revenue, including a copy of the certification obtained from the State Historic Preservation Office verifying that the historic structure has been rehabilitated in accordance with the requirements set out in this Article, and a copy of the eligibility certification if the historic structure is located in an eligible targeted investment site and the targeted investment bonus is claimed. Every taxpayer claiming a credit under this Article must maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which the taxpayer is entitled. The burden of proving eligibility for the credit and the amount of the credit rests upon the taxpayer, and no credit may be allowed to a taxpayer that fails to maintain adequate records or to make them available for inspection.
No Double Credit. - A taxpayer that claims a credit under this Article may not also claim a credit under Article 3D or Article 3H of this Chapter with respect to the same activity.

History

(2015-241, s. 32.3(a); 2015-264, s. 54.5(b); 2015-268, s. 10.1(b); 2017-102, s. 33.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.110.

Effect of Amendments. - Session Laws 2015-268, s. 10.1(b), effective for taxable years beginning on or after January 1, 2016, substituted "targeted investment bonus" for "target investment bonus" near the end of the first sentence of subsection (h).

§ 105-129.109. (See note for repeal) Report; tracking.

The Department must include in the economic incentives report required by G.S. 105-256 the following information itemized by taxpayer:
1. The number of taxpayers that took the credits allowed in this Article.
2. The amount of rehabilitation expenses and qualified rehabilitation expenditures with respect to which credits were taken.
3. The total cost to the General Fund of the credits taken.
The Department shall include in the economic incentives report required by G.S. 105-256 the following information:
1. The total amount of tax credits claimed and the total amount of tax credits taken against current taxes, by type of tax, during the relevant tax year.
2. The total amount of tax credits carried forward, by type of tax.

History

(2015-241, s. 32.3(a); 2015-264, s. 54.5(b); 2017-102, s. 33.)

Article has a Delayed Repeal Date. - For repeal of this Article, see G.S. 105-129.110.

§ 105-129.110. Sunset.

This Article expires for qualified rehabilitation expenditures and rehabilitation expenses incurred on or after January 1, 2024. For qualified rehabilitation expenditures and rehabilitation expenses incurred prior to January 1, 2024, this Article expires for property not placed in service by January 1, 2032.

History

(2015-241, s. 32.3(a); 2015-264, s. 54.5(b); 2017-102, s. 33; 2018-5, s. 38.10(k); 2019-237, s. 3(a).)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Effect of Amendments. - Session Laws 2018-5, s. 38.10(k), effective June 12, 2018, added the second sentence.

Session Laws 2019-237, s. 3(a), effective November 1, 2019, substituted "January 1, 2024" for "January 1, 2020" at the end of the first sentence; in the second sentence, substituted "January 1, 2024" for "January 1, 2020" near the middle and substituted "January 1, 2032" for "January 1, 2028" at the end.

ARTICLE 4. Income Tax.

Part 1. Corporation Income Tax.

Sec.

Part 1A. S Corporation Income Tax.

Part 2. Individual Income Tax.

Part 3. Income Tax - Estates, Trusts, and Beneficiaries.

Part 4. Income Tax Credits for Property Taxes.

Part 5. Tax Credits for Qualified Business Investments.

PART 1. CORPORATION INCOME TAX.

§ 105-130. Short title.

This Part of the income tax Article shall be known and may be cited as the Corporation Income Tax Act.

History

(1939, c. 158, s. 300; 1967, c. 1110, s. 3; 1998-98, ss. 42, 61, 68.)

Editor's Note. - Session Laws 2003-415, s. 3, provides: "The Department of Revenue shall modify the tax credit form for income tax filers to provide separate lines for each of the tax credits currently aggregated in a single line, so that the Department may capture data about the fiscal impact of the specific credits."

Session Laws 2016-23, s. 2(a), provides: "Taxes. - The following provisions apply to taxes affected by boundary certification:

"(1) Neither the State nor a subdivision of the State may assess a tax on a person for activities occurring prior to the date of certification where the basis of the assessment is the certification.

"(2) The State and its subdivisions may assess a tax for activities occurring on or after the date of certification subject to the following conditions:

"a. For taxes imposed for a taxable period, the tax may not be imposed for a period beginning prior to the date of certification.

"b. For sales and use taxes for an item that is provided and billed on a monthly or other periodic basis, the tax may not be assessed for periods beginning prior to the date of certification.

"(3) A person may not seek a refund for activities occurring prior to the date of certification where the basis of the refund is the certification."

Session Laws 2016-23, s. 12(a) is a severability clause.

Legal Periodicals. - For discussion of changes made in this Article by the Session Laws of 1947 and 1949, respectively, see 25 N.C.L. Rev. 467 (1947); 27 N.C.L. Rev. 482 (1949).

For note, "A Matter of (Statutory) Interpretation: North Carolina Recognizes the Functional Test for Corporate Taxation in Polaroid Corp. v. Offerman," see 77 N.C. L. Rev. 2326 (1999).

§ 105-130.1. Purpose.

Purpose. - The general purpose of this Part is to impose a tax for the use of the State government upon the net income of every domestic corporation and of every foreign corporation doing business in this State.
Critical Infrastructure Disaster Relief. - A nonresident business that solely performs disaster-related work in this State during a disaster response period at the request of a critical infrastructure company is not considered to be doing business in this State for purposes of this Part. The definitions and provisions in G.S. 166A-19.70A apply in this subsection.

The tax imposed upon the net income of corporations in this Part is in addition to all other taxes imposed under this Subchapter.

History

(1939, c. 158, s. 301; 1967, c. 1110, s. 3; 1998-98, s. 69; 2019-187, s. 1(f).)

Editor's Note. - Session Laws 2019-187, s. 3, made the amendment of subsection (a) and the addition of subsection (b) by Session Laws 2019-187, s. 1(f), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2019-187, s. 1(f), added "(a) Purpose. - " at the beginning of the previously existing provisions; and added subsection (b). For effective date and applicability, see editor's note.

§ 105-130.2. Definitions.

The following definitions apply in this Part:

Affiliate. - A corporation is an affiliate of another corporation when both are directly or indirectly controlled by the same parent corporation or by the same or associated financial interests by stock ownership, interlocking directors, or by any other means whatsoever, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
Code. - Defined in G.S. 105-228.90.
Corporation. - A joint-stock company or association, an insurance company, a domestic corporation, a foreign corporation, or a limited liability company.
C Corporation. - A corporation that is not an S Corporation.
Department. - The Department of Revenue.
Domestic corporation. - A corporation organized under the laws of this State.
Fiscal year. - An income year, ending on the last day of any month other than December. A corporation that pursuant to the provisions of the Code has elected to compute its federal income tax liability on the basis of an annual period varying from 52 to 53 weeks shall compute its taxable income under this Part on the basis of the same period used by the corporation in computing its federal income tax liability for the income year.
Foreign corporation. - Any corporation other than a domestic corporation.
Gross income. - Defined in section 61 of the Code.
Income year. - The calendar year or the fiscal year upon the basis of which the net income is computed under this Part. If no fiscal year has been established, the income year is the calendar year. In the case of a return made for a fractional part of a year under the provisions of this Part or under rules adopted by the Secretary, the income year is the period for which the return is made.
Limited liability company. - Either a domestic limited liability company organized under Chapter 57D of the General Statutes or a foreign limited liability company authorized by that Chapter to transact business in this State that is classified for federal income tax purposes as a corporation. As applied to a limited liability company that is a corporation under this Part, the term "shareholder" means a member of the limited liability company and the term "corporate officer" means a member or manager of the limited liability company.
Parent. - A corporation is a parent of another corporation when, directly or indirectly, it controls the other corporation by stock ownership, interlocking directors, or by any other means whatsoever exercised by the same or associated financial interests, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
S Corporation. - Defined in G.S. 105-131(b).
Secretary. - The Secretary of Revenue.
State net income. - The taxpayer's federal taxable income as determined under the Code, adjusted as provided in G.S. 105-130.5 and, in the case of a corporation that has income from business activity that is taxable both within and without this State, allocated and apportioned to this State as provided in G.S. 105-130.4.
Subsidiary. - A corporation is a subsidiary of another corporation when, directly or indirectly, it is subject to control by the other corporation by stock ownership, interlocking directors, or by any other means whatsoever exercised by the same or associated financial interest, whether the control is direct or through one or more subsidiary, affiliated, or controlled corporations.
Taxable year. - Income year.
Taxpayer. - A corporation subject to the tax imposed by this Part.

History

(1939, c. 158, s. 302; 1941, c. 50, s. 5; 1955, c. 1331, s. 2; 1957, c. 1340, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1983, c. 713, ss. 68, 82; 1985, c. 656, s. 7; 1985 (Reg. Sess., 1986), c. 853, s. 1; 1987, c. 778, s. 1; 1987 (Reg. Sess., 1988), c. 1015, s. 3; 1989, c. 36, s. 3; 1989 (Reg. Sess., 1990), c. 981, s. 3; 1991, c. 689, s. 257; 1991 (Reg. Sess., 1992), c. 922, s. 4; 1993, c. 12, s. 5; c. 354, s. 12; 1995, c. 17, s. 3; 1998-98, s. 69; 2006-162, s. 3(a); 2012-79, s. 1.14(b); 2013-157, s. 27.)

Editor's Note. - Session Laws 1993, c. 354, s. 12 originally enacted subdivision (5) as subdivision (5a), and redesignated subdivisions (5a), (5b), and (5c) as (5b), (5c), and (5d), respectively. Subdivision (5) has been redesignated as (4a), subdivision (5a) as (5), and (5a), (5b), and (5c) have not been changed, at the direction of the Revisor of Statutes.

Effect of Amendments. - Session Laws 2006-162, s. 3(a), effective July 24, 2006, added subdivision (4a) and redesignated former subdivision (4a) as present subdivision (4b).

Session Laws 2012-79, s. 1.14(b), effective June 26, 2012, added present subdivision (1), renumbered former subdivisions (1), (1a), (1b), (1c), (2), (3), (4), (4a), (4b), and (5) as subdivisions (2) through (11), respectively; added subdivision (12), renumbered former subdivisions (5a), (5b) and (5c) as subdivisions (13) through (15), respectively; added subdivision (16); and renumbered former subdivisions (5d) and (6) as subdivisions (17) and (18), respectively.

Session Laws 2013-157, s. 27, effective January 1, 2014, substituted "Chapter 57D" for "Chapter 57C" in subsection (11).

CASE NOTES

Cited in Liebes v. Guilford County Dep't of Public Health (In re Civil Penalty), 213 N.C. App. 426, 724 S.E.2d 70, review denied, 718 S.E.2d 396, 2011 N.C. LEXIS 934 (2011).

§ 105-130.3. (Effective for taxable years beginning on or after January 1, 2017, and before January 1, 2019) Corporations.

A tax is imposed on the State net income of every C Corporation doing business in this State at the rate of three percent (3%). An S Corporation is not subject to the tax levied in this section.

History

(1939, c. 158, s. 311; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 752, s. 3; 1953, c. 1302, s. 4; 1955, c. 1350, s. 18; 1957, c. 1340, s. 4; 1959, c. 1259, s. 4; 1963, c. 1169, s. 2; c. 1186; 1967, c. 1110, s. 3; 1973, c. 1287, s. 4; 1975, c. 275, s. 4; 1977, c. 657, s. 4; 1979, c. 179, s. 2; 1981, c. 15; 1983, c. 713, s. 69; 1987, c. 622, s. 8; 1987 (Reg. Sess., 1988), c. 1089, s. 5; 1989, c. 728, s. 1.33; 1991, c. 689, s. 258; 1996, 2nd Ex. Sess., c. 13, s. 2.1; 2013-316, ss. 2.1(a), 2.2(a); 2015-241, s. 32.13(a); 2017-57, s. 38.5(a).)

Section Set Out Twice. - The section above is in effect for taxable years beginning on or after January 1, 2017 and before January 1, 2019. For this section as in effect for taxable years beginning on or after January 1, 2019, see the following section, also numbered G.S. 105-130.3.

Session Laws 2013-316, s. 4.2(a), as amended by Session Laws 2015-6, s. 2.4(b), provides: "The Utilities Commission must adjust the rate set for the following utilities:

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Effect of Amendments. - Session Laws 2013-316, s. 2.1(a), effective for taxable years beginning on or after January 1, 2014, added "at the rate of six percent (6%)" at the end of the first sentence and deleted the former third sentence, which read "The tax is a percentage of the taxpayer's State net income computed as follows" and the table thereafter.

Session Laws 2013-316, s. 2.2(a), effective for taxable years beginning on or after January 1, 2015, substituted "five percent (5%)" for "six percent (6%)" in the first sentence.

Session Laws 2015-241, s. 32.13(a), effective for taxable years beginning on or after January 1, 2016, substituted "four percent 4%" for "five percent (5%)" at the end of the first sentence.

Session Laws 2017-57, s. 38.5(a), effective for taxable years beginning on or after January 1, 2017, substituted "three percent (3%)" for "four percent (4%)" at the end of the first sentence.

Legal Periodicals. - For article, "Foreign Corporations in North Carolina: The 'Doing Business' Standards of Qualification, Taxation, and Jurisdiction," see 16 Wake Forest L. Rev. 711 (1980).

For article, "A Time for Action: Reforming the North Carolina Tax Code," see 88 N.C.L. Rev. 1A (2010).

CASE NOTES

Every corporation doing business in North Carolina is required to pay an annual income tax equivalent to 6% of its net taxable income. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966), decided under G.S. 105-134 and G.S. 105-140 prior to the 1967 amendments thereto. G.S. 105-140 was repealed by S.L. 1989, c. 728, s. 1.3

"Taxable Income" Defined. - Under the Internal Revenue Code, "taxable income" means gross income minus specified allowable deductions. Mutual Sav. & Loan Ass'n v. Lanier, 279 N.C. 299, 182 S.E.2d 368 (1971).

Income Tax and Franchise Tax Distinguished. - A comparison of Article 3 of this Chapter, relating to franchise taxes, and Article 4, relating to income taxes, indicates a clear legislative intent to differentiate between these two types of taxes, for a clear distinction has been made by the General Assembly between an excise tax imposed on domestic and foreign corporations for the privilege of transacting business within the State, and an income tax on net corporate income, which is based on a past fact of earned net profits. The statutes under which these taxes were assessed in the instant case in precise words preclude a contention that it was the legislative intent that the taxes assessed and paid here were excise or privilege taxes. ET & WNC Transp. Co. v. Currie, 248 N.C. 560, 104 S.E.2d 403 (1958), aff'd, 359 U.S. 28, 79 S. Ct. 602, 3 L. Ed. 2d 625, rehearing denied, 359 U.S. 976, 79 S. Ct. 874, 3 L. Ed. 2d 843 (1959), construing § 105-134 prior to the 1967 amendment.

Foreign Corporation Taxed on Income Earned in State. - The incidence of the tax on a foreign corporation is that part of its net income earned within North Carolina by reason of its interstate business, and reasonably attributable to its interstate business done or performable within the borders of North Carolina, and not upon its franchise to engage in interstate business in North Carolina. ET & WNC Transp. Co. v. Currie, 248 N.C. 560, 104 S.E.2d 403 (1958), aff'd, 359 U.S. 28, 79 S. Ct. 602, 3 L. Ed. 2d 625, rehearing denied, 359 U.S. 976, 79 S. Ct. 874, 3 L. Ed. 2d 843 (1959), construing § 105-134 prior to the 1967 amendment.

North Carolina Secretary of Revenue did not exceed his authority in imposing franchise and income taxes on out-of-state trademark holding companies that entered into licensing agreements with related retail companies that operated in North Carolina, whereby the retail companies paid the holding companies royalties for the use of the trademarks in North Carolina; the holding companies were doing business in North Carolina, and the Secretary's attempt to assess the taxes did not offend the Commerce Clause of the United States Constitution. A&F Trademark, Inc. v. Tolson, 167 N.C. App. 150, 605 S.E.2d 187 (2004), appeal dismissed, 359 N.C. 320, - S.E.2d - (2005), cert. denied, - U.S. - , 126 S. Ct. 353, 163 L. Ed. 2d 62 (2005).

Cited in Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976); Dunn v. State, 179 N.C. App. 753, 635 S.E.2d 604 (2006); Midrex Techs. v. N.C. Dep't of Revenue, 369 N.C. 250, 794 S.E.2d 785 (2016).

§ 105-130.3. (Effective for taxable years beginning on or after January 1, 2019) Corporations.

A tax is imposed on the State net income of every C Corporation doing business in this State at the rate of two and one-half percent (2.5%). An S Corporation is not subject to the tax levied in this section.

History

(1939, c. 158, s. 311; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 752, s. 3; 1953, c. 1302, s. 4; 1955, c. 1350, s. 18; 1957, c. 1340, s. 4; 1959, c. 1259, s. 4; 1963, c. 1169, s. 2; c. 1186; 1967, c. 1110, s. 3; 1973, c. 1287, s. 4; 1975, c. 275, s. 4; 1977, c. 657, s. 4; 1979, c. 179, s. 2; 1981, c. 15; 1983, c. 713, s. 69; 1987, c. 622, s. 8; 1987 (Reg. Sess., 1988), c. 1089, s. 5; 1989, c. 728, s. 1.33; 1991, c. 689, s. 258; 1996, 2nd Ex. Sess., c. 13, s. 2.1; 2013-316, ss. 2.1(a), 2.2(a); 2015-241, s. 32.13(a); 2017-57, s. 38.5(b).)

Section Set Out Twice. - The section above is in effect for taxable years beginning on or after January 1, 2019. For this section as in effect for taxable years beginning on or after January 1, 2017, and before January 1, 2019, see the preceding sections, also numbered G.S. 105-130.3.

Session Laws 2013-316, s. 4.2(a), as amended by Session Laws 2015-6, s. 2.4(b), provides: "The Utilities Commission must adjust the rate set for the following utilities:

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Session Laws 2013-316, s. 2.2(a), effective for taxable years beginning on or after January 1, 2015, substituted "five percent (5%)" for "six percent (6%)" in the first sentence.

Session Laws 2015-241, s. 32.13(a), effective for taxable years beginning on or after January 1, 2016, substituted "four percent 4%" for "five percent (5%)" at the end of the first sentence.

Session Laws 2017-57, s. 38.5(b), effective for taxable years beginning on or after January 1, 2019, substituted "two and one-half percent (2.5%)" for "three percent (3%)" at the end of the first sentence.

Legal Periodicals. - For article, "Foreign Corporations in North Carolina: The 'Doing Business' Standards of Qualification, Taxation, and Jurisdiction," see 16 Wake Forest L. Rev. 711 (1980).

For article, "A Time for Action: Reforming the North Carolina Tax Code," see 88 N.C.L. Rev. 1A (2010).

CASE NOTES

§ 105-130.3A. Expired.

Editor's Note. - This section expired for taxable years beginning on or after January 1, 1995, pursuant to Session Laws 1991, c. 689, s. 357(2).

§ 105-130.3B. Expired.

History

(2009-451, s. 27A.1(a); expired pursuant to its own terms effective for taxable years beginning on or after January 1, 2011.)

Editor's Note. - Former G.S. 105-130.3B pertained to income tax surtax.

§ 105-130.3C: Repealed by Session Laws 2017-57, s. 38.5(c), effective June 28, 2017.

History

(2013-316, s. 2.2(b); 2014-100, s. 37.1(a); 2015-241, s. 32.13(b); 2015-268, s. 10.1(f); repealed by 2017-57, s. 38.5(c), effective June 28, 2017.)

Editor's Note. - Former G.S. 105-130.3C pertained to rate reduction trigger.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

§ 105-130.4. Allocation and apportionment of income for corporations.

Definitions. - The following definitions apply in this section:
1. Apportionable income. - All income that is apportionable under the United States Constitution, including income that arises from either of the following:
  1. Transactions and activities in the regular course of the taxpayer's trade or business.
  2. Tangible and intangible property if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer's trade or business.
2. Business activity. - Any activity by a corporation that would establish nexus, except as limited by 15 U.S.C. § 381.
3. Casual sale of property. - The sale of any property that was not purchased, produced, or acquired primarily for sale in the corporation's regular trade or business.
4. Commercial domicile. - The principal place from which the trade or business of the taxpayer is directed or managed.
5. Compensation. - Wages, salaries, commissions and any other form of remuneration paid to employees for personal services.
6. Nonapportionable income. - All income other than apportionable income.
7. Sales. - All gross receipts of the corporation except for the following receipts:
  1. Receipts from a casual sale of property.
  2. Receipts allocated under subsections (c) through (h) of this section.
  3. Receipts exempt from taxation.
  4. The portion of receipts realized from the sale or maturity of securities or other obligations that represents a return of principal.
  5. The portion of receipts from financial swaps and other similar financial derivatives that represents the notional principal amount that generates the cash flow traded in the swap agreement.
  6. Receipts in the nature of dividends subtracted under G.S. 105-130.5(b)(3a), (3b), and dividends excluded for federal tax purposes.
8. State. - A state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof.
Multistate Corporations. - A corporation having income from business activity which is taxable both within and without this State shall allocate and apportion its net income or net loss as provided in this section. For purposes of allocation and apportionment, a corporation is taxable in another state if either of the following applies:
1. The corporation's business activity in that state subjects it to a net income tax or a tax measured by net income.
2. That state has jurisdiction based on the corporation's business activity in that state to subject the corporation to a tax measured by net income regardless whether that state exercises its jurisdiction.
Nonapportionable Income. - Rents and royalties from real or tangible personal property, gains and losses, interest, dividends, patent and copyright royalties and other kinds of income, to the extent that they constitute nonapportionable income, less related expenses shall be allocated as provided in subsections (d) through (h) of this section.
Rents and Royalties. - Net rents and royalties are allocable to this State as follows:
1. Net rents and royalties from real property located in this State are allocable to this State.
2. Net rents and royalties from tangible personal property are allocable to this State:
  1. If and to the extent that the property is utilized in this State, or
  2. In their entirety if the corporation's commercial domicile is in this State and the corporation is not organized under the laws of, or is not taxable in, the state in which the property is utilized.
3. The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the income year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the income year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the corporation, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.
Gains and Losses. - Gains and losses are allocable to this State as follows:
1. Gains and losses from sales or other disposition of real property located in this State are allocable to this State.
2. Gains and losses from sales or other disposition of tangible personal property are allocable to this State if
  1. The property had a situs in this State at the time of the sale, or
  2. The corporation's commercial domicile is in this State and the corporation is not taxable in the state in which the property has a situs.
3. Gains and losses from sales or other disposition of intangible personal property are allocable to this State if the corporation's commercial domicile is in this State.
Interest and Net Dividends. - Interest and net dividends are allocable to this State if the corporation's commercial domicile is in this State. For purposes of this section, the term "net dividends" means gross dividend income received less related expenses.
Intangible Property. - Intangible property is allocable to this State as follows:
1. Royalties or similar income received from the use of patents, copyrights, secret processes and other similar intangible property are allocable to this State:
  1. If and to the extent that the patent, copyright, secret process or other similar intangible property is utilized in this State, or
  2. If and to the extent that the patent, copyright, secret process or other similar intangible property is utilized in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in this State.
2. A patent, secret process or other similar intangible property is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, processing, or other use in the state or to the extent that a patented product is produced in the state. If the basis of receipts from such intangible property does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the intangible property is utilized in the state in which the taxpayer's commercial domicile is located.
3. A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.
Other Income. - The income less related expenses from any other activities producing nonapportionable income or investments not otherwise specified in this section is allocable to this State if the business situs of the activities or investments is located in this State.
(Effective for taxable years beginning before January 1, 2017) Apportionable Income. - Except as otherwise provided in this section, all apportionable income of corporations shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus three times the sales factor, and the denominator of which is five. If the sales factor does not exist, the denominator of the fraction is the number of existing factors and if the sales factor exists but the payroll factor or the property factor does not exist, the denominator of the fraction is the number of existing factors plus two.
1. (Effective for taxable years beginning on or after January 1, 2017 and before January 1, 2018) Apportionable Income. - Except as otherwise provided in this section, all apportionable income of corporations shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus four times the sales factor, and the denominator of which is six. If the sales factor does not exist, the denominator of the fraction is the number of existing factors and if the sales factor exists but the payroll factor or the property factor does not exist, the denominator of the fraction is the number of existing factors plus three.
(Effective for taxable years beginning on or after January 1, 2018) Apportionable Income. - Except as otherwise provided in this section, all apportionable income of corporations shall be apportioned to this State by multiplying the income by the sales factor as determined under subsection (l) of this section.
1. (Repealed effective for taxable years beginning on or after January 1, 2018) The property factor is a fraction, the numerator of which is the average value of the corporation's real and tangible personal property owned or rented and used in this State during the income year and the denominator of which is the average value of all the corporation's real and tangible personal property owned or rented and used during the income year. (j) (1) (Repealed effective for taxable years beginning on or after January 1, 2018) The property factor is a fraction, the numerator of which is the average value of the corporation's real and tangible personal property owned or rented and used in this State during the income year and the denominator of which is the average value of all the corporation's real and tangible personal property owned or rented and used during the income year.
2. Property owned by the corporation is valued at its original cost. Property rented by the corporation is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the corporation less any annual rental rate received by the corporation from subrentals except that subrentals shall not be deducted when they constitute apportionable income. Any property under construction and any property the income from which constitutes nonapportionable income shall be excluded in the computation of the property factor.
3. The average value of property shall be determined by averaging the values at the beginning and end of the income year, but in all cases the Secretary of Revenue may require the averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the corporation's property. A corporation that ceases its operations in this State before the end of its income year because of its intention to dissolve or to relinquish its certificate of authority, or because of a merger, conversion, or consolidation, or for any other reason whatsoever shall use the real estate and tangible personal property values as of the first day of the income year and the last day of its operations in this State in determining the average value of property, but the Secretary may require averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the corporation's property.
1. (Repealed effective for taxable years beginning on or after January 1, 2018) The payroll factor is a fraction, the numerator of which is the total amount paid in this State during the income year by the corporation as compensation, and the denominator of which is the total compensation paid everywhere during the income year. All compensation paid to general executive officers and all compensation paid in connection with nonapportionable income shall be excluded in computing the payroll factor. General executive officers shall include the chairman of the board, president, vice-presidents, secretary, treasurer, comptroller, and any other officers serving in similar capacities. (k) (1) (Repealed effective for taxable years beginning on or after January 1, 2018) The payroll factor is a fraction, the numerator of which is the total amount paid in this State during the income year by the corporation as compensation, and the denominator of which is the total compensation paid everywhere during the income year. All compensation paid to general executive officers and all compensation paid in connection with nonapportionable income shall be excluded in computing the payroll factor. General executive officers shall include the chairman of the board, president, vice-presidents, secretary, treasurer, comptroller, and any other officers serving in similar capacities.
2. Compensation is paid in this State if:
  1. The individual's service is performed entirely within the State; or
  2. The individual's service is performed both within and without the State, but the service performed without the State is incidental to the individual's service within the State; or
  3. Some of the service is performed in this State and (i) the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in this State, or (ii) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this State.
1. (Effective for taxable years beginning before January 1, 2020) The sales factor is a fraction, the numerator of which is the total sales of the corporation in this State during the income year, and the denominator of which is the total sales of the corporation everywhere during the income year. Notwithstanding any other provision under this Part, the receipts from any casual sale of property shall be excluded from both the numerator and the denominator of the sales factor. Where a corporation is not taxable in another state on its apportionable income but is taxable in another state only because of nonapportionable income, all sales shall be treated as having been made in this State. (l) (1) (Effective for taxable years beginning before January 1, 2020) The sales factor is a fraction, the numerator of which is the total sales of the corporation in this State during the income year, and the denominator of which is the total sales of the corporation everywhere during the income year. Notwithstanding any other provision under this Part, the receipts from any casual sale of property shall be excluded from both the numerator and the denominator of the sales factor. Where a corporation is not taxable in another state on its apportionable income but is taxable in another state only because of nonapportionable income, all sales shall be treated as having been made in this State.
2. Sales of tangible personal property are in this State if the property is received in this State by the purchaser. In the case of delivery of goods by common carrier or by other means of transportation, including transportation by the purchaser, the place at which the goods are ultimately received after all transportation has been completed shall be considered as the place at which the goods are received by the purchaser. Direct delivery into this State by the taxpayer to a person or firm designated by a purchaser from within or without the State shall constitute delivery to the purchaser in this State.
3. Other sales are in this State if any of the following occur:
  1. The receipts are from real or tangible personal property located in this State, and includes receipts from incidental services sold as part of, or in connection with, the sale of tangible personal property in this State.
  2. The receipts are from intangible property and are received from sources within this State.
  3. The receipts are from services and the income-producing activities are in this State. For the purposes of this subdivision, an "income-producing activity" means an activity directly performed by the taxpayer or its agents for the ultimate purpose of generating the sale of the service. Receipts from income-producing activities performed within and without this State are attributed to this State in proportion to the income-producing activities performed in this State to total income-producing activities performed everywhere that generate the sale of service.
(Effective for taxable years beginning on or after January 1, 2020) Sales Factor. - The sales factor is a fraction, the numerator of which is the total sales of the corporation in this State during the income year, and the denominator of which is the total sales of the corporation everywhere during the income year. Notwithstanding any other provision under this Part, the receipts from any casual sale of property shall be excluded from both the numerator and the denominator of the sales factor. Where a corporation is not taxable in another state on its apportionable income but is taxable in another state only because of nonapportionable income, all sales shall be treated as having been made in this State.
1. In the case of sale, rental, lease, or license of real property, if and to the extent the property is located in this State.
2. In the case of rental, lease, or license of tangible personal property, if and to the extent the property is located in this State.
3. In the case of sale of tangible personal property, if and to the extent the property is received in this State by the purchaser. In the case of delivery of goods by common carrier or by other means of transportation, including transportation by the purchaser, the place at which the goods are ultimately received after all transportation has been completed is considered the place at which the goods are received by the purchaser. Direct delivery into this State by the taxpayer to a person or firm designated by a purchaser from within or without the State constitutes delivery to the purchaser in this State.
4. In the case of sale of a service, if and to the extent the service is delivered to a location in this State.
5. In the case of intangible property that is rented, leased, or licensed, if and to the extent the property is used in this State. Intangible property utilized in marketing a good or service to a consumer is "used in this State" if that good or service is purchased by a consumer who is in this State.
6. In the case of intangible property that is sold, if and to the extent the property is used in this State. A contract right, government license, or similar intangible property that authorized the holder to conduct a business activity in a specific geographic area is "used in this State" if the geographic area includes all or part of this State. Receipts from a sale of intangible property that is contingent on the productivity, use, or disposition of the intangible property shall be treated as receipts from the rental, lease, or licensing of the intangible property as provided under subdivision (5) of this subsection. All other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the sales factor.
(Effective for taxable years beginning on or after January 1, 2020) Wholesale Content Distributors. - A wholesale content distributor's market for receipts is in this State as provided in G.S. 105-130.4A. In no event may the amount of receipts sourced to this State be less than the amount determined under this subsection. The amount determined under this subsection is the total domestic gross receipts of the wholesale content distributor from advertising and licensing activities multiplied by two percent (2%). For purposes of this section, the term "wholesale content distributor" has the same meaning as defined in G.S. 105-130.4A.
(Effective for taxable years beginning on or after January 1, 2020) Banks. - A bank's market for receipts is in this State as provided in G.S. 105-130.4B. For purposes of this section, the term "bank" has the same meaning as defined in G.S. 105-130.4B.
Railroad Company. - All apportionable income of a railroad company shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the "railway operating revenue" from business done within this State and the denominator of which is the "total railway operating revenue" from all business done by the company as shown by its records kept in accordance with generally accepted accounting principles.
1. Equal mileage proportion. - The proportion which the distance of movement of property and passengers over lines in this State bears to the total distance of movement of property and passengers over lines of the company receiving such revenue.
2. Interstate business. - Railroad operating revenue from the interstate transportation of persons or property into, out of, or through this State.
3. Railway operating revenue from business done within this State. - Railroad operating revenue from business wholly within this State, plus the equal mileage proportion within this State of each item of railway operating revenue received from the interstate business of the company.
(Repealed effective for taxable years beginning on or after January 1, 2017) All apportionable income of a telephone company shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is gross operating revenue from local service in this State plus gross operating revenue from toll services performed wholly within this State plus the proportion of revenue from interstate toll services attributable to this State as shown by the records of the company plus the gross operating revenue in North Carolina from other service less the uncollectible revenue in this State, and the denominator of which is the total gross operating revenue from all business done by the company everywhere less total uncollectible revenue. Provided, that where a telephone company is required to keep its records in accordance with the standard classification of accounts prescribed by the Federal Communications Commission the amounts in such accounts shall be used in computing the apportionment fraction as provided in this subsection.
Motor Carrier. - All apportionable income of a motor carrier of property or a motor carrier of people shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of vehicle miles in this State and the denominator of which is the total number of vehicle miles of the company everywhere. The words "vehicle miles" shall mean miles traveled by vehicles owned or operated by the company based upon one of the following:
1. Miles on a scheduled route.
2. Miles hauling property for a charge.
3. Miles carrying passengers for a fare.
(Repealed effective for taxable years beginning on or after January 1, 2017) All apportionable income of a motor carrier of passengers shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of vehicle miles in this State and the denominator of which is the total number of vehicle miles of the company everywhere. The words "vehicle miles" shall mean miles traveled by vehicles owned or operated by the company carrying passengers for a fare or traveling on a scheduled route.
(Repealed effective for taxable years beginning on or after January 1, 2017) All apportionable income of a telegraph company shall be apportioned by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is three.
(Repealed effective for taxable years beginning on or after January 1, 2018) All apportionable income of an excluded corporation and of all other public utilities shall be apportioned by multiplying the income by the sales factor as determined under subsection (l) of this section.
1. Excluded corporation. - Any corporation engaged in business as a building or construction contractor, a securities dealer, or a loan company or a corporation that receives more than fifty percent (50%) of its ordinary gross income from intangible property.
2. Public utility. - Any corporation that is subject to control of one or more of the following entities: the North Carolina Utilities Commission, the Federal Communications Commission, the Federal Energy Regulatory Commission, or the Federal Aviation Agency; and that owns or operates for public use any plant, equipment, property, franchise, or license for the transmission of communications, the transportation of goods or persons, or the production, storage, transmission, sale, delivery, or furnishing of electricity, water, steam, oil, oil products, or gas. The term also includes a motor carrier of property whose principal business activity is transporting property by motor vehicle for hire over the public highways of this State.
Transportation Corporation. - All apportionable income of an air transportation corporation or a water transportation corporation shall be apportioned by a fraction, the numerator of which is the corporation's revenue ton miles in this State and the denominator of which is the corporation's revenue ton miles everywhere. A qualified air freight forwarder shall use the revenue ton mile fraction of its affiliated air carrier. The following definitions apply in this subsection:
1. Air carrier. - A corporation engaged in the business of transporting any combination of passengers or property of any kind in interstate commerce, and the majority of the corporation's revenue ton miles everywhere are attributed to transportation by aircraft.
2. Air transportation corporation. - One or more of the following:
  1. An air carrier that carries any combination of passengers or property of any kind.
  2. A qualified air freight forwarder.
3. Qualified air freight forwarder. - A corporation that is an affiliate of an air carrier and whose air freight forwarding business is primarily carried on with the affiliated air carrier.
4. Revenue ton mile. - One ton of passengers, freight, mail, or other cargo carried one mile by the air transportation corporation or water transportation corporation by aircraft, motor vehicle, or vessel. In making this computation, a passenger is considered to weigh two hundred pounds.
(Repealed effective for taxable years beginning on or after January 1, 2018) All apportionable income of a qualified capital intensive corporation shall be apportioned by multiplying the income by the sales factor as determined under subsection (l) of this section. A "qualified capital intensive corporation" is a corporation that satisfies all of the conditions of this subsection. A corporation that is subject to this subsection must list on its return the property, payroll, and sales factors it used in determining whether it is a qualified capital intensive corporation. If the corporation fails to invest one billion dollars ($1,000,000,000) in private funds within nine years as required by subdivision (2) of this subsection, the benefit of this subsection expires and the corporation must apportion income as it would otherwise be required to do under this section absent this subsection. The conditions are:
1. The corporation's property factor as a percentage of the sum of the factors in the formula set out in subsection (i) of this section, including the doubling of the sales factor, exceeds seventy-five percent (75%) or the corporation's average property factor for the preceding three years as a percentage of the average sum of the factors in the formula set out in subsection (i) of this section, including the doubling of the sales factors, for the preceding three years exceeds seventy-five percent (75%).
2. The Secretary of Commerce makes a written determination that the corporation has invested or is expected to invest at least one billion dollars ($1,000,000,000) in private funds to construct a facility in this State within nine years after the time that construction begins. For the purposes of this subsection, costs of construction include costs of acquiring and improving land for the facility, costs for renovations or repairs to existing buildings, and costs of equipping or reequipping the facility.
3. The corporation maintains the average number of employees it has at the facility during the first two years after the facility is placed in service for the remainder of time in which the corporation must complete the investment required under subdivision (2) of this subsection.
4. The facility that satisfies the condition of subdivision (2) of this subsection is located in a county that was designated as a development tier one or two area at the time construction of the facility began.
5. The corporation satisfies a wage standard at the facility that satisfies the condition of subdivision (2) of this subsection. For the purposes of this subdivision, the wage standard that must be satisfied is the one established under G.S. 105-164.3(201)a.
6. The corporation provides health insurance for all of its full-time employees at the facility that satisfies the condition of subdivision (2) of this subsection. For the purposes of this subdivision, a company provides health insurance if it satisfies the provisions of G.S. 105-164.3(201)c.
(Effective for taxable years beginning before January 1, 2020) Pipeline Company. - Receipts from transportation of a petroleum-based liquids pipeline company shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of barrel miles in this State during the tax year and the denominator of which is the total number of barrel miles everywhere during the tax year. For purposes of this section, the term "barrel mile" means one barrel of liquid property transported one mile.
(Effective for taxable years beginning on or after January 1, 2020) Pipeline Company. - Receipts from the transportation or transmission of petroleum-based liquids or natural gas by a company subject to rate regulation by the Federal Energy Regulatory Commission shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of traffic units in this State during the tax year and the denominator of which is the total number of traffic units everywhere during the tax year. For purposes of this section, the term "traffic unit" means one or more of the following:
1. Barrel mile. - One barrel of liquid property transported one mile.
2. Cubic foot mile. - One cubic foot of gaseous property transported one mile.
(Effective for taxable years beginning on or after January 1, 2020) Electric Power Company. - All apportionable income of an electric power company shall be apportioned by a fraction, the numerator of which is the average value of the real and tangible personal property owned or rented and used in this State by the electric power company during the income year and the denominator of which is the average value of all the real and tangible personal property owned or rented and used by the electric power company during the income year. For purposes of this subsection, the term "electric power company" is 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 this State and that is subject to control of one or more of the following entities: the North Carolina Utilities Commission or the Federal Energy Regulatory Commission.
1. The average value of property shall be determined by averaging the values at the beginning and end of the income year, but in all cases the Secretary may require the averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the corporation's property.
2. An electric power company that ceases its operations in this State before the end of its income year because of its intention to dissolve or to relinquish its certificate of authority, or because of a merger, conversion, or consolidation, or for any other reason whatsoever shall use the real estate and tangible personal property values as of the first day of the income year and the last day of its operations in this State in determining the average value of property, but the Secretary may require averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the electric power company's property.
3. Property owned by an electric power company is valued at its original cost.
4. Property rented by an electric power company is valued at eight times the net annual rental rate.
5. Net annual rental rate is the annual rental rate paid by an electric power company less any annual rental rate received by the electric power company from sub-rentals except that sub-rentals shall not be deducted when they constitute apportionable income.
6. Any property under construction and any property the income from which constitutes nonapportionable income shall be excluded from the computation of the average value of an electric power company's real and tangible personal property.
Repealed by Session Laws 2007-491, s. 2, effective January 1, 2008. For applicability, see Editor's note.
Alternative Apportionment Method. - A corporation that believes the statutory apportionment method that otherwise applies to it under this section subjects a greater portion of its income to tax than is attributable to its business in this State may make a written request to the Secretary for permission to use an alternative method. The request must set out the reasons for the corporation's belief and propose an alternative method.
Repealed by Session Laws 2011-330, s. 5, effective June 27, 2011.
(Effective for taxable years beginning on or after January 1, 2020) State Net Loss Apportionment Election. - Notwithstanding subdivision (l)(4) of this section, a taxpayer with a State net loss balance as of the end of its 2019 taxable year may elect to apportion receipts from services based on the percentage of its income-producing activities performed in this State. The election must be made on the 2020 tax year return and must be in the form prescribed by the Secretary and contain any supporting documentation the Secretary may require. The election is binding and irrevocable until the earlier of the tax year in which (i) the existing State net loss balance is fully utilized or (ii) all of the existing State net loss balance has expired, as determined by applying the limitations set forth in G.S. 105-130.8A(b). A taxpayer must apportion receipts from services in accordance with subdivision (l)(4) of this section for tax years beginning on and after the tax year that the existing State net loss is fully utilized.

Receipts are in this State if the taxpayer's market for the receipts is in this State. If the market for a receipt cannot be determined, the state or states of assignment shall be reasonably approximated. In a case in which a taxpayer cannot ascertain the state or states to which receipts of a sale are to be assigned through the use of a method of reasonable approximation, the receipts must be excluded from the denominator of a taxpayer's sales factor. Except as otherwise provided by this section, a taxpayer's market for receipts is in this State as provided below:

If the Secretary of Revenue finds, with respect to any particular company, that its accounting records are not kept so as to reflect with exact accuracy such division of revenue by State lines as to each transaction involving interstate revenue, the Secretary of Revenue may adopt such regulations, based upon averages, as will approximate with reasonable accuracy the proportion of interstate revenue actually earned upon lines in this State. Provided, that where a railroad is being operated by a partnership which is treated as a corporation for income tax purposes and pays a net income tax to this State, or if located in another state would be so treated and so pay as if located in this State, each partner's share of the net profits shall be considered as dividends paid by a corporation for purposes of this Part and shall be so treated for inclusion in gross income, deductibility, and separate allocation of dividend income.

The following definitions apply in this subsection:

The property factor shall be as defined in subsection (j) of this section, the payroll factor shall be as defined in subsection (k) of this section, and the sales factor shall be as defined in subsection ( l ) of this section.

The following definitions apply in this subsection:

For purposes of this subsection, the average value of real and tangible personal property owned or rented by an electric power company is determined as follows:

The statutory apportionment method that otherwise applies to a corporation under this section is presumed to be the best method of determining the portion of the corporation's income that is attributable to its business in this State. A corporation has the burden of establishing by clear, cogent, and convincing proof that the proposed alternative method is a better method of determining the amount of the corporation's income attributable to the corporation's business in this State.

The Secretary must issue a written decision on a corporation's request for an alternative apportionment method. If the decision grants the request, it must describe the alternative method the corporation is authorized to use and state the tax years to which the alternative method applies. A decision may apply to no more than three tax years. A corporation may renew a request to use an alternative apportionment method by following the procedure in this subsection. A decision of the Secretary on a request for an alternative apportionment method is final and is not subject to administrative or judicial review. A corporation authorized to use an alternative method may apportion its income in accordance with the alternative method or the statutory method. A corporation may not use an alternative apportionment method except upon written order of the Secretary, and any return in which any alternative apportionment method, other than the method prescribed by statute, is used without permission of the Secretary is not a lawful return.

For purposes of this subsection, a taxpayer's State net loss balance is the total amount of State net losses computed under G.S. 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. A State net loss balance does not include a State net loss created in a taxable year beginning on or after January 1, 2020. A State net loss created in a taxable year beginning on or after January 1, 2020, must be determined using the apportionment rules in G.S. 105-130.4(l) .

History

(1939, c. 158, s. 311; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 752, s. 3; 1953, c. 1302, s. 4; 1955, c. 1350, s. 18; 1957, c. 1340, s. 4; 1959, c. 1259, s. 4; 1963, c. 1169, s. 2; c. 1186; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; c. 1287, s. 4; 1981 (Reg. Sess., 1982), c. 1212; 1987, c. 804, s. 2; 1987 (Reg. Sess., 1988), c. 994, s. 1; 1993, c. 532, s. 12; 1995, c. 350, s. 3; 1996, 2nd Ex. Sess., c. 14, s. 5; 1998-98, s. 69; 1999-369, s. 5.4; 2000-126, s. 5; 2001-327, s. 1(c); 2002-126, s. 30G.1(a); 2003-349, ss. 1.2, 1.3; 2003-416, ss. 5(a)-5(h); 2004-170, s. 15; 2005-435, s. 53; 2007-491, ss. 2, 12; 2009-54, ss. 1, 2, 6; 2009-445, ss. 4, 5; 2010-89, s. 2(a), (b); 2011-330, s. 5; 2013-414, s. 2(b); 2015-241, s. 32.14(a)-(d); 2015-268, s. 10.1(c); 2016-5, ss. 1.3(a), 1.6(a), 5.5(b); 2016-92, s. 1.1; 2017-204, s. 1.5(a); 2018-5, s. 38.2(c); 2018-97, s. 11.2(a); 2019-246, s. 3(a); 2020-58, s. 5.2(a).)

Section Set Out Twice. - The section above is effective for taxable years beginning on or after January 1, 2017. For this section as in effect for taxable years beginning before January 1, 2017, see the preceding section, also numbered G.S. 105-130.4.

Subsection (i) Set Out Three Times. - The first version of subsection (i) set out above is effective for taxable years beginning before January 1, 2017. The second version of subsection (i) set out above is effective for taxable years beginning on or after January 1, 2017 and before January 1, 2018. The third version of subsection (i) set out above is effective for taxable years beginning on or after January 1, 2018.

Subsections ( l ) and (s2) Set Out Twice. - The first versions of subsections ( l ) and (s2) set out above are effective for taxable years beginning before January 1, 2020. The second versions of subsections ( l ) and (s2) set out above are effective for taxable years beginning on or after January 1, 2020.

Proposed Amendments to This Section. - Session Laws 2016-94, s. 38.4(a), provides: "Notwithstanding any provision of Chapter 150B of the General Statutes or any other provision of law prohibiting adoption of rules based on legislation not yet enacted into law, on or before January 20, 2017, the Department of Revenue shall adopt and submit to the Rules Review Commission rules regarding the implementation and administration of market-based sourcing principles as if the proposed statutory changes in subsection (c) of this section was law. In adopting rules pursuant to this subsection, the exemption provided by G.S. 150B-1(d)(4) shall not apply, and the Department shall observe the general provisions of Article 2A of Chapter 150B of the General Statutes, except as follows:

"(1) Notwithstanding G.S. 150B-21.2(f), the agency must accept comments on the text of the proposed rules for at least 90 days after the text is published.

"(2) The provisions of G.S. 150B-21.4 do not apply.

"(3) If House Bill 169 of the 2016 Regular Session of the 2015 General Assembly is enacted, the provisions of G.S. 150B-19.4, as enacted by Section 1.1 of House Bill 169 of the 2016 Regular Session of the 2015 General Assembly, do not apply." House Bill 169 is Session Laws 2016-99.

Session Laws 2016-94, s. 38.4(b), provides: "In determining whether the rules adopted pursuant to subsection (a) of this section meet the standards for review, the Rules Review Commission shall apply the standards in G.S. 150B-21.9(a) as though the proposed statutory changes in subsection (c) of this section were law. If the Commission approves the rules adopted pursuant to subsection (a) of this section, the Commission shall deliver the approved rules to the Codifier of Rules. The Codifier of Rules shall not enter the rules into the Administrative Code until the General Assembly enacts the proposed statutory changes and directs the Codifier to do so. The rules become effective on the date they are entered in the Administrative Code."

Session Laws 2016-94, s. 38.4(c), provides: "The proposed statutory changes referenced in subsection (a) of this section are as follows:

' § 105-130.4. Allocation and apportionment of income for corporations.

'...

'( l ) Sales Factor. - The sales factor is a fraction, the numerator of which is the total sales of the corporation in this State during the income year, and the denominator of which is the total sales of the corporation everywhere during the income year. Notwithstanding any other provision under this Part, the receipts from any casual sale of property shall be excluded from both the numerator and the denominator of the sales factor. Where a corporation is not taxable in another state on its apportionable income but is taxable in another state only because of nonapportionable income, all sales shall be treated as having been made in this State.

'Receipts are in this State if the taxpayer's market for the receipts is in this State. If the market for a receipt cannot be determined, the state or states of assignment shall be reasonably approximated. In a case in which a taxpayer cannot ascertain the state or states to which receipts of a sale are to be assigned through the use of a method of reasonable approximation, the receipts must be excluded from the denominator of a taxpayer's sales factor. Except as otherwise provided by this section, a taxpayer's market for receipts is in this State as provided below:

'(1) In the case of sale, rental, lease, or license of real property, if and to the extent the property is located in this State.

'(2) In the case of rental, lease, or license of tangible personal property, if and to the extent the property is located in this State.

'(3) In the case of sale of tangible personal property, if and to the extent the property is received in this State by the purchaser. In the case of delivery of goods by common carrier or by other means of transportation, including transportation by the purchaser, the place at which the goods are ultimately received after all transportation has been completed is considered the place at which the goods are received by the purchaser. Direct delivery into this State by the taxpayer to a person or firm designated by a purchaser from within or without the State constitutes delivery to the purchaser in this State.

'(4) In the case of sale of a service, if and to the extent the service is delivered to a location in this State.

'(5) In the case of intangible property that is rented, leased, or licensed, if and to the extent the property is used in this State. Intangible property utilized in marketing a good or service to a consumer is 'used in this State' if that good or service is purchased by a consumer who is in this State.

'(6) In the case of intangible property that is sold, if and to the extent the property is used in this State. A contract right, government license, or similar intangible property that authorized the holder to conduct a business activity in a specific geographic area is 'used in this State' if the geographic area includes all or part of this State. Receipts from a sale of intangible property that is contingent on the productivity, use, or disposition of the intangible property shall be treated as receipts from the rental, lease, or licensing of the intangible property as provided under subdivision (5) of this subsection. All other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the sales factor.

'( l 1) Banks. - A bank's market for receipts is in this State as provided in G.S. 105-130.4A. For purposes of this section, the term 'bank' has the same meaning as defined in G.S. 105-130.4A.

'...

' § 105-130.4A. Market-based sourcing for banks.

'(a) Definitions. - The definitions in G.S. 105-130.4 apply to this section, and the following definitions apply to this section:

'(1) Bank. - Defined in G.S. 105-130.7B.

'(2) Billing address. - The location indicated in the books and records of the taxpayer on the first day of the taxable year, or on the date in the taxable year when the customer relationship began, as the address where any notice, statement, or billing relating to the customer's account is mailed.

'(3) Borrower, card holder, or payor located in this State. - A borrower, credit card holder, or payor whose billing address is in this State.

'(4) Card issuer's reimbursement fee. - The fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit, debit, or similar type of card has charged merchandise or services to the card.

'(5) Credit card. - A card, or other means of providing information, that entitles the holder to charge the cost of purchases, or a cash advance, against a line of credit.

"(6) Debit card. - A card, or other means of providing information, that enables the holder to charge the cost of purchases, or a cash withdrawal, against the holder's bank account or a remaining balance on the card.

'(7) Loan. - Any extension of credit resulting from direct negotiations between the taxpayer and its customer, and/or the purchase, in whole or in part, of such an extension of credit from another. The term includes participations, syndications, and leases treated as loans for federal income tax purposes.

'(8) Loan secured by real property. - A loan or other obligation of which fifty percent (50%) or more of the aggregate value of the collateral used to secure the loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

'(9) Merchant discount. - The fee, or negotiated discount, charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit, debit, or similar type of card is accepted in payment for merchandise or services sold to the card holder, net of any cardholder chargeback and unreduced by any interchange transaction or issuer reimbursement fee paid to another for charges or purchases made by its cardholder.

'(10) Participation. - An extension of credit in which an undivided ownership interest is held on a prorated basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

'(11) Payor. - The person who is legally responsible for making payment to the taxpayer.

'(12) Real property owned. - Real property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes or could claim depreciation if subject to federal income tax. Real property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

'(13) Syndication. - An extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

'(14) Tangible personal property owned. - Tangible personal property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes could claim depreciation if subject to federal income tax. Tangible personal property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

'(15) Transportation property. - Vehicles and vessels capable of moving under their own power as well as any equipment or containers attached to such property. Examples of transportation property include aircraft, trains, water vessels, motor vehicles, rolling stock, barges, and trailers.

'(b) General Rule. - The receipts factor of a bank is a fraction, the numerator of which is the total receipts of the taxpayer in this State during the income year, and the denominator of which is the total receipts of the taxpayer everywhere during the income year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. The receipts factor includes only those receipts described herein that are apportionable income for the taxable year. Notwithstanding any other provision under this Part, the receipts from the following are excluded from both the numerator and the denominator of the receipts factor:

'(1) Receipts from a casual sale of property.

'(2) Receipts exempt from taxation.

'(3) The portion of receipts realized from the sale or maturity of securities or other obligations that represents a return of principal.

'(4) Receipts in the nature of dividends subtracted under G.S. 105-130.5(b)(3a) and (3b) and dividends excluded for federal tax purposes.

'(5) 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.

'(c) Receipts From the Sale, Lease, or Rental of Real Property. - The numerator of the receipts factor includes receipts from the sale, lease, or rental of real property owned by the taxpayer if the property is located within this State or receipts from the sublease of real property if the property is located within this State.

'(d) Receipts From the Sale, Lease, or Rental of Tangible Personal Property. - The method for calculating receipts from the sale, lease, or rental of tangible personal property is as follows:

'(1) Tangible personal property. - Except as provided in subdivision (2) of this subsection, the numerator of the receipts factor includes receipts from the sale, lease, or rental of tangible personal property owned by the taxpayer if the property is located within this State when it is first placed in service by the lessee.

'(2) Transportation property. - Receipts from the lease or rental of transportation property owned by the taxpayer are included in the numerator of the receipts factor to the extent that the property is used in this State. The extent an aircraft will be deemed to be used in this State and the amount of receipts that is to be included in the numerator of this State's receipts factor is determined by multiplying all the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this State and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this State cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

'(e) Interest, Fees, and Penalties From Loans Secured by Real Property. - The numerator of the receipts factor includes interest, fees, and penalties from loans secured by real property if the property is located within this State. If the property is located both within this State and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than fifty percent (50%) of the fair market value of the real property is located within this State. If more than fifty percent (50%) of the fair market value of the real property is not located within any one state, then the receipts described in this subsection are included in the numerator of the receipts factor if the borrower is located in this State. The determination of whether the real property securing a loan is located within this State is made as of the time the original agreement was made and any and all subsequent substitutions of collateral are disregarded.

'(f) Interest, Fees, and Penalties From Loans Not Secured by Real Property. - The numerator of the receipts factor includes interest, fees, and penalties from loans not secured by real property if the borrower is located in this State.

'(g) Net Gains From the Sale of Loans. - The numerator of the receipts factor includes net gains from the sale of loans. Net gains from the sale of loans include income recorded under the coupon stripping rules of section 1286 of the Code. The amount of net gains from the sale of loans that is included in the numerator is determined as follows:

'(1) Secured by real property. - The amount of net gains, but not less than zero, from the sale of loans secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (e) of this section, and the denominator of which is the total amount of interest, fees, and penalties from loans secured by real property.

'(2) Not secured by real property. - The amount of net gains, but not less than zero, from the sale of loans not secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (f) of this section, and the denominator of which is the total amount of interest, fees, and penalties from loans not secured by real property.

'(h) Receipts From Interest, Fees, and Penalties from Card Holders. - The numerator of the receipts factor includes interest, fees, and penalties charged to credit, debit, or similar card holders, including annual fees and overdraft fees, if the card holder is located in this State.

'(i) Receipts From ATM Fees. - The numerator of the receipts factor includes receipts from fees from the use of an ATM owned or rented by the taxpayer, if the ATM is located in this State. The receipts factor includes all ATM fees that are not forwarded directly to another bank. Receipts from ATM fees that are not sourced under this subsection are sourced pursuant to subsection ( l ) of this section.

'(j) Net Gains From the Sale of Credit Card Receivables. - The numerator of the receipts factor includes net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (h) of this section, and the denominator of which is the taxpayer's total amount of interest, fees, and penalties charged to card holders.

'(k) Miscellaneous Receipts. - The numerator of the receipts factor includes all of the following:

'(1) Card issuer's reimbursement fees. - Receipts from card issuer's reimbursement fees if the payor is located in this State.

'(2) Receipts from merchant's discount. - Receipts from a merchant discount if the payor is located in this State.

'(3) Loan servicing fees. - Receipts from loan servicing fees if the payor is located in this State.

'(4) Receipts from services. - Receipts from services not otherwise apportioned under this section if the payor is located in this State.

'(5) Receipts from investment assets and activity and trading assets and activity. - Receipts from one or more of the following:

'a. Interest and dividends from investment assets and activities and trading assets and activities if the payor is located in this State.

'b. Net gains and other income, but not less than zero, from investment assets and activities and trading assets and activities multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to sub-subdivision a. of this subdivision, and the denominator of which is the taxpayer's total amount of interest and dividends from investment assets and activities and trading assets and activities.

"( l ) All Other Receipts. - All other receipts not specifically enumerated in this section are included in the numerator of the receipts factor if the payor is located in this State.'"

Session Laws 2016-94, s. 38.4(d), provides: "If the General Assembly directs the Codifier of Rules to enter the rules into the Administrative Code pursuant to subsection (b) of this section, the Utilities Commission shall adjust the rates for public utilities, excluding water public utilities with less than two hundred thousand dollars ($200,000) in annual operating revenues, for the tax changes in subsection (c) of this section. Each utility shall calculate the cumulative net effect of the tax changes and file the calculations with proposed rate changes to reflect the net prospective tax changes in utility customer rates within 60 days of the enactment of this section. Any adjustments required to existing tax assets or liabilities reflected in the utility's books and records required by the tax changes shall be deferred and reflected in customer rates in either the utility's next rate case or earlier, if deemed appropriate by the Commission."

Session Laws 2016-94, s. 38.4(e), provides: "This section is effective when it becomes law [July 14, 2016]."

Contingent repeal of subsection (s1). - Session Laws 2009-54, s. 6, repeals subsection (s1), effective for taxable years beginning January 1, 2019, if no corporation has qualified as a tax qualified capital intensive corporation under subsection (s1) prior to January 1, 2019.

Qualified Capital Intensive Corporation Ineligible for Certain Grants. - Session Laws 2009-54, s. 4, provides: "A corporation that is a qualified capital intensive corporation under G.S. 105-130.4(s1) is not eligible for a grant under the Job Development Investment Grant Program established under Part 2G of Article 10 of Chapter 143B of the General Statutes or the One North Carolina Fund established under Part 2H of Article 10 of Chapter 143B of the General Statutes with respect to the facility that satisfies the condition of G.S. 105-130.4(s1)(2)."

Editor's Note. - Session Laws 2001-327, s. 1(f), provides that: "This section is effective for taxable years beginning on or after January 1, 2001. Notwithstanding G.S. 105-163.41, no addition to tax may be made under that statute for a taxable year beginning on or after January 1, 2001, and before January 1, 2002, with respect to an underpayment of corporation income tax by a payer of royalties who adds the payments to State net income pursuant to G.S.105-130.7A(c), to the extent the underpayment was created or increased by this section."

Session Laws 2009-54, s. 5, provides: "The General Assembly encourages qualified capital intensive corporations that locate in this State to enter into a first source hiring agreement to utilize the State Employment Security Commission [now Division of Employment Security (DES) of the Department of Commerce] and any cooperating local agency as a first source for recruitment and referral of applicants for new and replacement employment associated with the applicable facility."

Session Laws 2010-89, s. 2(a) and (b), which added "unless the provisions of subsection (t2) of this section apply" at the end of the third sentence in the last paragraph of subsection (t1), and added subsection (t2), was applicable to requests for alternative apportionment formulas filed on or after July 11, 2010.

Session Laws 2015-241, s. 32.14A(a)-(e), as amended by Session Laws 2015-268, s. 10.2, provides: "(a) The Revenue Laws Study Committee is directed to study the calculation of the sales factor under G.S. 105-130.4(-it l) using market-based sourcing. To help the Committee determine the effect of market-based sourcing on State revenues and corporate taxpayers, each corporate taxpayer that satisfies the following requirements with respect to the taxable year beginning in 2014 is required to file an informational report with the Department of Revenue as provided in this section:

"(1) The taxpayer had apportionable income greater than ten million dollars ($10,000,000).

"(2) The taxpayer had a North Carolina apportionment percentage less than one hundred percent (100%).

"(3) The taxpayer was subject to apportionment of income based in whole or in part on the sales factor as determined under G.S. 105-130.4(l) .

"(b) On or before February 1, 2016, the Department of Revenue must publish guidelines for computing the sales factor based on market-based sourcing. The guidelines required by this subsection are not subject to the provisions of Chapter 150B of the General Statutes with respect to rule-making. The guidelines published by the Department of Revenue must be based on the following:

"(1) Market-based sourcing of receipts based on the following principles:

"a. In the case of sale, rental, lease, or license of real property, if and to the extent the property is located in this State.

"b. In the case of rental, lease, or license of tangible personal property, if and to the extent the property is located in this State.

"c. In the case of sale of a service, if and to the extent the service is delivered to a location in this State.

"d. In the case of intangible property that is rented, leased, or licensed, if and to the extent the property is used in this State. Intangible property utilized in marketing a good or service to a consumer is "used in this State" if that good or service is purchased by a consumer who is in this State.

"e. In the case of intangible property that is sold, if and to the extent the property is used in this State. A contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is "used in this State" if the geographic area includes all or part of this State. Receipts from intangible property sales that are contingent on the productivity, use, or disposition of the intangible property shall be treated as receipts from the rental, lease, or licensing of the intangible property as provided under sub-subdivision d. of this subdivision. All other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the sales factor.

"(2) The most recent model regulations with respect to market-based sourcing drafted by the UDITPA Section 17 Work Group convened by the Multistate Tax Commission.

"(3) Any other model apportionment regulations and model statutes with respect to the allocation and apportionment of income consistent with those adopted by the Multistate Tax Commission and that are not inconsistent with the principles outlined in subdivision (1) of this subsection.

"(c) The guidelines required by subsection (b) of this section apply to the informational report required by this section only. These guidelines may not be used by the Department of Revenue for any other purpose without further legislative authorization and compliance with the provisions of Chapter 150B of the General Statutes with respect to rule-making.

"(d) The informational report must be in a form required by the Secretary of Revenue and contain the following information:

"(1) The apportionment percentage and sales factor used with respect to the corporation's 2014 North Carolina corporate tax return.

"(2) The apportionment percentage and sales factor as calculated under subsection (b) of this section with respect to the corporation's 2014 taxable year.

"(3) The primary economic sector under NAICS in which the corporation has business activities. The term 'NAICS' has the same meaning as defined in G.S. 105-228.90.

"(4) Any other information prescribed by the Secretary.

"(e) The informational report is due by April 15, 2016. A taxpayer may not request an extension of time to file the informational report. The Secretary shall assess a civil penalty of five thousand dollars ($5,000) for failure to timely file an informational report required under this section. The Secretary may reduce or waive the penalty as provided in G.S. 105-237."

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.4, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2015-2017 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2015-2017 fiscal biennium."

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2016-94, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2016.'"

Session Laws 2016-94, s. 39.4, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2016-2017 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2016-2017 fiscal year."

Session Laws 2016-94, s. 39.7, is a severability clause.

Session Laws 2017-204, s. 7.1, is a severability clause.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-169, s. 3.1(c), provides, in part, that: "The Revisor of Statutes is authorized to renumber the subdivisions of G.S. 105-164.3 to ensure that the subdivisions are listed in alphabetical order and in a manner that reduces the current use of alphanumeric designations, to make conforming changes, and to reserve sufficient space to accommodate future additions to the statutory section." At the direction of the Revisor of Statutes, a reference was conformed in subdivisions (s1)(5) and (s1)(6).

Proposed Amendments to This Section. - Session Laws 2016-94, s. 38.4(a), (b), directed the Department of Revenue to draft administrative rules based on proposed amendments to this section and a new section, tentatively designated as G.S. 105-130.4A by Session Laws 2016-94, s. 38.4(c), and to have these rules reviewed by the Rules Review Commission. Once approved by the Rules Review Commission, the rules were not to be entered into the Administrative Code until the General Assembly actually enacted the proposed legislation, which it did in Session Laws 2019-246, s. 3(a) and (c), effective for taxable years beginning on or after January 1, 2020. However, the new section, as enacted by Session Laws 2019-246, s. 3(c), is codified as G.S. 105-130.4B, not G.S. 105-130.4A, as tentatively designated in Session Laws 2016-94, s. 38.4(c).

Session Laws 2019-246, s. 3(f), provides: "Under Section 38.4 of S.L. 2016-94, the Department of Revenue adopted and submitted to the Rules Review Commission rules regarding the implementation and administration of market-based sourcing principles based on legislation proposed in that section. The Department adopted the rules on January 4, 2017, and submitted the rules to the Rules Review Commission on January 18, 2017. The Rules Review Commission approved and delivered the rules to the Codifier of Rules on February 16, 2017. Pursuant to Section 38.4(b) of S.L. 2016-94, the Codifier of Rules did not enter the rules into the Administrative Code. The Codifier of Rules is hereby directed by the General Assembly to enter the rules into the Administrative Code on the effective date of this act, and the rules apply to taxable years beginning on or after January 1, 2020.

"The Department of Revenue shall adopt and submit to the Rules Review Commission rules regarding the implementation and administration of market-based sourcing principles, to the extent modifications are needed based on the statutory changes enacted by this section. In adopting rules pursuant to this subsection, the following provisions apply:

"(1) The exemption provided in G.S. 150B-1(d)(4) applies.

"(2) The provisions of G.S. 150B-21.3(b1) and (b2) do not apply.

"(3) The provisions of G.S. 150B-21.4 do not apply."

Editor's Note. - Session Laws 2019-246, s. 3(e), provides: "The Utilities Commission shall adjust the rates for public utilities, excluding water public utilities with less than two hundred thousand dollars ($200,000) in annual operating revenues, for the tax changes in subsection (a) of this section. Each utility shall calculate the cumulative net effect of the tax changes and file the calculations with proposed rate changes to reflect the net prospective tax changes in utility customer rates within 60 days of the enactment of this act. Any adjustments required to existing tax assets or liabilities reflected in the utility's books and records required by the tax changes shall be deferred and reflected in customer rates in either the utility's next rate case or earlier if deemed appropriate by the Commission."

Effect of Amendments. - Session Laws 2003-349, ss. 1.2 and 1.3, effective for taxable years beginning on or after January 1, 2003, in subsection (c), deleted "less the portion deductible under G.S. 105-130.7" following "interest, dividends" and made a minor punctuation change; and in subsection (f), deleted "and less that portion of the dividends deductible under G.S. 105-130.7" following "expenses."

Session Laws 2003-416, ss. 5.(a)-(h), effective August 14, 2003, substituted "apportionable income" for "business income" and "nonapportionable income" for "nonbusiness income" throughout the section; and in subsection (m), substituted "finds" for "shall find" in the fourth sentence of the second paragraph.

Session Laws 2004-170, s. 15, effective August 2, 2004, substituted "Energy Regulatory" for "Power" in subdivision (a)(6).

Session Laws 2005-435, s. 53, effective January 1, 2006, made a minor stylistic change in the introductory language of subdivision (a)(6).

Session Laws 2007-491, ss. 2 and 12, effective January 1, 2008, repealed subsection (t) and added subsection (t1). For applicability, see Editor's note.

Session Laws 2009-54, ss. 1 and 2, effective for taxable years beginning on or after January 1, 2010, in subsection (i), in the first sentence, substituted "utilities, excluded corporations, and qualified capital intensive corporations" for "utilities and excluded corporations", and in the second sentence, substituted "If the sales" for "Provided, that where the sales" at the beginning, and made related grammatical changes; and added subsection (s1).

Session Laws 2009-445, ss. 4 and 5, effective August 7, 2009, in subsection (h), substituted "activities producing nonapportionable income" for "nonbusiness activities" and "is located" for "are located"; and added the last sentence in the last paragraph of subsection (t1).

Session Laws 2010-89, s. 2(a) and (b), effective July 11, 2010, and applicable to requests for alternative apportionment formulas filed on or after that date, added "unless the provisions of subsection (t2) of this section apply" at the end of the third sentence in the last paragraph of subsection (t1); and added subsection (t2).

Session Laws 2011-330, s. 5, effective June 27, 2011, repealed subsection (t2), pertaining to a 15-Year Alternative method of apportionment.

Session Laws 2013-414, s. 2(b), effective August 23, 2013, deleted "unless the provisions of subsection (t2) of this section apply" following "three tax years" at the end of the third sentence in the third paragraph of subsection (t1).

Session Laws 2015-241, s. 32.14(a), effective for taxable years beginning on or after January 1, 2016, in subsection (i), substituted "Apportionable Income. - Except as otherwise provided in this section all apportionable income of corporations shall" for "All apportionable income of corporations other than public utilities, excluded corporations, and qualified capital intensive corporations shall" at the beginning, and substituted "three times" for "twice" and "five" for "four" near the end of the first sentence, and substituted "two" for "one" at the end of the last sentence.

Session Laws 2015-241, s. 32.14(b), effective for taxable years beginning on or after January 1, 2017, in subsection (i), substituted "four" for "three" and "six" for "five" near the end of the first sentence, and substituted "three" for "two" at the end of the last sentence.

Session Laws 2015-241, s. 32.14(c), effective for taxable years beginning on or after January 1, 2018, rewrote subsection (i).

Session Laws 2015-241, s. 32.14(d), as amended by Session Laws 2015-268, s. 10.1(c), effective for taxable years beginning on or after January 1, 2018, repealed subdivisions (a)(4) and (6), and subsections (j), (k), (r), and (s1).

Session Laws 2016-5, ss. 1.3(a), 1.6(a), effective for taxable years beginning on or after January 1, 2016, added subdivisions (a)(7)e. and f. and rewrote subsection (s).

Session Laws 2016-5, s. 5.5(b), effective May 11, 2016, substituted "G.S. 105-164.3(33c)a" for "G.S. 105-129.83(c)" at the end of subdivision (s1)(5); and substituted "G.S. 105-164.3(33c)c" for "G.S. 105-129.83(d)" at the end of subdivision (s1)(6).

Session Laws 2016-92, s. 1.1, effective July 11, 2016, deleted "the Interstate Commerce Commission" following "the Federal Communications Commission" near the middle of the first sentence of subdivision (a)(6).

Session Laws 2017-204, s. 1.5(a), effective for taxable years beginning on or after January 1, 2017, rewrote the section.

Session Laws 2018-5, s. 38.2(c), effective June 12, 2018, in subdivision ( l )(3), added "any of the following occur" at the end of the introductory paragraph; in sub-subdivision ( l )(3)a., substituted "State, and includes receipts from incidental services sold as part of, or in connection with, the sale of tangible personal property in this State." for "State; or"; in sub-subdivision ( l )(3)b., substituted "to the extent the intangible property is used within this State." for "and are received from sources within this State; or"; and in sub-subdivision ( l )(3)c., added the last two sentences.

Session Laws 2018-97, s. 11.2(a), effective July 1, 2018, substituted "and are received from sources" for "to the extent the intangible property is used" in sub-subdivision ( l )(3)b.

Session Laws 2019-246, s. 3(a), effective for taxable years beginning on or after January 1, 2020, rewrote the section.

Session Laws 2020-58, s. 5.2(a), effective for taxable years beginning on or after January 1, 2020, substituted "receipts sourced" for "income apportioned" in the second sentence of subsection ( l 1).

Legal Periodicals. - For note on constitutionality of income allocation formulae under former G.S. 105-134 as applied to corporations, see 9 N.C.L. Rev. 470 (1931).

For note as to allocation of interstate corporate income, etc., under former G.S. 105-134, see 36 N.C.L. Rev. 156 (1958).

For survey of 1982 law on taxation, see 61 N.C.L. Rev. 1217 (1983).

CASE NOTES

Editor's Note. - Some of the cases cited below were decided under provisions similar to this section appearing in G.S. 105-134 prior to the 1967 amendment thereto.

Taxpayer Barred From Challenging Constitutionality of Augmented North Carolina Tax Review Board's Actions. - As a taxpayer sought, received, and benefitted from a variance from G.S. 105-130.4(t)'s tax allocation formula, it could not challenge, on separation-of-powers grounds, orders of the augmented North Carolina Tax Review Board that granted the variance. Philip Morris USA, Inc. v. Tolson, 176 N.C. App. 509, 626 S.E.2d 853 (2006), cert. denied, appeal dismissed, 361 N.C. 356, 644 S.E.2d 231 (2007).

Purpose of Apportionment. - The imposition of the income tax upon a base which reasonably represents the proportion of the trade or business carried on within the State is designed to meet the due process requirement that a state show a sufficient nexus between such a tax and the transaction within a state for which the tax is an exaction, and the proscriptions of the Commerce Clause of the federal Constitution which permit a state to tax only that part of a corporation's net income from multistate operations which is attributable to earnings within the taxing state. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966).

Jurisdiction of Tax Review Board. - As an administrative tribunal, the North Carolina Tax Review Board lacks the authority or jurisdiction to make a determination regarding the constitutionality of the tax resulting from the application of G.S. 105-130.4. Cent. Tel. Co. v. Tolson, 174 N.C. App. 554, 621 S.E.2d 186 (2005).

Reversion of Funds from Pension Fund. - Court must consider both transactional and functional tests in determining if the reversion of funds from a pension fund is business income the court must consider both the transactional test and the functional test. Union Carbide Corp. v. Offerman, 132 N.C. App. 665, 513 S.E.2d 341 (1999), aff'd, 351 N.C. 310, 526 S.E.2d 167 (2000).

Reversion of funds from a corporation's overfunded pension plan was not business income under the functional test, since the pension fund was not essential to the corporation's regular course of manufacturing and selling chemicals. Union Carbide Corp. v. Offerman, 132 N.C. App. 665, 513 S.E.2d 341 (1999), aff'd, 351 N.C. 310, 526 S.E.2d 167 (2000).

Plaintiff's reversion of pension plan contributions was not business income under the functional test of subsection (a)(1) of this section because plaintiff's contingent property right in the pension plan was not integral to its business nor used to generate income in its regular business operations. Union Carbide Corp. v. Offerman, 351 N.C. 310, 526 S.E.2d 167 (2000).

"Compensation". - Article 4 of the Revenue Act was extensively revised in 1967, and this new section dealing with the payroll factor clarified the provisions of former G.S. 105-134 so as to make it plain that "compensation" to be included means "wages, salaries, commissions and any other form of remuneration paid to employees for personal services." Myrtle Desk Co. v. Clayton, 8 N.C. App. 452, 174 S.E.2d 619 (1970).

"Excluded Corporation" - North Carolina Secretary of Revenue did not exceed his authority in imposing franchise and income taxes on out-of-state trademark holding companies that entered into licensing agreements with related retail companies that operated in North Carolina, whereby the retail companies paid the holding companies royalties for the use of the trademarks in North Carolina; the holding companies were were not excluded corporations under G.S. 105-130.4. A&F Trademark, Inc. v. Tolson, 167 N.C. App. 150, 605 S.E.2d 187 (2004), appeal dismissed, 359 N.C. 320, - S.E.2d - (2005), cert. denied, - U.S. - , 126 S. Ct. 353, 163 L. Ed. 2d 62 (2005).

G.S. 105-130.4(a)(4) should be understood as describing the entire entity rather than a small portion of the entity's overall business. Midrex Techs. v. N.C. Dep't of Revenue, 369 N.C. 250, 794 S.E.2d 785 (2016).

Trial court properly upheld an ALJ's determination that a C corporation was not an excluded corporation for purposes of G.S. 105-130.4(a)(4) during the relevant time period where it had only limited involvement in the actual, physical construction of a plant, but instead was only responsible for providing technical assistance and advice. Midrex Techs. v. N.C. Dep't of Revenue, 369 N.C. 250, 794 S.E.2d 785 (2016).

"Integral Part" of Business. - Even though corporate taxpayer was not in business of leasing equipment, lease arrangement which was means of gaining working capital and increasing cash flow for all corporation business operations was considered an "integral part" of the corporation's business. National Serv. Indus., Inc. v. Powers, 98 N.C. App. 504, 391 S.E.2d 509 (1990).

Once a corporation's assets are found to constitute integral parts of the corporation's regular trade or business, income resulting from the acquisition, management, and/or disposition of those assets constitutes business income regardless of how that income is received. Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284 (1998), cert. denied, 526 U.S. 1098, 119 S. Ct. 1576, 143 L. Ed. 2d 671 (1999) (decided prior to the 2002 amendment to the definition of "business income" in this section).

State has right to collect nondiscriminatory income taxes imposed on foreign corporation if the taxes are imposed solely on that part of the corporation's income earned within the State in its interstate business, and reasonably attributable to its interstate business done or performed within the borders of this State. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

Burden of Showing Statutory Assessment Unconstitutional. - Where the Commissioner (now Secretary) of Revenue assessed an income tax against a foreign corporation operating a manufacturing plant in this State in accordance with the provisions of G.S. 311 of the Revenue Act of 1929, without regard to its intangible property, the Commissioner's (now Secretary's) assessment was upheld upon appeal where the corporation failed to show that such method of allocation was unconstitutional in its application to the corporation. State ex rel. Maxwell v. Kent-Coffey Mfg. Co., 204 N.C. 365, 168 S.E. 397 (1933), aff'd, 291 U.S. 642, 54 S. Ct. 437, 78 L. Ed. 1040 (1934).

Method of Apportionment Not Unreasonable and Arbitrary Will Be Sustained. - In determining the amount of income of a foreign corporation subject to taxation by a state the difficulty of making an exact apportionment is apparent and hence, when the state has adopted a method not intrinsically arbitrary, it will be sustained until proof is offered of an unreasonable and arbitrary application in particular cases. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

Evidence May Be Received to Show Arbitrariness of Method Fair on Its Face. - When there are different taxing jurisdictions, each competent to lay a tax with respect to what lies within, and is done within, its own borders, and the question is necessarily one of apportionment, evidence may always be received which tends to show that a state has applied a method, which, albeit fair on its face, operates so as to reach profits which are in no just sense attributable to transactions within its jurisdiction. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

If Result Unjust, Additional Factors May Be Added to Formula. - If the apportionment formula produces an unjust result, differing and additional factors may be added. Clark Equip. Co. v. Johnson, 261 N.C. 269, 134 S.E.2d 327 (1964).

Authority of Augmented North Carolina Tax Review Board to Create Special income Tax Allocation Formula for Corporate Tax Payer. - As a special income tax allocation formula set forth in two North Carolina Tax Review Board orders was independent from and substituted G.S. 105-130.4(i)'s otherwise applicable allocation formula for multi-state corporations, a taxpayer was not entitled to determine its tax liability by using the amended statutory formula. Philip Morris USA, Inc. v. Tolson, 176 N.C. App. 509, 626 S.E.2d 853 (2006), cert. denied, appeal dismissed, 361 N.C. 356, 644 S.E.2d 231 (2007).

Augmented North Carolina Tax Review Board did not violate the separation of powers doctrine by creating a special tax allocation formula for a multi-state corporation, because in so doing, it only exercised the powers expressly reserved for it by the general assembly under G.S. 105-130.4(t). Philip Morris USA, Inc. v. Tolson, 176 N.C. App. 509, 626 S.E.2d 853 (2006), cert. denied, appeal dismissed, 361 N.C. 356, 644 S.E.2d 231 (2007).

Use of Corporation's Own Accounting System. - When a complaining taxpayer establishes by evidence, clear, cogent and convincing, an inequitable result, the Tax Review Board may, in cases where the corporation keeps its books in such manner as to establish the income earned in this State, use the company's separate bookkeeping and accounting system to ascertain that portion of the income earned in North Carolina. Clark Equip. Co. v. Johnson, 261 N.C. 269, 134 S.E.2d 327 (1964).

Purpose of Subsection(s). - The purpose of provisions such as subsection (s) of this section was not to provide either a substitute for, or an alternative to, G.S. 105-267 [repealed], but to afford relief from the apportionment formula of this section when it operates to tax a greater portion of a corporation's income than is reasonably attributable to business in this State. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966).

Taxpayer May Pay Under Protest and Sue for Refund. - A taxpayer contending that an additional assessment of income tax is invalid is not required to proceed under provisions such as subsection (s) of this section, but may pay the tax under protest, make proper demand for refund and, upon refusal, bring suit under G.S. 105-267. Sayles Biltmore Bleacheries, Inc. v. Johnson, 266 N.C. 692, 147 S.E.2d 177 (1966).

Tax Review Board Ruling Not Required Before Seeking Relief in Superior Court. - It was not the intention of the legislature, when it amended the predecessor of this section in 1953, to require a corporation to secure a ruling from the augmented Tax Review Board before it might have the superior court determine the legality of a tax assessment against specific items of its income earned outside of North Carolina, no part of which, it contends, is allocable to North Carolina. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966).

No Appellate Review of Augmented Tax Review Board's Decision. - Appellate jurisdiction does not lie in a North Carolina superior court for an Augmented Tax Review Board's (ATRB's) decision; as a result, when a corporation is contesting the application of the apportionment formula before the ATRB, G.S. 105-130.4(t)(6) requires aggrieved corporations to pay the tax and bring an original civil action, thus directing them to G.S. 105-241.4 [repealed], which provides that an aggrieved corporation bypass administrative review and proceed to litigate the tax liability at issue in the superior court de novo pursuant to that court's original jurisdiction. In re Cent. Tel. Co., 167 N.C. App. 14, 604 S.E.2d 680 (2004), appeal dismissed, cert. denied, 359 N.C. 281, 610 S.E.2d 203 (2005).

Tax on Foreign Corporation Doing Exclusively Interstate Business. - An income tax imposed under former G.S. 105-134 on a foreign corporation doing an exclusively interstate business as a motor carrier of freight did not impose a burden on interstate commerce in contravention of the United States Constitution, since no tax would be imposed if such corporation should have no net income earned in North Carolina by reason of its interstate business, and the tax was imposed only upon that portion of its net income which was reasonably attributable to its interstate business done within the borders of the State, without any discrimination against the taxpayer either in the admeasurement of the tax or the means for enforcing it, and the tax not being upon the franchise to engage in business. ET & WNC Transp. Co. v. Currie, 248 N.C. 560, 104 S.E.2d 403 (1958), aff'd, 359 U.S. 28, 79 S. Ct. 602, 3 L. Ed. 2d 625, rehearing denied, 359 U.S. 976, 79 S. Ct. 874, 3 L. Ed. 2d 842 (1959), construing § 105-134 as it stood before the 1957 amendment.

In the collection of income taxes under former G.S. 105-134 from a foreign corporation doing an exclusively interstate business in North Carolina there was no violation of the "due process of law" provision of U.S. Const., Amend. XIV or of the "law of the land" provision of N.C. Const., Art. I, § 19. ET & WNC Transp. Co. v. Currie, 248 N.C. 560, 104 S.E.2d 403 (1958), aff'd, 359 U.S. 28, 79 S. Ct. 602, 3 L. Ed. 2d 625, rehearing denied, 359 U.S. 976, 79 S. Ct. 874, 3 L. Ed. 2d 843 (1959), construing § 105-134 as it stood before the 1957 amendment.

Transactional Test For Business Income. - Under the transactional test, to determine whether business income as defined in this section prior to the 2002 amendment was derived from a transaction or activity in the regular course of the corporation's trade or business, one had to consider the frequency and regularity of similar transactions, the former practices of the business, and the taxpayer's subsequent use of the income. Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284 (1998), cert. denied, 526 U.S. 1098, 119 S. Ct. 1576, 143 L. Ed. 2d 671 (1999) (decided prior to the 2002 amendment to the definition of "business income" in this section); Union Carbide Corp. v. Offerman, 132 N.C. App. 665, 513 S.E.2d 341 (1999), aff'd, 351 N.C. 310, 526 S.E.2d 167 (2000).

Functional Test for Business Income. - Under the functional test, income was classified as business income as defined in this section prior to the 2002 amendment if it arose from the acquisition, management, and/or disposition of an asset that was used by the taxpayer in the regular course of business, and when determining whether a source of income constitutes business income under the functional test, the extraordinary nature or infrequency of the event was irrelevant. Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284 (1998), cert. denied, 526 U.S. 1098, 119 S. Ct. 1576, 143 L. Ed. 2d 671 (1999) (decided prior to the 2002 amendment to the definition of "business income" in this section).

Prejudgment and postjudgment interest recovered by a taxpayer as part of a judgment for patent infringement was properly characterized as business income, where the patents arose out of and were created by the taxpayer's business activities, and the interest represented compensation received in lieu of income that the taxpayer would have earned in the marketplace absent the infringement. Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284 (1998), cert. denied, 526 U.S. 1098, 119 S. Ct. 1576, 143 L. Ed. 2d 671 (1999) (decided prior to the 2002 amendment to the definition of "business income" in this section).

In determining if income is business income under the functional test, the court considers whether there are indicia of corporate ownership of the property and whether the property is essential to completeness of the regular trade or business. Union Carbide Corp. v. Offerman, 132 N.C. App. 665, 513 S.E.2d 341 (1999), aff'd, 351 N.C. 310, 526 S.E.2d 167 (2000).

Functional Test for Business Income Applied to Liquidation. - The sale and liquidation of plaintiff's fine jewelry manufacturing division generated nonbusiness income for the purpose of its corporate return where the plaintiff continued to manufacture and sell other consumer products but not fine jewelry and where the proceeds were not reinvested in the company to pay off debts or meet other needs but were immediately distributed to the shareholder; because the sale was a partial liquidation, the court looked to the totality of the circumstances in applying the functional test. Lenox, Inc. v. Offerman, 140 N.C. App. 662, 538 S.E.2d 203 (2000), aff'd sub nom. Lenox, Inc. v. Tolson, 353 N.C. 659, 548 S.E.2d 513 (2001) (decided prior to the 2002 amendment to the definition of "business income" in this section).

When a transaction involves a complete or partial liquidation and cessation of a company's particular line of business, and the proceeds are distributed to shareholders rather than reinvested in the company, any gain or loss generated from that transaction is nonbusiness income under the functional test. Lenox, Inc. v. Tolson, 353 N.C. 659, 548 S.E.2d 513 (2001), (decided prior to the 2002 amendment to the definition of "business income" in this section).

Apportionment of Income of Unitary Business. - The fact that the corporate enterprise is a unitary one, in the sense that the ultimate gain is derived from the entire business, does not mean that for the purpose of taxation the activities which are conducted in different jurisdictions are to be regarded as component parts of a single unit so that the entire net income may be taxed in one state regardless of the extent to which it may be derived from the conduct of the enterprise in another state. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

Although a unitary business (a concern that is carrying on one kind of business, the component parts of which are too closely connected and necessary to each other to justify division or separate consideration, as independent units) may produce an income which must be allocated to two or more states in which its activities are carried on, such business may not be split up arbitrarily and conventionally in applying the tax laws; there must be some logical reference to the production of income. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

In apportioning the income of a unitary business to determine how much of it is subject to State taxation the formula used must give adequate weight to the essential elements responsible for the earning of the income. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

Lost Profit Damages Award for Patent Infringement. - The Secretary of Revenue's interpretation of business income to include a lost profit damages award for infringement of the taxpayer's patents was correct, in that the recovery was an extraordinary or unusual transaction that provided the taxpayer with income from assets that were integral parts of its regular trade or business operations. Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284 (1998), cert. denied, 526 U.S. 1098, 119 S. Ct. 1576, 143 L. Ed. 2d 671 (1999) (decided prior to the 2002 amendment to the definition of "business income" in this section).

Mutual Dependency of Interrelated Activities Sustains Apportionment Formula. - In allocating for taxation by this State a part of the net income of a unitary business operating in this State and several other states, it is not required that its equipment appropriately employed in this State be equally productive with that employed in the other states, but the mutual dependency of the interrelated activities in furtherance of the entire business sustains an apportionment formula which results in a reasonable approximation of its income earned here, it being required only that the formula not be intrinsically arbitrary or produce an unreasonable result. VEPCO v. Currie, 254 N.C. 17, 118 S.E.2d 155, appeal dismissed, 367 U.S. 910, 81 S. Ct. 1919, 6 L. Ed. 2d 1250 (1961).

Taxation of Dividends Received by Foreign Corporation from Foreign Subsidiary. - For purposes of taxation in a parent-subsidiary relationship, where the corporate separation is maintained and the subsidiary conducts its own business, the subsidiary, not the parent, is doing the business. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

The mere fact that a foreign corporation engaged in business in this and other states, owns a subsidiary corporation in another state, which subsidiary does no business in North Carolina and owns no property in this State but is engaged in a similar business to that of the parent corporation, does not of itself require the parent corporation to prorate the dividends received from such subsidiary to all the states in which the parent corporation does business. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

There was no legal basis for requiring a foreign corporation to pay income taxes to the State on the dividends received from its subsidiary, where the subsidiary was neither a customer nor a retail outlet of the parent corporation, and the dividends were paid out of earnings of the subsidiary no part of which was earned from business conducted or transacted in the State. American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963).

Taxation of Dividends Received by Domesticated Corporation from Foreign Subsidiary. - Where the separate entities of the domesticated parent and its foreign, dividend-paying subsidiary (engaged in a similar business outside of North Carolina) are maintained - each transacting its own business as a distinct corporation and dealing with the other as if no parent-subsidiary relation existed - North Carolina cannot tax the subsidiary's dividends even though they are included in the parent's ultimate gains. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966).

The test for determining whether income of a foreign subsidiary may be taxed in this State is not solely whether the business of a foreign subsidiary is similar to that in which the domesticated parent is engaging in North Carolina or elsewhere, or whether it has had business transactions with the parent elsewhere in the world. Conceding both similarity of businesses and intercorporate transactions outside the State, yet the dividend income which the subsidiary pays the parent cannot be constitutionally allocated to North Carolina and prorated for income taxation unless (1) it is attributable to business activities within this jurisdiction or (2) the activities of the corporations are so interrelated as to make it impossible to identify the various sources of the taxpayer's total earnings with reasonable certainty. Gulf Oil Corp. v. Clayton, 267 N.C. 15, 147 S.E.2d 522 (1966).

Cited in In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972); Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976).

Opinions of Attorney General

Mortgage Guaranty Insurance Company Not "Excluded Corporation". - A mortgage guaranty insurance company is not an "excluded corporation" under subdivision (a)(4). See opinion of Attorney General to Mr. W.B. Matthews, Director, Corporate Income and Franchise Tax Division, North Carolina Department of Revenue, 46 N.C.A.G. 34 (1976).

§ 105-130.4A. (Effective for taxable years beginning on or after January 1, 2020) Market-based sourcing for wholesale content distributors.

Definitions. - The definitions in G.S. 105-130.4 and the following definitions apply to this section:
1. Customer. - A person who has a direct contractual relationship with a wholesale content distributor from whom the wholesale content distributor derives gross receipts, including a business customer such as an advertiser or licensee and an individual customer that directly subscribes with the wholesale content distributor for access to film programming.
2. Gross receipts. - The same meaning as the term "sales" in G.S. 105-130.4.
3. Wholesale content distributor. - A broadcast television network, a cable program network, or any television distribution company owned by, affiliated with, or under common ownership with any such network. The term does not mean or include a multichannel video programming distributor or a distributor of subscription-based Internet programming services.
Market for Receipts. - The receipts factor of a wholesale content distributor is a fraction, the numerator of which is the sum of the wholesale content distributor's gross receipts from transactions and activity in the regular course of its trade or business from sources within the State and the denominator of which is the sum of the wholesale content distributor's gross receipts from transactions and activity in the regular course of its trade or business everywhere. A wholesale content distributor's receipts from transactions and activities in the regular course of its business, including advertising, licensing, and distribution activities, but excluding receipts from the sale of real property or tangible personal property, are in this State if derived from a business customer whose commercial domicile is in this State. Receipts derived from an individual customer are in this State if the billing address of the individual customer as listed in the broadcaster's books and records is in this State.

History

(2019-246, s. 3(b).)

Editor's Note. - Session Laws 2019-246, s. 3(g), made this section effective for taxable years beginning on or after January 1, 2020.

§ 105-130.4B. (Effective for taxable years beginning on or after January 1, 2020) Market-based sourcing for banks.

Definitions. - The definitions in G.S. 105-130.4 apply to this section, and the following definitions apply to this section:
1. Bank. - Defined in G.S. 105-130.7B.
2. Billing address. - The location indicated in the books and records of the taxpayer on the first day of the taxable year, or on the date in the taxable year when the customer relationship began, as the address where any notice, statement, or billing relating to the customer's account is mailed.
3. Borrower, cardholder, or payor located in this State. - A borrower, credit cardholder, or payor whose billing address is in this State.
4. Card issuer's reimbursement fee. - The fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit, debit, or similar type of card has charged merchandise or services to the card.
5. Credit card. - A card, or other means of providing information, that entitles the holder to charge the cost of purchases, or a cash advance, against a line of credit.
6. Debit card. - A card, or other means of providing information, that enables the holder to charge the cost of purchases, or a cash withdrawal, against the holder's bank account or a remaining balance on the card.
7. Loan. - Any extension of credit resulting from direct negotiations between the taxpayer and its customer, and/or the purchase, in whole or in part, of such an extension of credit from another. The term includes participations, syndications, and leases treated as loans for federal income tax purposes.
8. Loan secured by real property. - A loan or other obligation of which fifty percent (50%) or more of the aggregate value of the collateral used to secure the loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.
9. Merchant discount. - The fee, or negotiated discount, charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit, debit, or similar type of card is accepted in payment for merchandise or services sold to the cardholder, net of any cardholder chargeback and unreduced by any interchange transaction or issuer reimbursement fee paid to another for charges or purchases made by its cardholder.
10. Participation. - An extension of credit in which an undivided ownership interest is held on a prorated basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.
11. Payor. - The person who is legally responsible for making payment to the taxpayer.
12. Real property owned. - Real property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes or could claim depreciation if subject to federal income tax. Real property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.
13. Syndication. - An extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.
14. Tangible personal property owned. - Tangible personal property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes could claim deprecation if subject to federal income tax. Tangible personal property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.
15. Transportation property. - Vehicles and vessels capable of moving under their own power as well as any equipment or containers attached to such property. Examples of transportation property include aircraft, trains, water vessels, motor vehicles, rolling stock, barges, and trailers.
General Rule. - The receipts factor of a bank is a fraction, the numerator of which is the total receipts of the taxpayer in this State during the income year, and the denominator of which is the total receipts of the taxpayer everywhere during the income year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. The receipts factor includes only those receipts described herein that are apportionable income for the taxable year. Notwithstanding any other provision under this Part, the receipts from the following are excluded from both the numerator and the denominator of the receipts factor:
1. Receipts from a casual sale of property.
2. Receipts exempt from taxation.
3. The portion of receipts realized from the sale or maturity of securities or other obligations that represents a return of principal.
4. Receipts in the nature of dividends subtracted under G.S. 105-130.5(b)(3a) and (3b) and dividends excluded for federal tax purposes.
5. 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.
Receipts from the Sale, Lease, or Rental of Real Property. - The numerator of the receipts factor includes receipts from the sale, lease, or rental of real property owned by the taxpayer if the property is located within this State or receipts from the sublease of real property if the property is located within this State.
Receipts from the Sale, Lease, or Rental of Tangible Personal Property. - The method for calculating receipts from the sale, lease, or rental of tangible personal property is as follows:
1. Tangible personal property. - Except as provided in subdivision (2) of this subsection, the numerator of the receipts factor includes receipts from the sale, lease, or rental of tangible personal property owned by the taxpayer if the property is located within this State when it is first placed in service by the lessee.
2. Transportation property. - Receipts from the lease or rental of transportation property owned by the taxpayer are included in the numerator of the receipts factor to the extent that the property is used in this State. The extent an aircraft will be deemed to be used in this State and the amount of receipts that is to be included in the numerator of this State's receipts factor is determined by multiplying all the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this State and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this State cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.
Interest, Fees, and Penalties from Loans Secured by Real Property. - The numerator of the receipts factor includes interest, fees, and penalties from loans secured by real property if the property is located within this State. If the property is located both within this State and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than fifty percent (50%) of the fair market value of the real property is located within this State. If more than fifty percent (50%) of the fair market value of the real property is not located within any one state, then the receipts described in this subsection are included in the numerator of the receipts factor if the borrower is located in this State. The determination of whether the real property securing a loan is located within this State is made as of the time the original agreement was made and any and all subsequent substitutions of collateral are disregarded.
Interest, Fees, and Penalties from Loans Not Secured by Real Property. - The numerator of the receipts factor includes interest, fees, and penalties from loans not secured by real property if the borrower is located in this State.
Net Gains from the Sale of Loans. - The numerator of the receipts factor includes net gains from the sale of loans. Net gains from the sale of loans include income recorded under the coupon stripping rules of section 1286 of the Code. The amount of net gains from the sale of loans that is included in the numerator is determined as follows:
1. Secured by real property. - The amount of net gains, but not less than zero, from the sale of loans secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (e) of this section, and the denominator of which is the total amount of interest, fees, and penalties from loans secured by real property.
2. Not secured by real property. - The amount of net gains, but not less than zero, from the sale of loans not secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (f) of this section, and the denominator of which is the total amount of interest, fees, and penalties from loans not secured by real property.
Receipts from Interest, Fees, and Penalties from Cardholders. - The numerator of the receipts factor includes interest, fees, and penalties charged to credit, debit, or similar cardholders, including annual fees and overdraft fees, if the cardholder is located in this State.
Receipts from ATM Fees. - The numerator of the receipts factor includes receipts from fees from the use of an ATM owned or rented by the taxpayer, if the ATM is located in this State. The receipts factor includes all ATM fees that are not forwarded directly to another bank. Receipts from ATM fees that are not sourced under this subsection are sourced pursuant to subsection (l) of this section.
Net Gains from the Sale of Credit Card Receivables. - The numerator of the receipts factor includes net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to subsection (h) of this section, and the denominator of which is the taxpayer's total amount of interest, fees, and penalties charged to cardholders.
Miscellaneous Receipts. - The numerator of the receipts factor includes all of the following:
1. Card issuer's reimbursement fees. - Receipts from card issuer's reimbursement fees if the payor is located in this State.
2. Receipts from merchant's discount. - Receipts from a merchant discount if the payor is located in this State.
3. Loan servicing fees. - Receipts from loan servicing fees if the payor is located in this State.
4. Receipts from services. - Receipts from services not otherwise apportioned under this section if the payor is located in this State.
5. Receipts from investment assets and activity and trading assets and activity. - Receipts from one or more of the following:
  1. Interest and dividends from investment assets and activities and trading assets and activities if the payor is located in this State.
  2. Net gains and other income, but not less than zero, from investment assets and activities and trading assets and activities multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to sub-subdivision a. of this subdivision, and the denominator of which is the taxpayer's total amount of interest and dividends from investment assets and activities and trading assets and activities.
All Other Receipts. - All other receipts not specifically enumerated in this section are included in the numerator of the receipts factor if the payor is located in this State.

History

(2019-246, s. 3(c).)

Editor's Note. - Session Laws 2019-246, s. 3(g), made this section effective for taxable years beginning on or after January 1, 2020.

§ 105-130.5. Adjustments to federal taxable income in determining State net income.

The following additions to federal taxable income shall be made in determining State net income:
1. Taxes based on or measured by net income by whatever name called and excess profits taxes.
2. Interest paid in connection with income exempt from taxation under this Part.
3. The contributions deduction allowed by the Code.
4. Interest income earned on bonds and other obligations of other states or their political subdivisions, less allowable amortization on any bond acquired on or after January 1, 1963.
5. The amount by which gains have been offset by the capital loss carryover allowed under the Code. All gains recognized on the sale or other disposition of assets must be included in determining State net income or loss in the year of disposition.
6. Any amount allowed as a net operating loss deduction under the Code.
7. Repealed by Session Laws 2001-327, s. 3(a), effective for taxable years beginning on or after January 1, 2001.
8. Repealed by Session Laws 1987, c. 778, s. 2.
9. Payments to or charges by a parent, subsidiary or affiliated corporation in excess of fair compensation in all intercompany transactions of any kind whatsoever pursuant to the Revenue Laws of this State.
10. The total amounts allowed under this Chapter during the taxable year as a credit against the taxpayer's income tax. A corporation that apportions part of its income to this State shall make the addition required by this subdivision after it determines the amount of its income that is apportioned and allocated to this State and shall not apply to a credit taken under this Chapter the apportionment factor used by it in determining the amount of its apportioned income.
11. The amount by which the percentage depletion allowance allowed by sections 613 and 613A of the Code for mines, oil and gas wells, and other natural deposits exceeds the cost depletion allowance for these items under the Code, except as otherwise provided herein. This subdivision does not apply to depletion deductions for clay, gravel, phosphate rock, lime, shells, stone, sand, feldspar, gemstones, mica, talc, lithium compounds, tungsten, coal, peat, olivine, pyrophyllite, and other solid minerals or rare earths extracted from the soil or waters of this State. Corporations required to apportion income to North Carolina shall first add to federal taxable income the amount of all percentage depletion in excess of cost depletion that was subtracted from the corporation's gross income in computing its federal income taxes and shall then subtract from the taxable income apportioned to North Carolina the amount by which the percentage depletion allowance allowed by sections 613 and 613A of the Code for solid minerals or rare earths extracted from the soil or waters of this State exceeds the cost depletion allowance for these items.
12. The amount allowed under the Code for depreciation or as an expense in lieu of depreciation for a utility plant acquired by a natural gas local distribution company, to the extent the plant is included in the company's rate base at zero cost in accordance with G.S. 62-158.
13. Repealed by Session Laws 2001-427, s. 4(b), effective for taxable years beginning on or after January 1, 2002.
14. Royalty payments required to be added by G.S. 105-130.7A, to the extent deducted in calculating federal taxable income.
15. through (15b) Repealed by Session Laws 2013-414, s. 34(a), effective August 23, 2013.
16. The amount excluded from gross income under Subchapter R of Chapter 1 of the Code.
17. (Repealed effective for taxable years beginning on or after January 1, 2018.) The amount excluded from gross income under section 199 of the Code.
18. Repealed by Session Laws 2006-220, s. 1, effective for taxable years beginning on and after January 1, 2007.
19. The dividend paid deduction allowed under the Code to a captive REIT, as defined in G.S. 105-130.12.
20. Repealed by Session Laws 2018-5, s. 38.2(d), effective June 12, 2018.
21. Repealed by Session Laws 2020-58, s. 5.3, effective June 30, 2020.
22. The amount allowed as a deduction under section 163(e)(5)(F) of the Code for an original issue discount on an applicable high yield discount obligation.
23. , (23a) Repealed by Session Laws 2013-414, s. 34(a), effective August 23, 2013.
24. The amount required to be added under G.S. 105-130.5B when the State decouples from federal accelerated depreciation and expensing.
25. The amount of net interest expense to a related member as determined under G.S. 105-130.7B.
26. The amount of gain that would be included for federal income tax purposes without regard to section 1400Z-2(a) of the Code. The adjustment made in this subsection does not result in a difference in basis of the affected assets for State and federal income tax purposes. The purpose of this subdivision is to decouple from the deferral of gains reinvested into an Opportunity Fund available under federal law.
27. The amount of gain that would be included in the taxpayer's federal taxable income but for the step-up in basis under section 1400Z-2(c) of the Code. The purpose of this subdivision is to decouple from the exclusion of gains from the sale or exchange of an investment in an Opportunity Fund available under federal law.
28. The amount deducted under section 250 of the Code.
29. The amount deducted under section 965(c) of the Code.
30. Payments made to an affiliate or subsidiary that is not subject to tax under this Article pursuant to the exceptions for critical infrastructure disaster relief provided under G.S. 166A-19.70A, to the extent the payments are deducted in determining federal taxable income. The definitions and provisions of G.S. 166A-19.70A apply to this subdivision.
31. For taxable years 2019 and 2020, a taxpayer must add an amount equal to the amount by which the taxpayer's interest expense deduction under section 163(j) of the Code exceeds the interest expense deduction that would have been allowed under the Internal Revenue Code as enacted as of January 1, 2020, as calculated on a separate entity basis. The purpose of this subdivision is to decouple from the modification of limitation on business interest allowed under section 2306 of the CARES Act.
32. The amount of any expense deducted under the Code to the extent that payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act and the income associated with the forgiveness is excluded from gross income pursuant to section 1106(i) of the CARES Act. The term "covered loan" has the same meaning as defined in section 1106 of the CARES Act.
The following deductions from federal taxable income shall be made in determining State net income:
1. Interest upon the obligations of the United States or its possessions, to the extent included in federal taxable income: Provided, interest upon the obligations of the United States shall not be an allowable deduction unless interest upon obligations of the State of North Carolina or any of its political subdivisions is exempt from income taxes imposed by the United States.
2. Interest upon the obligations of any of the following, net of related expenses, to the extent included in federal taxable income:
  1. This State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State.
  2. A nonprofit educational institution organized or chartered under the laws of this State.
  3. A hospital authority created under G.S. 131E-17.
3. Payments received from a parent, subsidiary or affiliated corporation in excess of fair compensation in intercompany transactions which in the determination of the net income or net loss of such corporation were not allowed as a deduction under the Revenue Laws of this State.
4. Repealed by Session Laws 2003-349, s. 1.1, effective January 1, 2003.
5. Dividends treated as received from sources outside the United States as determined under section 862 of the Code, net of related expenses, to the extent included in federal taxable income. Notwithstanding the proviso in subdivision (c)(3) of this section, the netting of related expenses shall be calculated in accordance with subdivision (c)(3) of this section.
6. Any amount included in federal taxable income under section 78, 951, 951A, or 965 of the Code, net of related expenses.
7. Any unused portion of a net economic loss as allowed under G.S. 105-130.8A(e). This subdivision expires for taxable years beginning on or after January 1, 2030.
8. A State net loss as allowed under G.S. 105-130.8A. A corporation may deduct its allocable and apportionable State net loss only from total income allocable and apportionable to this State.
9. Contributions or gifts made by any corporation within the income year to the extent provided under G.S. 105-130.9.
10. , (7) Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.
The following other adjustments to federal taxable income shall be made in determining State net income:
1. In determining State net income, no deduction shall be allowed for annual amortization of bond premiums applicable to any bond acquired prior to January 1, 1963. The amount of premium paid on any such bond shall be deductible only in the year of sale or other disposition.
2. Federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property which has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes prior to the effective date of this Part.
3. No deduction is allowed for any direct or indirect expenses related to income not taxed under this Part; provided, no adjustment shall be made under this subsection for adjustments addressed in G.S. 105-130.5(a) and (b). For dividends received that are not taxed under this Part, the adjustment for expenses may not exceed an amount equal to fifteen percent (15%) of the dividends.
4. The taxpayer shall add to federal taxable income the amount of any recovery during the taxable year not included in federal taxable income, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by this Part but, due to differences between the Code and this Part, did not reduce the amount of the taxpayer's tax imposed by the Code. The taxpayer may deduct from federal taxable income the amount of any recovery during the taxable year included in federal taxable income under section 111 of the Code, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by the Code but, due to differences between the Code and this Part, did not reduce the amount of the taxpayer's tax imposed by this Part.
5. Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.
Repealed by Session Laws 1987, c. 778, s. 3.
Notwithstanding any other provision of this section, any recapture of depreciation required under the Code must be included in a corporation's State net income to the extent required for federal income tax purposes.
Expired.

(8) The amount of losses realized on the sale or other disposition of assets not allowed under section 1211(a) of the Code. All losses recognized on the sale or other disposition of assets must be included in determining State net income or loss in the year of disposition.

(9) With respect to a shareholder of a regulated investment company, the portion of undistributed capital gains of such regulated investment company included in such shareholder's federal taxable income and on which the federal tax paid by the regulated investment company is allowed as a credit or refund to the shareholder under section 852 of the Code.

(10) Repealed by Session Laws 1987, c. 778, s. 2.

(11) If a deduction for an ordinary and necessary business expense was required to be reduced or was not allowed under the Code because the corporation claimed a federal tax credit against its federal income tax liability for the income year in lieu of a deduction, the amount by which the deduction was reduced and the amount of the deduction that was disallowed.

(12) Reasonable expenses, in excess of deductions allowed under the Code, paid for reforestation and cultivation of commercially grown trees; provided, that this deduction shall be allowed only to those corporations in which the real owners of all the shares of such corporation are natural persons actively engaged in the commercial growing of trees, or the spouse, siblings, or parents of such persons. Provided, further, that in no case shall a corporation be allowed a deduction for the same reforestation or cultivation expenditure more than once.

(13) Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.

(14) The amount by which the basis of a depreciable asset is required to be reduced under the Code for federal tax purposes because of a tax credit allowed against the corporation's federal income tax liability or because of a grant allowed under section 1603 of the American Recovery and Reinvestment Tax Act of 2009, P.L. 111-3. This deduction may be claimed only in the year in which the Code requires that the asset's basis be reduced. In computing gain or loss on the asset's disposition, this deduction shall be considered as depreciation.

(15) Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.

(16) The amount of natural gas expansion surcharges collected by a natural gas local distribution company under G.S. 62-158.

(17) To the extent included in federal taxable income, 911 charges imposed under G.S. 143B-1403 and remitted to the 911 Fund under that section.

(18), (19) Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.

(20) Royalty payments received from a related member who added the payments to income under G.S. 105-130.7A for the same taxable year.

(21) through (21b) Repealed by Session Laws 2013-414, s. 34(a), effective August 23, 2013.

(22) Repealed by Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016.

(23) A dividend received from a captive REIT, as defined in G.S. 105-130.12.

(24) Expired.

(25) Repealed by Session Laws 2020-58, s. 5.3, effective June 30, 2020.

(26), (26a) Repealed by Session Laws 2013-414, s. 34(a), effective August 23, 2013.

(27) The amount allowed as a deduction under G.S. 105-130.5B as a result of an add-back for federal accelerated depreciation and expensing.

(28) The amount of qualified interest expense to a related member as determined under G.S. 105-130.7B.

(29) (Effective for taxable years beginning on or after January 1, 2017) To the extent included in federal taxable income, the amount paid to the taxpayer during the taxable year from the State Emergency Response and Disaster Relief Reserve Fund for hurricane relief or assistance, but not including payments for goods or services provided by the taxpayer.

(30) The amount of gain included in the taxpayer's federal taxable income under section 1400Z-2(a) of the Code to the extent the same income was included in the taxpayer's State net income in a prior taxable year under subdivision (a)(26) of this section. The purpose of this subdivision is to prevent double taxation of income the taxpayer was previously required to include in the calculation of State net income.

(31) (Effective for taxable years beginning on or after January 1, 2019) To the extent included in federal taxable income, the amount received by a taxpayer as an economic incentive pursuant to G.S. 143B-437.012 or Part 2G or Part 2H of Article 10 of Chapter 143B of the General Statutes.

History

(1967, c. 1110, s. 3; 1969, cc. 1113, 1124; 1971, c. 820, s. 1; c. 1206, s. 1; 1973, c. 1287, s. 4; 1975, c. 764, s. 4; 1977, 2nd Sess., c. 1200, s. 1; 1979, c. 179, s. 2; c. 801, s. 32; 1981, c. 704, s. 20; c. 855, s. 1; 1983, c. 61; c. 713, ss. 70-73, 82, 83; 1985, c. 720, s. 1; c. 791, s. 43; 1985 (Reg. Sess., 1986), c. 825; 1987, c. 89; c. 637, s. 1; c. 778, ss. 2, 3; c. 804, s. 3; 1991, c. 598, ss. 3, 10; 1991 (Reg. Sess., 1992), c. 857, s. 1; 1993 (Reg. Sess., 1994), c. 745, ss. 4, 5; 1995, c. 509, s. 50; 1996, 2nd Ex. Sess., c. 14, ss. 4, 10; 1997-439, s. 1; 1998-98, ss. 1(c), 4, 69; 1998-158, s. 5; 1998-171, s. 7; 1999-333, s. 2; 1999-337, s. 1; 1999-463, Ex. Sess., s. 4.6(b); 2000-140, s. 93.1(a); 2000-173, s. 19(c); 2001-327, ss. 1(d), (e), 3(a), (b); 2001-424, s. 12.2(b); 2001-427, ss. 4(b), 10(a); 2002-72, s. 14; 2002-126, ss. 30C.2(a), 30C.2(c); 2002-136, ss. 1, 4; 2003-284, s. 37A.3; 2003-349, s. 1.1; 2005-1, s. 5.7(b); 2005-276, ss. 35.1(b), 39.1(e); 2006-220, s. 1; 2007-323, ss. 31.18(a), (b); 2007-383, s. 5; 2007-397, s. 13(b); 2008-107, ss. 28.1(c), (d), (g), 28.25(b), 28.27(a); 2008-134, s. 2(b); 2009-451, s. 27A.6(c), (d); 2010-89, s. 1; 2011-5, ss. 2(a), (b), 3(a), (b); 2011-330, s. 11; 2012-79, s. 1.1; 2013-10, ss. 2(a), (b), 3(a), (b); 2013-414, s. 34(a); 2014-3, ss. 1.1(a), 14.3; 2015-6, s. 2.7; 2015-241, ss. 7A.3, 32.13(c), (d); 2016-5, ss. 1.9(a), 5.3(b); 2018-5, ss. 5.6(k), 38.1(b), (e), 38.2(d); 2019-6, ss. 2.1, 2.2; 2019-187, s. 1(g); 2019-237, s. 2(a); 2020-58, ss. 1(c), 5.3.)

Editor's Note. - For the Hurricane Floyd Recovery Fund, see the Hurricane Floyd Recovery Act, Session Laws 1999-463.

Session Laws 1999-463, s. 4.5 and Session Laws 2005-1, s. 5.6, provide that a written statement of State and federal income tax treatment be included with the disbursement of funds or property for hurricane relief or assistance by each agency disbursing same.

Session Laws 2005-1, s. 1, provides that 2005-1 shall be known as "The Hurricane Recovery Act of 2005."

For Session Laws 2005-1, ss. 2.1 and 4, containing provisions for legislative findings regarding critical hurricane recovery needs not met by existing state and federal programs and funds, and establishment of the Disaster Relief Reserve Fund, see note at G.S. 143-1.

Session Laws 2007-323, s. 31.18(a) and Session Laws 2007-397, s. 13(b) both enacted subdivisions designated as subdivision (a)(19). The subdivision enacted by Session Laws 2007-397 has been renumbered as subdivision (a)(20) at the direction of the Revisor of Statutes.

Session Laws 2007-397, s. 15, is a severability clause.

Session Laws 2011-5, ss. 2(a), (b), and 3(a), (b), as amended by Session Laws 2011-330, s. 11, which added subdivisions (a)(15b), (a)(23), (b)(21b), and (b)(26), was applicable to the estates of decedents dying on or after January 1, 2011.

Session Laws 2013-10, s. 11, provides: "Except as otherwise provided, this act is effective when it becomes law [March 13, 2013] and applies to the estates of decedents dying on or after January 1, 2012. Notwithstanding Section 1 of this act, any amendments to the Internal Revenue Code enacted after January 1, 2012, that increase North Carolina taxable income for the 2012 taxable year become effective for taxable years beginning on or after January 1, 2013."

Session Laws 2015-241, 7A.3, provides in part: "The Revisor of Statutes may conform names and titles changed by this section and may correct statutory references as required by this section throughout the General Statutes. In making the changes authorized by this section, the Revisor may also adjust subject and verb agreement and the placement of conjunctions." Pursuant to this authority, "G.S. 143B-1403" was substituted for "G.S. 62A-43" in subdivision (b)(17) at the direction of the Revisor of Statutes.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Subdivision (b)(30) was enacted by Session Laws 2018-5, s. 38.1(b), as subdivision (b)(29). It was renumbered at the direction of the Revisor of Statutes.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-187, s. 3, made subdivision (a)(30), as added by Session Laws 2019-187, s. 1(g), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Session Laws 2019-237, s. 2(c), made subdivision (b)(31), as added by Session Laws 2019-237, s. 2(a), effective for taxable years beginning on or after January 1, 2019, and applicable to amounts received by a taxpayer on or after that date.

Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Effect of Amendments. - Session Laws 2001-427, s. 4(b), effective for taxable years beginning on or after January 1, 2002, repealed subdivision (a)(13), relating to income excluded because attributed under section 925 of the Code to a foreign sales corporation.

Session Laws 2001-427, s. 10(a), effective for taxable years beginning on or after January 1, 2001, in this section as enacted by Session Laws 2001-327, inserted "net of related expenses" in subdivisions (b)(3a) and (b)(3b).

Session Laws 2003-284. s. 37A.3, effective June 30, 2003, in subdivision (a)(15), twice substituted "special accelerated depreciation" for "thirty percent (30%) accelerated depreciation," changed the applicable percentage for 2004 to "70%," and added an applicable percentage of "0" for "2005 and thereafter."

Session Laws 2003-349, s. 1.1, effective for taxable years beginning on and after January 1, 2003, repealed subdivision (b)(3).

Session Laws 2005-1, s. 5.7(b), effective for taxable years beginning on or after January 1, 2004, added subdivision (b)(22).

Session Laws 2005-276, s. 35.1(b), effective for taxable years beginning on or after January 1, 2005, added subdivisions (a)(16), (a)(17).

Session Laws 2005-276, s. 39.1(e), effective for taxable years beginning on or after January 1, 2005, and applicable to qualifying expenses incurred on or after July 1, 2005, added subdivision (a)(18).

Session Laws 2006-220, s. 1, effective for taxable years beginning on and after January 1, 2007, repealed subdivision (a)(18), which read: "To the extent not included in federal taxable income, the amount of qualifying expenses for which the taxpayer claims a credit under G.S. 105-130.47."

Session Laws 2007-323, s. 31.18(a), (b), effective January 1, 2007, and effective for taxable years beginning on or after January 1, 2007, added subdivisions (a)(19) and subdivision (b)(23).

Session Laws 2007-383, s. 5, effective January 1, 2008, rewrote subdivision (b)(17).

Session Laws 2007-397, s. 13(b), effective for taxable years beginning on or after January 1, 2008, added the subdivision designated herein as subdivision (a)(20).

Session Laws 2008-107, ss. 28.1(c), (d) and (g), 28.25(b), and 28.27(a), effective for taxable years beginning on or after January 1, 2008, in subdivision (a)(15), added "For taxable years 2002-2005" at the beginning, and deleted "and thereafter" following "2005" in the table; added subdivision (a)(15a); in subdivision (a)(20), inserted "or a unit of State or local government"; and added subdivisions (b)(21a) and (b)(24).

Session Laws 2008-134, s. 2(b), effective July 28, 2008, added the last sentence in subdivision (b)(11).

Session Laws 2009-451, s. 27A.6(c) and (d), effective for taxable years beginning on or after January 1, 2009, in subdivision (a)(6), substituted "Any amount allowed as a net operating loss deduction under the Code" for "The net operating loss deduction allowed by the Code; and"; rewrote subdivision (a)(15a); added subdivisions (a)(21) and (a)(22); rewrote subdivision (b)(21a); and added subdivision (b)(25).

Session Laws 2010-89, s. 1, effective for taxable years beginning on or after January 1, 2011, added the second sentence in subdivision (a)(10).

Session Laws 2011-5, ss. 2(a), (b), and 3(a), (b), as amended by Session Laws 2011-330, s. 11, effective March 17, 2011, and applicable to the estates of decedents dying on or after January 1, 2011, added subdivisions (a)(15b), (a)(23), (b)(21b), and (b)(26).

Session Laws 2012-79, s. 1.1, effective June 26, 2012, added "or because of a grant allowed under section 1603 of the American Recovery and Reinvestment Tax Act of 2009, P.L. 111-3" at the end of the first sentence in subdivision (b)(14).

Session Laws 2013-10, ss. 2(a), (b), and 3(a), (b), substituted "through 2013" for "through 2012" in the first sentence of subdivision (a)(15b); added subdivision (a)(23a); added the last sentence in subdivision (b)(21b); and added subdivision (b)(26a). For effective date and applicability, see editor's note.

Session Laws 2013-414, s. 34(a), effective August 23, 2013, deleted subdivisions (a)(15), (a)(15a), (a)(15b), (a)(23), (a)(23a), (b)(21), (b)(21a), (b)(21b), (b)(26), and (b)(26a); and added subdivisions (a)(24) and (b)(27).

Session Laws 2014-3, s. 1.1(a), as amended by Session Laws 2015-6, s. 2.7, effective for taxable years beginning on or after January 1, 2015, rewrote subdivision (b)(4) and added subdivision (b)(4a).

Session Laws 2014-3, s. 14.3, effective May 29, 2014, inserted "and apportionable" twice in the second sentence of subdivision (b)(4).

Session Laws 2015-6, s. 2.7, effective April 9, 2015, rewrote subdivision (b)(4) and added subdivision (b)(4a).

Session Laws 2015-241, s. 7A.3, effective September 18, 2015, substituted "G.S. 143B-1403" for "G.S. 62A-43" in subdivision (b)(17).

Session Laws 2015-241, s. 32.13(c), effective for taxable years beginning on or after January 1, 2016, repealed subdivisions (b)(6), (7), (12), (13), (15), (18), (19), and (22), and (c)(5).

Session Laws 2015-241, s. 32.13(c), (d), effective for taxable years beginning on or after January 1, 2016, added subdivision (a)(25); in subsection (b), repealed subdivisions (6), (7), (12), (13), (15), (18), (19), and (22), substituted "this section" for "this section and G.S. 105-130.6A" at the end of subdivision (3a), deleted the former last sentence in subdivision (11), which read: "This deduction is allowed only to the extent that a similar credit is not allowed by this Chapter for the amount.", and added subdivision (28); and, in subsection (c), in subdivision (3), deleted the former second sentence, which read: "G.S. 105-130.6A applies to the adjustment for expenses related to dividends received that are not taxed under this Part", and added the last sentence, and repealed subdivision (5).

Session Laws 2016-5, s. 1.9(a), effective for taxable years beginning on or after January 1, 2009, deleted the former last sentence in subdivision (b)(25), which read: "This deduction applies to taxable years beginning on or after January 1, 2014."

Session Laws 2016-5, s. 5.3(b), effective May 11, 2016, added sub-subdivision (b)(1a)c.

Session Laws 2018-5, s. 5.6(k), effective for taxable years beginning on or after January 1, 2017, added subdivision (b)(29).

Session Laws 2018-5, s. 38.1(b), effective June 12, 2018, added subdivisions (a)(26) through (a)(29); in subdivision (b)(3b), substituted "section 78, 951, 951A, or 965" for "section 78 or section 951"; and added subdivision (b)(29). For renumbering of subdivision, see editor's note.

Session Laws 2018-5, s. 38.1(e), effective for taxable years beginning on or after January 1, 2018, repealed subdivision (a)(17).

Session Laws 2018-5, s. 38.2(d), effective June 12, 2018, in subdivision (a)(10), deleted the former second sentence, which read: "This subdivision does not apply to a credit allowed under G.S. 105-130.47."; and deleted subdivision (a)(20), which read: "The amount of a donation made to a nonprofit organization or a unit of State or local government for which a credit is claimed under G.S. 105-129.16H."

Session Laws 2019-6, ss. 2.1, 2.2, effective March 20, 2019, substituted "1400Z-2(a)" for "1400Z-2(b)" in subdivision (a)(26); and substituted "State net" for "federal taxable" in subdivision (b)(30).

Session Laws 2019-187, s. 1(g), added subdivision (a)(30). For effective date and applicability, see editor's note.

Session Laws 2019-237, s. 2(a), added subdivision (b)(31). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 1(c), effective June 30, 2020, added subdivisions (a)(31) and (a)(32).

Session Laws 2020-58, s. 5.3, effective June 30, 2020, deleted subdivisions (a)(21) and (b)(25).

Legal Periodicals. - For 1997 legislative survey, see 20 Campbell L. Rev. 481.

CASE NOTES

Cited in Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976); Dunn v. State, 179 N.C. App. 753, 635 S.E.2d 604 (2006).

Market Discount Income on Bonds Not Deductible. - Business court correctly concluded that the market discount income that the taxpayer received on the discounted bonds was not deductible for North Carolina corporate income tax purposes. Fid. Bank v. N.C. Dep't of Revenue, 370 N.C. 10, 803 S.E.2d 142 (2017).

§ 105-130.5A. Secretary's authority to adjust net income or require a combined return.

Notice. - When the Secretary has reason to believe that any corporation so conducts its trade or business in such manner as to fail to accurately report its State net income properly attributable to its business carried on in the State through the use of transactions that lack economic substance or are not at fair market value between members of an affiliated group of entities, the Secretary may, upon written notice to the corporation, require any information reasonably necessary to determine whether the corporation's intercompany transactions have economic substance and are at fair market value and for the accurate computation of the corporation's State net income properly attributable to its business carried on in the State. The corporation must provide the information requested within 90 days of the date of the notice.
Adjust Net Income. - If upon review of the information provided, the Secretary finds as a fact that the corporation's intercompany transactions lack economic substance or are not at fair market value, the Secretary may redetermine the State net income of the corporation properly attributable to its business carried on in the State under this section by (i) adding back, eliminating, or otherwise adjusting intercompany transactions to accurately compute the corporation's State net income properly attributable to its business carried on in the State, or, if such adjustments are not adequate under the circumstances to redetermine State net income, (ii) requiring the corporation to file a return that reflects the net income on a combined basis of all members of its affiliated group that are conducting a unitary business. The Secretary shall consider and be authorized to use any reasonable method proposed by the corporation for redetermining its State net income attributable to its business carried on in the State. In determining whether the corporation's intercompany transactions lack economic substance or are not at fair market value, the Secretary shall consider each taxable year separately.
Voluntary Redetermination. - In addition to the authority granted under subsection (b) of this section, if the Secretary has reason to believe that any corporation's State net income properly attributable to its business carried on in this State is not accurately reported on a separate return required by this Part because of intercompany transactions, without making a finding that those transactions lack economic substance or are not at fair market value, the Secretary and the corporation may jointly determine and agree to an alternative filing methodology that accurately reports State net income. The Secretary is authorized to allow any reasonable method for redetermining the corporation's State net income attributable to its business carried on in this State.
Combined Return. - If the Secretary finds as a fact that a combined return is required, the Secretary may, upon written notice to the corporation, require the corporation to submit the combined return, and the corporation shall submit the combined return within 90 days of the date of the notice. The submission by the corporation of the combined return required by the Secretary shall not be deemed to be a return or construed as an agreement by the corporation that an assessment based on the combined return is correct or that additional tax is due by the Secretary's deadline for submitting the combined return. The Secretary or the corporation may propose a combination of fewer than all members of the unitary group, and the Secretary shall be authorized to consider whether such proposed combination is a reasonable means of redetermining State net income; provided, however, the Secretary shall not require a combination of fewer than all members of the unitary group without the consent of the corporation.
Written Statement of Findings. - If the Secretary makes an adjustment or requires a combined return under this section, the Secretary shall provide the corporation with a written statement containing detail of the facts, circumstances, and reasons for which the Secretary has found as a fact that the corporation did not accurately report its State net income properly attributable to its business carried on in the State and the Secretary's proposed method for computation of the corporation's State net income no later than 90 days following the issuance of a proposed assessment as provided in this section.
Members of Affiliated Group. - The Secretary may require a combined return under this section regardless of whether the members of the affiliated group are or are not doing business in this State.
Economic Substance. - A transaction has economic substance if (i) the transaction, or the series of transactions of which the transaction is a part, has one or more reasonable business purposes other than the creation of State income tax benefits and (ii) the transaction, or the series of transactions of which the transaction is a part, has economic effects beyond the creation of State income tax benefits. In determining whether a transaction has economic substance, all of the following apply:
1. Reasonable business purposes and economic effects include, but are not limited to, any material benefit from the transaction other than State income tax benefits not allowable under subdivision (3) of this subsection.
2. In determining whether to require a combined return, whether the transaction has economic effects beyond the creation of State income tax benefits may be satisfied by demonstrating material business activity of the entities involved in the transaction.
3. If State income tax benefits resulting from a transaction, or a series of transactions of which the transaction is a part, are consistent with legislative intent, such State income tax benefits shall be considered in determining whether such transaction has business purpose and economic substance.
4. Centralized cash management of an affiliated group as defined in subsection (j) of this section shall not constitute evidence of an absence of economic substance.
5. Achieving a financial accounting benefit shall not be taken into account as a reasonable business purpose for entering into a transaction if the origin of such financial accounting benefit is a reduction of State income tax.
Allocation of Income and Deductions. - In determining whether transactions between members of the affiliated group of entities are not at fair market value, the Secretary shall apply the standards contained in the regulations adopted under section 482 of the Code.
Apportionment. - If the Secretary requires a combined return under this section, the combined State net income of the corporation and the members of the affiliated group of entities shall be apportioned to this State by use of an apportionment formula that accurately reports the State net income properly attributable to the corporation's business carried on in the State and which fairly reflects the apportionment formula in G.S. 105-130.4 applicable to the corporation and each member of the affiliated group included in the combined return.
Affiliated Group Defined. - For purposes of this section, an affiliated group is a group of two or more corporations or noncorporate entities in which more than fifty percent (50%) of the voting stock of each member corporation or ownership interest of each member noncorporate entity is directly or indirectly owned or controlled by a common owner or owners, either corporate or noncorporate, or by one or more of the member corporations or noncorporate entities. Nothing in this subsection shall be construed to limit or negate the Secretary's authority to add back, eliminate, or otherwise adjust intercompany transactions involving the listed entities to accurately compute the corporation's State net income properly attributable to its business carried on in the State, as provided in subsection (b) of this section.
1. A corporation not required to file a federal income tax return.
2. An insurance company, other than a captive insurance company, (i) which is subject to tax under Article 8B of this Chapter, (ii) whose premiums are subject to tax under Article 21 of Chapter 58 or a similar tax in another state, (iii) which is licensed as a reinsurance company, (iv) which is a life insurance company as defined in Section 816 of the Code, or (v) which is an insurance company subject to tax imposed by Section 831 of the Code. A "captive insurance company" means an insurer that is part of an affiliated group where the insurer receives more than fifty percent (50%) of its net written premiums or other amounts received as compensation for insurance from members of the affiliated group.
3. A corporation exempt from taxation under section 501 of the Code.
4. An S corporation.
5. A foreign corporation as defined in section 7701 of the Code, other than a domestic branch thereof.
6. A partnership, limited liability company, or other entity not taxed as a corporation.
7. A corporation with at least eighty percent (80%) of its gross income from all sources in the tax year being active foreign business income as defined in section 861(c)(1)(B) of the Code in effect as of July 1, 2009.
Proposed Assessment or Refund. - If the Secretary redetermines the State net income of the corporation in accordance with this section by adjusting the State net income of the corporation or requiring a combined return, the Secretary shall issue a proposed assessment or refund upon making such redetermination. When a refund is determined in whole or part by a proposed assessment to an affiliated group member under this section, the refund shall not be issued until the proposed assessment to the affiliated group member has become collectable under G.S. 105-241.22. The amount of the refund shall reflect any changes made by the Department under this section. Otherwise, the procedures for a proposed assessment or a refund in Article 9 of Chapter 105 shall be applicable to proposed assessments and refunds made under this section.
Penalties. - If a combined return required by this section is not timely submitted by a corporation, then the corporation is subject to the penalties provided in G.S. 105-236(a)(3). Penalties shall not be imposed on an assessment under this section except as expressly authorized in this section and in G.S. 105-236(a)(5)f.
Advice. - A corporation may request in writing from the Secretary specific advice regarding whether a redetermination of the corporation's State net income or a combined return would be required under this section under certain facts and circumstances. The Secretary may request information from the taxpayer that is required to provide the specific advice. The Secretary shall provide the specific advice within 120 days of the receipt of the requested information from the taxpayer. G.S. 105-264 governs the effect of this advice.
Extension. - The Secretary and the taxpayer may extend any time limit contained in this section by mutual agreement.
Other Tax Adjustments. - Nothing in this section shall be construed to limit or negate the Secretary's authority to make tax adjustments as otherwise permitted by law, except that the Secretary shall not make adjustments pursuant to this section that limit a corporation's options for reporting royalty payments under G.S. 105-130.7A.
Appeals. - If the corporation appeals a final determination by the Department under this section to the Office of Administrative Hearings in a contested tax case, the administrative law judge shall review de novo (i) whether the separate income tax returns submitted by the taxpayer fail to report State net income properly attributable to its business carried on in this State through the use of intercompany transactions that lack economic substance or are not at fair market value between members of an affiliated group of entities; (ii) whether the Department's means of determining the corporation's State net income under this section is an appropriate means of determining the corporation's State net income properly attributable to this State; and (iii) if a combined return is required by the Department, whether adjustments other than requiring the corporation to file a return on a combined basis are adequate under the circumstances to redetermine State net income.

The following entities shall not be included in a combined return:

History

(2011-390, s. 2; 2011-411, s. 8(a), (b); 2020-58, s. 5.4.)

Cross References. - As to rules to exercise authority under G.S 105-130.5A, see G.S. 105-262.1.

Editor's Note. - Session Laws 2011-390, s. 8, as amended by Session Laws 2011-411, s. 8(b), made this section effective for taxable years beginning on or after January 1, 2012.

Subsections (c) through (p) were enacted by Session Laws 2011-390, s. 2, and Session Laws 2011-411, s. 8, as subsections (b1) through (o), respectively. They were redesignated as subsections (c) through (p) at the direction of the Revisor of Statutes.

Session Laws 2012-43, s. 4, provides: "On June 30, 2011, the Governor signed into law S.L. 2011-390, House Bill 619, as passed by the General Assembly. The law repealed the Secretary of Revenue's authority to adjust a corporation's net income or require a combined return under G.S. 105-130.6, 105-130.15, and 105-130.16 and replaced it with a new authority under G.S. 105-130.5A. The Fiscal Research Division of the North Carolina General Assembly prepared a fiscal memo on House Bill 619. Therefore, notwithstanding G.S. 105-262.1, as enacted by Section 2 of this act, G.S. 105-262(c), and Section 7 of the Budget Manual prepared by the Office of State Budget and Management, the Secretary of Revenue shall not be required to prepare a fiscal note for a proposed new rule submitted to the Codifier of Rules under G.S. 105-262.1, as enacted by this act, prior to December 31, 2012."

Session Laws 2012-43, s. 5, provides: "On April 17, 2012, the Department of Revenue published a directive pursuant to G.S. 105-264, CD-12-02, that explains the Secretary's authority under G.S. 105-130.5A to redetermine a corporation's net income by adjusting the corporation's intercompany transactions or requiring a corporation to file a combined income tax return for tax years beginning on or after January 1, 2012. This act supersedes the Directive; however, a taxpayer who relied upon the interpretation in the Directive and whose North Carolina taxable income for the 2012 taxable year is less under the Directive's interpretation than under an interpretation of G.S. 105-130.5A by a rule adopted pursuant to G.S. 105-262.1, as enacted by this act, is entitled to rely on the interpretation under the Directive for the 2012 taxable year."

Session Laws 2012-43, s. 6, provides: "S.L. 2011-390, as amended by S.L. 2011-411, enacted G.S. 105-130.5A, effective for taxable years beginning on or after January 1, 2012. The Secretary of Revenue's authority under G.S. 105-130.5A exists continuously for taxable years beginning on or after January 1, 2012. G.S. 105-262.1, as enacted by Section 2 of this act, prevents the Secretary from exercising the authority granted under G.S. 105-130.5A until a rule adopted in accordance with G.S. 105-262.1 becomes effective. After the rule becomes effective, the Secretary may issue a proposed denial of a refund or a proposed assessment under the authority of G.S. 105-130.5A for any taxable year beginning on or after January 1, 2012, subject to the applicable statute of limitations."

Effect of Amendments. - Session Laws 2011-411, s. 8(a), effective September 15, 2011, added subsection designated herein as subsection (c).

Session Laws 2020-58, s. 5.4, effective June 30, 2020, in subsection (k), added the second and third sentences, and substituted "Otherwise, the procedures" for "The procedures" in the last sentence.

§ 105-130.5B. Adjustments when State decouples from federal accelerated depreciation and expensing.

Special Accelerated Depreciation. - A taxpayer who takes a special accelerated depreciation deduction for property under section 168(k) or 168(n) of the Code must add to the taxpayer's federal taxable income eighty-five percent (85%) of the amount taken for that year under those Code provisions. A taxpayer is allowed to deduct twenty percent (20%) of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.
2009 Depreciation Exception. - A taxpayer who placed property in service during the 2009 taxable year and whose North Carolina taxable income for the 2009 taxable year reflected a special accelerated depreciation deduction allowed for the property under section 168(k) of the Code must add eighty-five percent (85%) of the amount of the special accelerated depreciation deduction to its federal taxable income for the 2010 taxable year. A taxpayer is allowed to deduct this add-back under subsection (a) of this section as if it were for property placed in service in 2010.
Section 179 Expense. - For purposes of this subdivision, the definition of section 179 property has the same meaning as under section 179 of the Code. A taxpayer who places section 179 property in service during a taxable year must add to the taxpayer's federal taxable income eighty-five percent (85%) of the amount by which the taxpayer's expense deduction under section 179 of the Code exceeds the dollar and investment limitation for the taxable year. For taxable years 2010, 2011, and 2012, the dollar limitation is two hundred and fifty thousand dollars ($250,000) and the investment limitation is eight hundred thousand dollars ($800,000). For taxable years beginning on or after 2013, the dollar limitation is twenty-five thousand dollars ($25,000) and the investment limitation is two hundred thousand dollars ($200,000).
Asset Basis. - The adjustments made in this section do not result in a difference in basis of the affected assets for State and federal income tax purposes, except as modified in subsection (e) of this section.
Bonus Asset Basis. - In the event of an actual or deemed transfer of an asset occurring on or after January 1, 2013, wherein the tax basis of the asset carries over from the transferor to the transferee for federal income tax purposes, the transferee must add any remaining deductions allowed under subsection (a) of this section to the basis of the transferred asset and depreciate the adjusted basis over any remaining life of the asset. Notwithstanding the provisions of subsection (a) of this section, the transferor is not allowed any remaining future bonus depreciation deductions associated with the transferred asset.
Prior Transactions. - For any transaction meeting both the requirements of subsection (e) of this section prior to January 1, 2013, and the conditions of this subsection, the transferor and transferee can make an election to make the basis adjustment allowed in that subsection on the transferee's 2013 tax return. If the asset has been disposed of or has no remaining useful life on the books of the transferee, the remaining bonus depreciation deduction may be allowed on the transferee's 2013 tax return. For this subsection to apply, the following conditions must be met:
1. The transferor has not taken the bonus depreciation deduction on a prior return.
2. The transferor certifies in writing to the transferee that the transferor will not take any remaining deductions allowed under subsection (a) of this section for tax years beginning on or after January 1, 2013, for depreciation associated with the transferred asset.
Tax Basis. - For transactions described in subsections (e) or (f) of this section, federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to the property that has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes.

A taxpayer is allowed to deduct twenty percent (20%) of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.

History

(2013-414, s. 34(b); 2014-3, s. 2.1(a); 2015-2, s. 1.2(a); 2016-6, s. 2(a).)

Effect of Amendments. - Session Laws 2014-3, s. 2.1(a), effective for taxable years beginning on or after January 1, 2013, substituted "$200,000" for "$125,000" in the last entry of the table in subsection (c); rewrote subsection (f); and added subsection (g).

Session Laws 2015-2, s. 1.2(a), effective March 31, 2015, in subsection (c), substituted "January 1, 2015" for "January 2, 2013" in the first paragraph and added the last entry in the table.

Session Laws 2016-6, s. 2(a), effective June 1, 2016, in subsection (c), in the first paragraph, deleted "as of January 1, 2015" following "Code" at the end of the first sentence, in the second sentence, twice deleted "listed in the table below" following "during a taxable year" and following "dollar and investment limitation," and added the last two sentences, and deleted the table detailing taxable dollar and investment limitations that formerly followed the second paragraph.

§ 105-130.6: Repealed by Session Laws 2011-390, s. 1, as amended by Session Laws 2011-411, s. 8(b), effective for taxable years beginning on or after January 1, 2012.

History

(1939, c. 158, s. 3181/2; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 708, s. 4; 1959, c. 1259, ss. 4, 8; 1967, c. 1110, s. 3; 1971, c. 1223, s. 1; 1973, c. 476, s. 193; 1998-98, s. 69; 1998-212, s. 29A.14(f); 2010-31, s. 31.10(d); 2011-390, s. 1; 2011-411, s. 8(b); repealed by 2011-390, s. 1, effective for taxable years beginning on or after January 1, 2012.)

Editor's Note. - Former G.S. 105-130.6 pertained to subsidiary and affiliated corporations.

§ 105-130.6A: Repealed by Session Laws 2015-241, s. 32.13(e), effective for taxable years beginning on or after January 1, 2016.

History

(2002-136, s. 2; 2007-491, s. 13; 2013-316, s. 4.1(b); 2013-414, s. 36; repealed by 2015-241, s. 32.13(e), effective for taxable years beginning on or after January 1, 2016.)

Editor's Note. - Former G.S. 105-130.6A pertained to the adjustment for expenses related to dividends.

Session Laws 2015-241, s. 32.13(e), repealed G.S. 105-130.6A effective for taxable years beginning on or after January 1, 2016.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Effect of Amendments. - Session Laws 2007-491, s. 13, effective January 1, 2008, in the third paragraph of subsection (e), substituted "G.S. 105-241.8" for "G.S. 105-241.1(e)" and "G.S. 105-241.21" for "105-241.1(i)" in the second and fourth sentences, respectively. For applicability, see Editor's note.

Session Laws 2013-316, s. 4.1(b), effective July 1, 2014, substituted "engaged in the business of producing electric power" for "subject to the franchise tax on electric power companies levied in G.S. 105-116" in subdivision (a)(4). For applicability, see editor's note.

Session Laws 2013-414, s. 36, effective August 23, 2013, substituted "definitions in G.S. 105-130.2" for "provisions of G.S. 105-130.6" in the introductory language of subsection (a).

§ 105-130.7: Repealed by Session Laws 2003-349, s. 1.1, effective January 1, 2003.

§ 105-130.7A. Royalty income reporting option.

Purpose. - Royalty payments received for the use of intangible property in this State are income derived from doing business in this State. This section provides taxpayers with an option concerning the method by which these royalties can be reported for taxation when the recipient and the payer are related members. As provided in this section, these royalty payments can be either (i) deducted by the payer and included in the income of the recipient, or (ii) added back to the income of the payer and excluded from the income of the recipient. Exercising the royalty reporting income option provided in this section does not prevent a taxpayer from having taxable nexus in this State as otherwise provided in this Article and does not permit the recipient of the income to exclude royalty payments from its calculation of sales as defined in G.S. 105-130.4.
Definitions. - The following definitions apply in this section:
1. Component member. - Defined in section 1563(b) of the Code.
2. Intangible property. - Copyrights, patents, and trademarks.
3. North Carolina royalty. - An amount charged that is for, related to, or in connection with the use in this State of intangible property. The term includes royalty and technical fees, licensing fees, and other similar charges.
4. Own. - To own directly, indirectly, beneficially, or constructively. The attribution rules of section 318 of the Code apply in determining ownership under this section.
5. Related entity. - Any of the following:
  1. A stockholder who is an individual, or a member of the stockholder's family enumerated in section 318 of the Code, if the stockholder and the members of the stockholder's family own in the aggregate at least eighty percent (80%) of the value of the taxpayer's outstanding stock.
  2. A stockholder, or a stockholder's partnership, limited liability company, estate, trust, or corporation, if the stockholder and the stockholder's partnerships, limited liability companies, estates, trusts, and corporations own in the aggregate at least fifty percent (50%) of the value of the taxpayer's outstanding stock.
  3. A corporation, or a party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of section 318 of the Code, if the taxpayer owns at least eighty percent (80%) of the value of the corporation's outstanding stock.
6. Related member. - A person that, with respect to the taxpayer during any part of the taxable year, is one or more of the following:
  1. A related entity.
  2. A component member.
  3. A person to or from whom there would be attribution of stock ownership in accordance with section 1563(e) of the Code if the phrase "5 percent or more" were replaced by "twenty percent (20%) or more" each place it appears in that section.
7. Royalty payment. - Either of the following:
  1. Expenses, losses, and costs paid, accrued, or incurred for North Carolina royalties, to the extent the amounts are allowed as deductions or costs in determining taxable income before operating loss deduction and special deductions for the taxable year under the Code.
  2. Amounts directly or indirectly allowed as deductions under section 163 of the Code, to the extent the amounts are paid, accrued, or incurred for a time price differential charged for the late payment of any expenses, losses, or costs described in this subdivision.
8. Trademark. - A trademark, trade name, service mark, or other similar type of intangible asset.
9. Use. - Use of intangible property includes direct or indirect maintenance, management, ownership, sale, exchange, or disposition of the intangible property.
Election. - For the purpose of computing its State net income, a taxpayer must add royalty payments made to, or in connection with transactions with, a related member during the taxable year. This addition is not required for an amount of royalty payments that meets any of the following conditions:
1. The related member includes the amount as income on a return filed under this Part for the same taxable year that the amount is deducted by the taxpayer, and the related member does not elect to deduct the amount pursuant to G.S. 105-130.5(b)(20).
2. The taxpayer can establish that the related member during the same taxable year directly or indirectly paid, accrued, or incurred the amount to a person who is not a related member.
3. The taxpayer can establish that the related member to whom the amount was paid is organized under the laws of a country other than the United States, the country has a comprehensive income tax treaty with the United States, and the country imposes a tax on the royalty income of the related member at a rate that equals or exceeds the rate set in G.S. 105-130.3.
Indirect Transactions. - For the purpose of this section, an indirect transaction or relationship has the same effect as if it were direct.

History

(2001-327, s. 1(b); 2003-416, s. 15; 2006-66, s. 24A.3(a); 2006-196, s. 10; 2016-5, s. 1.5.)

Editor's Note. - Session Laws 2001-327, s. 1(a), provides: "The General Assembly finds that most corporations engaged in manufacturing and retailing activities in this State comply with the State tax on income generated from using trademarks in those activities. Taxpayers who do not comply, however, create an unfair burden on these corporate citizens. It is the intent of this section to reward taxpayers who comply, by giving them an option on how to file tax returns involving royalty income."

Effect of Amendments. - Session Laws 2003-416, s. 15, effective August 14, 2003, substituted "own in the aggregate at least fifty percent (50%) of the value of the taxpayer's outstanding stock" for "are component members with respect to the taxpayer" in subdivision (b)(4)b.

Session Laws 2006-66, s. 24A.3(a), effective for taxable years beginning on or after January 1, 2006, substituted "intangible property" for "trademarks" throughout the section; and added new subdivision (b)(1a).

Session Laws 2006-196, s. 10, effective for taxable years beginning on or after January 1, 2006, in subsection (c), substituted "any" for "either" at the end of the introductory paragraph and added paragraph (c)(3).

Session Laws 2016-5, s. 1.5, effective May 11, 2016, added the last sentence in subsection (a).

§ 105-130.7B. Limitation on qualified interest for certain indebtedness.

Limitation. - In determining State net income, a deduction is allowed only for qualified interest expense paid or accrued by the taxpayer to a related member during a taxable year. This section does not limit the Secretary's authority to adjust a taxpayer's net income as it relates to payments to or charges by a parent, subsidiary, or affiliated corporation in excess of fair compensation in an intercompany transaction under G.S. 105-130.5(a)(9).
Definitions. - The definitions in G.S. 105-130.7A apply in this section. In addition, the following definitions apply in this section:
1. (Repealed effective for taxable years beginning on or after January 1, 2017) Adjusted taxable income. - State net income of the taxpayer determined without regard to this section and other adjustments as the Secretary may by rule provide.
2. Bank. - One or more of the following, or a subsidiary or affiliate of one or more of the following:
  1. A bank holding company as defined in the federal Bank Holding Company Act of 1956, as amended.
  2. One or more of the following entities incorporated or chartered under the laws of this State, another state, or the United States:
    1. A bank. This term has the same meaning as defined in G.S. 53C-1-4.
    2. A savings bank. This term has the same meaning as defined in G.S. 54C-4.
    3. A savings and loan association. This term has the same meaning as defined in G.S. 54B-4.
    4. A trust company. This term has the same meaning as defined in G.S. 53C-1-4.
3. Net interest expense. - The excess of the interest paid or accrued by the taxpayer to each related member during the taxable year over the amount of interest from each related member includible in the gross income of the taxpayer for the taxable year.
4. (Effective for taxable years beginning before January 1, 2017) Proportionate share of interest. - The amount of taxpayer's net interest expense paid or accrued directly to or through a related member to an ultimate payer divided by the total net interest expense of all related members that is paid or accrued directly to or through a related member to the same ultimate payer, multiplied by the interest paid or accrued to a person who is not a related member by the ultimate payer. Any amount that is distributed, paid, or accrued directly or through a related member that is not treated as interest under this Part does not qualify.
5. (Effective for taxable years beginning on or after January 1, 2017) Proportionate share of interest. - The amount of taxpayer's net interest expense paid or accrued directly to or through a related member to an ultimate payer divided by the total net interest expense of all related members that is paid or accrued directly to or through a related member to the same ultimate payer, multiplied by the interest paid or accrued to a person who is not a related member by the ultimate payer. Any amount that is distributed, paid, or accrued directly or through a related member that is not treated as interest under this Part does not qualify. In determining whether a nominal debt instrument creates deductible interest allowable under this section, the Secretary will not apply the covered debt instrument rules contained in the regulations promulgated under section 385 of the Code.
6. (Effective for taxable years beginning before January 1, 2017) Qualified interest expense. - The amount of net interest expense paid or accrued to a related member in a taxable year with the amount limited to the greater of (i) fifteen percent (15%) of the taxpayer's adjusted taxable income or (ii) the taxpayer's proportionate share of interest paid or accrued to a person who is not a related member during the same taxable year. This limitation does not apply to interest paid or accrued to a related member if one or more of the following applies:
  1. The State imposes an income tax on the interest income of the related member under this Article.
  2. Another state imposes an income tax or gross receipts tax on the interest income of the related member. Interest amounts eliminated by combined or consolidated return requirements do not qualify as interest that is subject to tax under this sub-subdivision.
  3. The related member is organized under the laws of a foreign country that has a comprehensive income tax treaty with the United States, and that country taxes the interest income at a rate equal to or greater than G.S. 105-130.3.
  4. The related member is a bank.
7. Ultimate payer. - A related member that receives or accrues interest from related members directly or through a related member and pays or accrues interest to a person who is not a related member.

(4) (Effective for taxable years beginning on or after January 1, 2017) Qualified interest expense. - The amount of net interest expense paid or accrued to a related member in a taxable year with the amount limited to the taxpayer's proportionate share of interest paid or accrued to a person who is not a related member during the same taxable year. This limitation does not apply to interest paid or accrued to a related member if one or more of the following applies:

a. The State imposes an income tax on the interest income of the related member under this Article.

b. Another state imposes an income tax or gross receipts tax on the interest income of the related member. Interest amounts eliminated by combined or consolidated return requirements do not qualify as interest that is subject to tax under this sub-subdivision.

c. The related member is organized under the laws of a foreign country that has a comprehensive income tax treaty with the United States, and that country taxes the interest income at a rate equal to or greater than G.S. 105-130.3.

d. The related member is a bank.

History

(2015-241, s. 32.13(f); 2016-5, s. 1.8(a), (b); 2017-204, s. 1.6(a), (b).)

Editor's Note. - Session Laws 2015-241, s. 32.13(h), made this section effective for taxable years beginning on or after January 1, 2016.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Subdivisions (b)(5) and (6), as enacted by Session Laws 2016-5, s. 1.8(b), were redesignated as subdivisions (b)(3a) and (5), respectively, at the direction of the Revisor of Statutes.

Session Laws 2017-204, s. 1.6(c) makes the amendments by Session Laws 2017-204, s. 1.6(a) and (b), effective for taxable years beginning on or after January 1, 2017.

Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2016-5, s. 1.8(a), (b), effective May 11, 2016, in subsection (b), substituted "each related member" for "a related member" twice in subdivision (b)(3), in subdivision (b)(4), rewrote the first sentence of the introductory language, which formerly read "The amount of net interest expense paid or accrued to a related member in a taxable year not to exceed thirty percent (30%) of the taxpayer's adjusted taxable income", rewrote subdivisions (b)(4)a. and b., which formerly read "Tax is imposed by the State under this Article on the related member with respect to the interest" and "The related member pays a net income tax or gross receipts tax to another state with respect to the interest income," and added subdivisions (b)(5) and (6). See editor's note for redesignation of subdivisions.

Session Laws 2017-204, s. 1.6(a) and (b), effective for taxable years beginning on or after January 1, 2017, repealed subdivision (b)(1); added the last sentence in subdivision (b)(3a); and deleted "the greater of (i) fifteen percent (15%) of the taxpayer's adjusted taxable income or (ii)" following "amount limited to" in the introductory paragraph of subdivision (b)(4).

§ 105-130.8: Repealed by Session Laws 2014-3, s. 1.1(b), effective for taxable years beginning on or after January 1, 2015.

History

(1939, c. 158, s. 322; 1941, c. 50, s. 5; 1943, c. 400, s. 4; c. 668; 1945, c. 708, s. 4; c. 752, s. 3; 1947, c. 501, s. 4; c. 894; 1949, c. 392, s. 3; 1951, c. 643, s. 4; c. 937, s. 4; 1953, c. 1031, s. 1; c. 1302, s. 4; 1955, c. 1100, s. 1; c. 1331, s. 1; cc. 1332, 1342; c. 1343, s. 1; 1957, c. 1340, ss. 4, 8; 1959, c. 1259, s. 4; 1961, c. 201, s. 1; c. 1148; 1963, c. 1169, s. 2; 1965, c. 1048; 1967, c. 1110, s. 3; 1998-98, s. 69; 1998-171, ss. 6, 8; 2002-136, s. 3; 2003-416, s. 5(i); repealed by 2014-3, s. 1.1(b), effective for taxable years beginning on or after January 1, 2015.)

Editor's Note. - Former G.S. 105-130.8 pertained to net economic loss.

Effect of Amendments. - Session Laws 2003-416, s. 5(i), effective August 14, 2003, substituted "nonapportionable" for "nonbusiness" in the first sentence of subdivision (a)(5).

Legal Periodicals. - For survey of 1976 case law on taxation, see 55 N.C.L. Rev. 1083 (1977).

CASE NOTES

Editor's Note. - Many of the following cases were decided under G.S. 105-147 prior to the amendment thereof by Session Laws 1967, c. 1110. G.S. 105-147 was repealed by Session Laws 1989, c. 728, s. 1.3.

Section Patterned After Internal Revenue Code. - This section is patterned after the net operating loss carryover deduction found in the 1939 federal Internal Revenue Code (see now Internal Revenue Code of 1954). Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976).

Federal Case Law Applicable. - The Supreme Court of North Carolina in construing this section has looked to and relied upon federal cases applying the analogous federal deduction. Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976).

Carry-Over Provisions Enacted as a Matter of Grace. - The General Assembly was under no constitutional or other legal compulsion to permit a net economic loss or losses deduction for a corporation from taxable income in a subsequent year or years. It enacted the carry-over provisions purely as a matter of grace, gratuitously conferring a benefit but limiting such benefit to the net economic loss of the taxpayer after deducting therefrom the allocable portion of such taxpayer's nontaxable income. Aberfoyle Mfg. Co. v. Clayton, 265 N.C. 165, 143 S.E.2d 113 (1965).

The General Assembly was under no constitutional compulsion to allow any deduction whatever from income otherwise taxable in this State, because of a "net economic loss" in a prior year. Dayco Corp. v. Clayton, 269 N.C. 490, 153 S.E.2d 28 (1967).

Determination of Deduction of Loss for Prior Years. - This section requires the inclusion of nontaxable income in arriving at an allowable deduction for carry-over purposes to be deducted from taxable income in a succeeding year. Dayton Rubber Co. v. Shaw, 244 N.C. 170, 92 S.E.2d 799 (1956), decided prior to the 1963 amendment to former G.S. 105-147.

As to process provided for determining amount of deduction allowable to corporation on account of a "net economic loss" in a prior year, see Dayco Corp. v. Clayton, 269 N.C. 490, 153 S.E.2d 28 (1967).

Out-of-State Dividends and Capital Gains Received by Foreign Corporation Must Be Deducted. - Dividends received by a foreign corporation from shares of stock owned by it in nonsubsidiary corporations and capital gains received by it from the sale of shares of stock in such nonsubsidiary corporations, even though such income is derived from out-of-state transactions and is not taxable here, must be deducted from the amount of loss carry-over claimed by the corporation against its income taxable by this State in succeeding years, since the income derived from dividends and capital gains is "income not taxable under this Division." Dayco Corp. v. Clayton, 269 N.C. 490, 153 S.E.2d 28 (1967).

As Must Nonrecognized Gain on Liquidation of Subsidiaries. - Plaintiff's gain realized from the sale of its two wholly-owned subsidiaries constituted "income from all sources in the year including any income not taxable under this division"; consequently, plaintiff was not entitled to any net economic losses deduction as sought in its complaint. Aberfoyle Mfg. Co. v. Clayton, 265 N.C. 165, 143 S.E.2d 113 (1965).

Deduction by Successor Corporation of Loss Sustained by Submerged Corporation. - Whether a successor corporation is entitled to deduct from its gross income an economic loss sustained by another corporation depends upon whether the successor corporation is for practical purposes the same and is engaged in continuing the business of the kind and character conducted by the corporation whose loss is claimed as a deduction. Good Will Distribs. (N.), Inc. v. Shaw, 247 N.C. 157, 100 S.E.2d 334 (1957); Good Will Distribs., Inc. v. Currie, 251 N.C. 120, 110 S.E.2d 880 (1959).

Where a corporation surviving a merger seeks to establish its right to deduct from its gross income an economic loss of one of its submerged corporations for a prior year as a carry-over under this section, and it appears from the facts alleged that the submerged corporation had a profit in the months of the fiscal year prior to the merger and that it had deducted its prior economic loss from such net income, leaving a balance on the loss side, and further, that as far as the facts alleged disclosed, to allow the surviving corporation to make such deduction would result in reducing the surviving corporation's income tax liability which had accrued on the date of the merger, such deduction by the surviving corporation was disallowed. Good Will Distribs. (N.), Inc. v. Shaw, 247 N.C. 157, 100 S.E.2d 334 (1957).

The enactment of loss carry-over legislation by the General Assembly was purely a matter of grace. The provision should not be construed to give a "windfall" to a taxpayer who happens to have merged with other corporations. Its purpose is not to give a merged taxpayer a tax advantage over others who have not merged. Good Will Distribs., Inc. v. Currie, 251 N.C. 120, 110 S.E.2d 880 (1959).

In determining whether a successor corporation may claim a net economic loss suffered by a predecessor corporation, the court must find that the two corporations are the "same," applying the continuity of business enterprise test. Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976).

Continuity of business enterprise theory, the test used in determining whether a successor corporation may claim a net economic loss suffered by its predecessor, means that where a loss corporation and a gain corporation are merged, premerger losses may be offset against post-merger gains only to the extent that the business (or group of assets) which was previously operating at a loss is now operating at a profit. Fieldcrest Mills, Inc. v. Coble, 290 N.C. 586, 227 S.E.2d 562 (1976).

The forgiveness of an indebtedness by an officer-stockholder constitutes a contribution to capital and does not constitute income of the corporation. Hence, the forgiveness of such indebtedness does not offset a net operating loss of a corporation for a taxable year, and the corporation is entitled to carry forward such loss. Foreman Mfg. Co. v. Johnson, 261 N.C. 504, 135 S.E.2d 205 (1964).

Applied in Royle & Pilkington Co. v. Currie, 250 N.C. 726, 110 S.E.2d 339 (1959), decided prior to the 1963 amendment to former G.S. 105-147.

Cited in Bellsouth Telecommunications, Inc. v. North Carolina Dep't of Revenue, 126 N.C. App. 409, 485 S.E.2d 333 (1997).

Opinions of Attorney General

Life insurance proceeds constitute "income not taxable" for Purposes of Computing the Net Economic Loss Deduction under this Section. See opinion of Attorney General to Mr. Wiley A. Warren, Jr., Assistant Director, Corporate Income and Franchise Tax Division, 47 N.C.A.G. 29 (1977).

§ 105-130.8A. Net loss provisions.

State Net Loss. - A taxpayer's State net loss for a taxable year is the amount by which allowable deductions for the year, other than prior year losses, exceed gross income under the Code for the year adjusted as provided in G.S. 105-130.5. In the case of a corporation that has income from business activity within and without this State, the loss must be allocated and apportioned to this State in the year of the loss in accordance with G.S. 105-130.4.
Deduction. - A taxpayer may carry forward a State net loss the taxpayer incurred in a prior taxable year and deduct it in the current taxable year, subject to the limitations in this subsection:
1. The loss was incurred in one of the preceding 15 taxable years.
2. Any loss carried forward is applied to the next succeeding taxable year before any portion of it is carried forward and applied to a subsequent taxable year.
Mergers and Acquisitions. - The Secretary must apply the standards contained in regulations adopted under sections 381 and 382 of the Code in determining the extent to which a loss survives a merger or an acquisition.
Administration. - A taxpayer claiming a deduction under this section must maintain and make available for inspection by the Secretary all records necessary to determine and verify the amount of the deduction. The Secretary or the taxpayer may redetermine a loss originating in a taxable year that is closed under the statute of limitations for the purpose of determining the amount of loss that can be carried forward to a taxable year that remains open under the statute of limitations.
(Expires for taxable years beginning on or after January 1, 2030) Net Economic Loss Carryforward. - For taxable years beginning before January 1, 2015, a taxpayer is allowed a net economic loss as calculated under G.S. 105-130.8. In determining and verifying the amount of a net economic loss incurred or carried forward for taxable years beginning before January 1, 2015, the provisions of G.S. 105-130.8 apply. Any unused portion of a net economic loss carried forward to taxable years beginning on or after January 1, 2015, is administered in accordance with this section. This subsection expires for taxable years beginning on or after January 1, 2030.

History

(2014-3, s. 1.1(c).)

Editor's Note. - Session Laws 2014-3, s. 1.1(d), made this section effective for taxable years beginning on or after January 1, 2015.

§ 105-130.9. Contributions.

Contributions shall be allowed as a deduction to the extent and in the manner provided as follows:

Charitable contributions as defined in section 170(c) of the Code, exclusive of contributions allowed in subdivision (2) of this section, shall be allowed as a deduction to the extent provided herein. The amount allowed as a deduction hereunder shall be limited to an amount not in excess of five percent (5%) of the corporation's net income as computed without the benefit of this subdivision or subdivision (2) of this section. Provided, that a carryover of contributions shall not be allowed and that contributions made to North Carolina donees by corporations allocating a part of their total net income outside this State shall not be allowed under this subdivision, but shall be allowed under subdivision (3) of this section.
Contributions by any corporation to the State of North Carolina, any of its institutions, instrumentalities, or agencies, any county of this State, its institutions, instrumentalities, or agencies, any municipality of this State, its institutions, instrumentalities, or agencies, and contributions or gifts by any corporation to educational institutions located within North Carolina, no part of the net earnings of which inures to the benefit of any private stockholders or dividend. For the purpose of this subdivision, the words "educational institution" shall mean only an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where the educational activities are carried on. The words "educational institution" shall be deemed to include all of such institution's departments, schools and colleges, a group of "educational institutions" and an organization (corporation, trust, foundation, association or other entity) organized and operated exclusively to receive, hold, invest and administer property and to make expenditures to or for the sole benefit of an "educational institution" or group of "educational institutions."
Corporations allocating a part of their total net income outside North Carolina under the provisions of G.S. 105-130.4 shall deduct from total income allocable to North Carolina contributions made to North Carolina donees qualified under subdivisions (1) and (2) of this section or made through North Carolina offices or branches of other donees qualified under the above-mentioned subdivisions of this section; provided, such deduction for contributions made to North Carolina donees qualified under subdivision (1) of this section shall be limited in amount to five percent (5%) of the total income allocated to North Carolina as computed without the benefit of this deduction for contributions.
The amount of a contribution for which the taxpayer claimed a tax credit pursuant to G.S. 105-130.34 shall not be eligible for a deduction under this section. The amount of the credit claimed with respect to the contribution is not, however, required to be added to income under G.S. 105-130.5(a)(10).

History

(1939, c. 158, s. 322; 1941, c. 50, s. 5; 1943, c. 400, s. 4; c. 668; 1945, c. 708, s. 4; c. 752, s. 3; 1947, c. 501, s. 4; c. 894; 1949, c. 392, s. 3; 1951, c. 643, s. 4; c. 937, s. 4; 1953, c. 1031, s. 1; c. 1302, s. 4; 1955, c. 1100, s. 1; c. 1331, s. 1; cc. 1332, 1342; c. 1343, s. 1; 1957, c. 1340, ss. 4, 8; 1959, c. 1259, s. 4; 1961, c. 201, s. 1; c. 1148; 1963, c. 1169, s. 2; 1965, c. 1048; 1967, c. 1110, s. 3; 1969, c. 1175, s. 1; 1973, c. 1287, s. 4; 1983, c. 713, s. 82; c. 793, s. 2; 1995, c. 370, s. 4; 2006-66, s. 24.18(b); 2011-330, s. 36.)

Editor's Note. - Section 105-130.34, referred to in subdivision (4), was repealed by Session Laws 2013-316, s. 2.1(b), effective January 1, 2014.

Effect of Amendments. - Session Laws 2006-66, s. 24.18(b), as amended by Session Laws 2011-330, s. 36, effective for taxable years beginning on or after January 1, 2006, and expiring for taxable years beginning on or after January 1, 2013, added "or G.S. 105-130.48" following "G.S. 105-130.34" in subdivision (4).

§ 105-130.10: Repealed by Session Laws 2015-241, s. 32.13(c), effective for taxable years beginning on or after January 1, 2016.

History

(1939, c. 158, s. 322; 1941, c. 50, s. 5; 1943, c. 400, s. 4; c. 668; 1945, c. 708, s. 4; c. 752, s. 3; 1947, c. 501, s. 4; c. 894; 1949, c. 392, s. 3; 1951, c. 643, s. 4; c. 937, s. 4; 1953, c. 1031, s. 1; c. 1302, s. 4; 1955, c. 1100, s. 1; c. 1331, s. 1; cc. 1332, 1342; c. 1343, s. 1; 1957, c. 1340, ss. 4, 8; 1959, c. 1259, s. 4; 1961, c. 201, s. 1; c. 1148; 1963, c. 1169, s. 2; 1965, c. 1048; 1967, c. 1110, s. 3; 1969, c. 817; 1973, c. 476, s. 193; c. 1262, s. 23; 1975, c. 764, s. 3; 1977, c. 771, s. 4; 1981, c. 704, s. 19; 1987, c. 804, s. 4; 1989, c. 148, s. 2; c. 727, ss. 218(40), 219(28); 1997-443, s. 11A.119(a); 2015-241, s. 14.30(u); repealed by 2015-241, s. 32.13(c), effective for taxable years beginning on or after January 1, 2016.)

Editor's Note. - Former G.S. 105-130.10 pertained to to the amortization of air-cleaning devices, waste treatment facilities and recycling facilities.

Session Laws 2015-241, s. 32.13(c), repealed G.S. 105-130.10 effective for taxable years beginning on or after January 1, 2016.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

§ 105-130.10A. Amortization of equipment mandated by OSHA.

In lieu of any depreciation allowance, at the option of the corporation, a deduction shall be allowed for the amortization, based on a period of 60 months, of the cost of any equipment mandated by the Occupational Safety and Health Act (OSHA), including the cost of planning, acquiring, constructing, modifying, and installing said equipment.
For the purposes of this section and G.S. 105-147(13)d, the term "equipment mandated by the Occupational Safety and Health Act" is any tangible personal property and other buildings and structural components of buildings, which is acquired, constructed, reconstructed, modified, or erected after January 1, 1979; and which the taxpayer must acquire, construct, install, or make available in order to comply with the occupational safety and health standards adopted and promulgated by the United States Secretary of Labor or the Commissioner of Labor of North Carolina, and the term "occupational safety and health standards" includes but is not limited to interim federal standards, consensus standards, any proprietary standards or permanent standards, as well as temporary emergency standards which may be adopted by the United States Secretary of Labor, promulgated as provided by the Occupational Safety and Health Act of 1970, (Public Law 91-596, 91st Congress, Act of December 29, 1970, 84 Stat. 1950) and which standards or regulations are published in the Code of Federal Regulations or otherwise properly promulgated under the Occupational Safety and Health Act of 1970 or any alternative rule, regulation or standard promulgated by the Commissioner of Labor of North Carolina as provided in G.S. 95-131.

History

(1979, c. 776, s. 1.)

Editor's Note. - G.S. 105-147(13)d, referred to in this section, was repealed by Session Laws 1989, c. 728, s. 13, effective for taxable years beginning on or after January 1, 1989.

§ 105-130.11. Conditional and other exemptions.

Exempt Organizations. - Except as provided in subsections (b) and (c), the following organizations and any organization that is exempt from federal income tax under the Code are exempt from the tax imposed under this Part.
1. Fraternal beneficiary societies, orders or associations
  1. Operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and
  2. Providing for the payment of life, sick, accident, or other benefits to the members of such society, order or association, or their dependents.
2. Cooperative banks without capital stock organized and operated for mutual purposes and without profit; and electric and telephone membership corporations organized under Chapter 117 of the General Statutes.
3. Cemetery corporations and corporations organized for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual.
4. Business leagues, chambers of commerce, merchants' associations, or boards of trade not organized for profit, and no part of the net earnings of which inures to the benefit of any private stockholder or individual.
5. Civic leagues or organizations not organized for profit, but operated exclusively for the promotion of social welfare.
6. Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private stockholder or member.
7. Farmers' or other mutual hail, cyclone, or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations of a purely local character the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting expenses.
8. Farmers', fruit growers', or like organizations organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of product furnished by them.
9. Mutual associations formed under G.S. 54-111 through 54-128 to conduct agricultural business on the mutual plan and marketing associations organized under G.S. 54-129 through 54-158.
10. Insurance companies paying the tax on gross premiums as specified in G.S. 105-228.5.
11. Corporations or organizations, such as condominium associations, homeowner associations, or cooperative housing corporations not organized for profit, the membership of which is limited to the owners or occupants of residential units in the condominium, housing development, or cooperative housing corporation, and operated exclusively for the management, operation, preservation, maintenance, or landscaping of the common areas and facilities owned by the corporation or organization or its members situated contiguous to the houses, apartments, or other dwellings or for the management, operation, preservation, maintenance, and repair of the houses, apartments, or other dwellings owned by the corporation or organization or its members, but only if no part of the net earnings of the corporation or organization inures (other than through the performance of related services for the members of such corporation or organization) to the benefit of any member of such corporation or organization or other person.
Unrelated Business Income. - Except as provided in this subsection, an organization described in subdivision (a)(1), (3), (4), (5), (6), (7), (8), or (9) of this section and any organization exempt from federal income tax under the Code is subject to the tax provided in G.S. 105-130.3 on its unrelated business taxable income, as defined in section 512 of the Code, adjusted as provided in G.S. 105-130.5. The tax does not apply, however, to net income derived from any of the following:
1. Research performed by a college, university, or hospital.
2. Research performed for the United States or its instrumentality or for a state or its political subdivision.
3. Research performed by an organization operated primarily to carry on fundamental research, the results of which are freely available to the general public.
4. Repealed by Session Laws 2020-58, s. 5.5, effective June 30, 2020.
Homeowner Association Income. - An organization described in subdivision (a)(11) of this section is subject to the tax provided in G.S. 105-130.3 on its gross income other than membership income less the deductions allowed by this Article that are directly connected with the production of the gross income other than membership income. The term "membership income" means the gross income from assessments, fees, charges, or similar amounts received from members of the organization for expenditure in the preservation, maintenance, and management of the common areas and facilities of or the residential units in the condominium or housing development.
Real Estate Mortgage Investment Conduits. - An entity that qualifies as a real estate mortgage investment conduit, as defined in section 860D of the Code, is exempt from the tax imposed under this Part, except that any net income derived from a prohibited transaction, as defined in section 860F of the Code, is taxable to the real estate mortgage investment conduit under G.S. 105-130.3 and G.S. 105-130.3A, subject to the adjustments provided in G.S. 105-130.5. This subsection does not exempt the holders of a regular or residual interest in a real estate mortgage investment conduit as defined in section 860G of the Code from any tax on the income from that interest.

Nothing in this subdivision shall be construed to exempt any cooperative, mutual association, or other organization from an income tax on net income that has not been refunded to patrons on a patronage basis and distributed either in cash, stock, or certificates, or in some other manner that discloses the amount of each patron's refund. Provided, in arriving at net income for purposes of this subdivision, no deduction shall be allowed for dividends paid on capital stock. Patronage refunds made after the close of the taxable year and on or before the fifteenth day of the ninth month following the close of the taxable year are considered as to be made on the last day of the taxable year to the extent the allocations are attributable to income derived before the close of the year; provided, that no stabilization or marketing organization that handles agricultural products for sale for producers on a pool basis is considered to have realized any net income or profit in the disposition of a pool or any part of a pool until all of the products in that pool have been sold and the pool has been closed; provided, further, that a pool is not considered closed until the expiration of at least 90 days after the sale of the last remaining product in that pool. These cooperatives and other organizations shall file an annual information return with the Secretary on forms to be furnished by the Secretary and shall include the names and addresses of all persons, patrons, or shareholders whose patronage refunds amount to ten dollars ($10.00) or more.

History

(1939, c. 158, s. 314; 1945, c. 708, s. 4; c. 752, s. 3; 1949, c. 392, s. 3; 1951, c. 937, s. 1; 1955, c. 1313, s. 1; 1957, c. 1340, s. 4; 1959, c. 1259, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; c. 1053, s. 4; 1975, c. 19, s. 28; c. 591, s. 2; 1981, c. 450, s. 2; 1983, c. 28, s. 1; c. 31; 1985 (Reg. Sess., 1986), c. 826, s. 5; 1991 (Reg. Sess., 1992), c. 921, s. 1; 1993, c. 494, s. 2; 1998-98, ss. 1(b), 69; 2018-5, s. 38.2(i); 2020-58, s. 5.5.)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2018-5, s. 38.2(i), effective for taxable years beginning on or after January 1, 2018, added subdivision (b)(4).

Session Laws 2020-58, s. 5.5, effective June 30, 2020, deleted subdivision (b)(4), which read: "Amounts paid or incurred by an organization that is exempt from federal income tax under section 501(c)(3) of the Code for a parking facility that would otherwise be included as unrelated business income under section 512(a)(7) of the Code."

Legal Periodicals. - For article, "North Carolina's Nonprofit Property Tax Exemption Conundrum," see 96 N.C.L. Rev. 1769 (2018).

CASE NOTES

Income realized by an educational institution of another state from the rental of real estate owned by it in this State is exempt from income taxes under this section, when such income is placed in the general fund of such educational institution and is used exclusively for educational purposes. In re Vanderbilt Univ., 252 N.C. 743, 114 S.E.2d 655 (1960), decided under former G.S. 105-138.

Cited in North Carolina Div. of Sons of Confederate Veterans v. Faulkner, 131 N.C. App. 775, 509 S.E.2d 207 (1998).

§ 105-130.12. Real estate investment trusts.

Definitions. - The following definitions apply in this section:
1. Captive REIT. - A REIT whose shares or certificates of beneficial interest are not regularly traded on an established securities market and are owned or controlled, at any time during the last half of the tax year, by a person that is subject to tax under this Part and is not a REIT or a listed Australian property trust.
2. Own or control. - To own or control directly, indirectly, beneficially, or constructively more than fifty percent (50%) of the voting power or value of an entity. The attribution rules of section 318 of the Code, as modified by section 856(d)(5) of the Code, apply in determining ownership and control.
3. REIT. - A trust or another entity that qualifies as a real estate investment trust under section 856 of the Code.
Tax. - The income of a REIT is taxable under this Part in accordance with the Code, unless the REIT is a captive REIT. A captive REIT is required to add to its federal taxable income the amount of a dividend paid deduction allowed under the Code, as provided in G.S. 105-130.5.

History

(1963, c. 1169, s. 2; 1967, c. 110, s. 3; 1971, c. 820, s. 2; 1973, c. 476, s. 193; 1983, c. 713, s. 74; 1998-98, s. 69; 2007-323, s. 31.18(c).)

Effect of Amendments. - Session Laws 2007-323, s. 31.18(c), substituted "Real" for "Regulated investment companies and real" in the section heading; and rewrote the section.

§ 105-130.13: Repealed by Session Laws 1987 (Regular Session, 1988), c. 1089, s. 2, as amended by Session Laws 1989, c. 728, s. 1.33.

§ 105-130.14. Corporations filing consolidated returns for federal income tax purposes.

Any corporation electing or required to file a consolidated income tax return with the Internal Revenue Service must determine its State net income as if the corporation had filed a separate federal return and shall not file a consolidated or combined return with the Secretary unless one of the following applies:

The corporation is specifically directed in writing by the Secretary under G.S. 105-130.5A to file a consolidated or combined return.
Repealed by Session Laws 2012-79, s. 1.14(c), effective June 26, 2012.
Pursuant to a written request from the corporation under G.S. 105-130.5A, the Secretary has provided written advice to the corporation stating that the Secretary will allow a consolidated or combined return under the facts and circumstances set out in the request and the corporation files a consolidated or combined return in accordance with that written advice.

History

(1967, c. 1110, s. 3; 1973, c. 476, s. 193; 2010-31, s. 31.10(e); 2012-79, s. 1.14(c).)

Effect of Amendments. - Session Laws 2010-31, s. 31.10(e), effective June 30, 2010, rewrote the section, which formerly read: "Any corporation electing or required to file a consolidated income tax return with the Internal Revenue Service shall not file a consolidated return with the Secretary of Revenue, unless specifically directed to do so in writing by the Secretary, and shall determine its State net income as if a separate return had been filed for federal purposes."

Session Laws 2012-79, s. 1.14(c), effective June 26, 2012, in subdivision (1), substituted "G.S. 105-130.5A" for "G.S. 105-130.6"; deleted subdivision (2), which read: "The corporation's facts and circumstances meet the facts and circumstances described in a permanent rule adopted under G.S. 105-130.6 and the corporation files a consolidated or combined return in accordance with that rule."; and, in subdivision (3), substituted "corporation under G.S. 105-130.5A" for "corporation", and substituted "will allow" for "will require".

Legal Periodicals. - For article, "A Time for Action: Reforming the North Carolina Tax Code," see 88 N.C.L. Rev. 1A (2010).

CASE NOTES

Cited in Delhaize Am., Inc. v. Lay, 222 N.C. App. 336, 731 S.E.2d 486 (2012).

§ 105-130.15. Basis of return of net income.

The net income of a corporation shall be computed in accordance with the method of accounting it regularly employs in keeping its books. The method must be consistent with respect to both income and deductions and shall follow as nearly as practicable the federal practice, unless contrary to the context and intent of this Part.
Change of Income Year. -
1. A corporation may change the income year upon which it reports for income tax purposes without prior approval by the Secretary of Revenue if such change in income year has been approved by or is acceptable to the Federal Commissioner of Internal Revenue and is used for filing income tax returns under the provisions of the Code.
2. A return for a period of less than 12 months (referred to in this subsection as "short period") shall be made when the corporation changes its income year. In such a case, the return shall be made for the short period beginning on the day after the close of the former taxable year and ending at the close of the day before the day designated as the first day of the new taxable year, except that a corporation changing to, or from, a taxable year varying from 52 to 53 weeks shall not be required to file a short period return if such change results in a short period of 359 days or more, or less than seven days. Short period income tax returns shall be filed within the same period following the end of such short period as is required for full year returns under the provisions of G.S. 105-130.17.
Any foreign corporation not domesticated in this State shall not use the installment method of reporting income to this State unless such corporation files a bond with the Secretary of Revenue in such amount and with such sureties as the Secretary shall deem necessary to secure the payment of any taxes which were deferred with respect to any installment transaction.
Notwithstanding any other provision of this Part, any corporation which uses the installment method of reporting income to this State and which is planning to withdraw from this State, merge, or consolidate its business, or terminate its business in this State by any other means whatsoever, shall be required to make a report for income tax purposes, to the Secretary of Revenue, of any unrealized or unreported income from installment sales made while doing business in this State and to pay any tax which may be due on such income. The manner and form for making such report and paying the tax shall be as prescribed by the Secretary.

The Secretary may adopt the rules and regulations and any guidelines administered or established by the Internal Revenue Service unless contrary to any provisions of this Part.

If a corporation desires to make a change in its income year other than as provided above, it may make such change in its income year with the approval of the Secretary of Revenue, provided such approval is requested at least 30 days prior to the end of its new income year.

A corporation which has changed its income year without requesting the approval of the Secretary of Revenue as provided in the first paragraph of this subdivision shall submit to the Secretary of Revenue notification of any change in the income year after the change has been approved by the Federal Commissioner of Internal Revenue or his agent where application for permission to change is required by the Federal Commissioner of Internal Revenue with such notification stating that such approval has been received. Where application for change of the income year is not required by the Federal Commissioner of Internal Revenue, notification of the change of income year shall be submitted to the Secretary of Revenue with the short period return.

History

(1939, c. 158, s. 318; 1943, c. 400, s. 4; 1945, c. 708, s. 4; 1949, c. 392, s. 3; 1955, c. 1313, s. 1; 1957, c. 1340, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1983, c. 713, s. 82; 1998-98, s. 69; 2000-140, s. 64(a); 2011-390, s. 3; 2011-411, s. 8(b).)

Effect of Amendments. - Session Laws 2011-390, s. 3, as amended by Session Laws 2011-411, s. 8(b), effective for taxable years beginning on or after January 1, 2012, in the first paragraph of subsection (a), rewrote the second sentence, which formerly read: "The method must be consistent with respect to both income and deductions," and deleted the former last sentence, which read: "If this method does not clearly reflect the income, the computation shall be made in accordance with a method that, in the Secretary's opinion, does clearly reflect the income, but shall follow as nearly as practicable the federal practice, unless contrary to the context and intent of this Part."

§ 105-130.16. Returns.

Every corporation doing business in this State must file with the Secretary an income tax return showing specifically the items of gross income and the deductions allowed by this Part and any other facts the Secretary requires to make any computation required by this Part. The return of a corporation must be signed by its president, vice-president, treasurer, or chief financial officer. The officer signing the return must furnish an affirmation verifying the return. The affirmation must be in the form required by the Secretary.
, (c) Repealed by Session Laws 2011-390, s. 4, as amended by Session Laws 2011-411, s. 8(b), effective for taxable years beginning on or after January 1, 2012.

History

(1939, c. 158, s. 326; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 708, s. 4; 1951, c. 643, s. 4; 1957, c. 1340, s. 4; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1998-98, s. 69; 1999-337, s. 22; 2008-134, s. 4(a); 2009-445, s. 6; 2011-390, s. 4; 2011-411, s. 8(b).)

Editor's Note. - Session Laws 2008-134, s. 4(b), was amended by Session Laws 2009-445, s. 6, to change the effective date for the 2008 amendment to subsection (a). The amendment by Session Laws 2008-134, s. 4(a), is now effective for taxable years beginning on or after January 1, 2008.

Session Laws 2007-323, s. 31.18(e), provides: "This section does not affect the authority of the Department of Revenue under G.S. 105-130.6, G.S. 105-130.16, or any other statute to require a corporation to file a consolidated return or to determine the net income of a corporation properly attributable to this State. The General Assembly finds that an alternative method of addressing a corporation's attempt to use a real estate investment trust to shift income between entities and avoid State taxes is to require a captive REIT, as defined in G.S. 105-130.12 as amended by this section, to add to its federal taxable income the dividend paid deduction otherwise allowed under the Internal Revenue Code."

Session Laws 2007-323, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2007'."

Session Laws 2007-323, s. 32.5 is a severability clause.

Effect of Amendments. - Session Laws 2008-134, s. 4(a), effective for taxable years beginning on or after January 1, 2009, substituted "or chief financial officer" for "assistant treasurer, secretary, or assistant secretary" in the second sentence of subsection (a).

Session Laws 2011-390, s. 4, as amended by Session Laws 2011-411, s. 8(b), effective for taxable years beginning on or after January 1, 2012, deleted the subsection (a) catchline, which read "Return."; and deleted subsections (b) and (c), which pertained to "Correction of Distortions" and "Other Corrections," respectively.

CASE NOTES

Cited in Delhaize Am., Inc. v. Lay, 222 N.C. App. 336, 731 S.E.2d 486 (2012).

§ 105-130.17. Time and place of filing returns.

Returns must be filed as prescribed by the Secretary at the place prescribed by the Secretary. Returns must be in the form prescribed by the Secretary. The Secretary must furnish forms in accordance with G.S. 105-254.
Except as otherwise provided in this section, the return of a corporation shall be filed on or before the fifteenth day of the fourth month following the close of its income year. An income year ending on any day other than the last day of the month shall be deemed to end on the last day of the calendar month ending nearest to the last day of a taxpayer's actual income year.
In the case of mutual associations formed under G.S. 54-111 through 54-128 to conduct agricultural business on the mutual plan and marketing associations organized under G.S. 54-129 through 54-158, which are required to file under subsection (a)(9) of G.S. 105-130.11, a return made on the basis of a calendar year shall be filed on or before the fifteenth day of the September following the close of the calendar year, and a return made on the basis of a fiscal year shall be filed on or before the fifteenth day of the ninth month following the close of the fiscal year.
A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105-263.
Organizations described in G.S. 105-130.11(a)(1), (3), (4), (5), (6), (7) and (8) that are required to file a return under G.S. 105-130.11(b) shall file a return made on the basis of a calendar year on or before the fifteenth day of May following the close of the calendar year and a return made on the basis of a fiscal year on or before the fifteenth day of the fifth month following the close of the fiscal year.
Any corporation that ceases its operations in this State before the end of its income year because of its intention to dissolve or to withdraw from this State, or because of a merger, conversion, or consolidation or for any other reason whatsoever shall file its return for the then current income year within 105 days after the date it terminates its business in this State.
Repealed by Session Laws 1998-217, s. 42, effective October 31, 1998.
A corporation that files a federal return pursuant to section 6072(c) of the Code shall file its return on or before the fifteenth day of the seventh month following the close of its income year.

History

(1939, c. 158, s. 329; 1943, c. 400, s. 4; 1951, c. 643, s. 4; 1953, c. 1302, s. 4; 1955, c. 17, s. 1; 1957, c. 1340, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; c. 1287, s. 4; 1981, c. 56; 1989 (Reg. Sess., 1990), c. 984, s. 8; 1997-300, s. 3; 1998-217, s. 42; 1999-369, s. 5.5; 2000-140, s. 64(b); 2006-18, s. 7; 2007-491, s. 14.)

Effect of Amendments. - Session Laws 2006-18, s. 7, effective for taxable years beginning on or after January 1, 2006, added subsection (g).

Session Laws 2007-491, s. 14, effective for taxable years beginning on or after January 1, 2008, substituted "must furnish" for "shall furnish" in the third sentence of subsection (a); substituted "fourth month" for "third month" in the first sentence of subsection (b); substituted "105 days" for "75 days" at the end of subsection (e); and substituted "seventh month" for "sixth month" in subsection (g). For applicability, see Editor's note.

§ 105-130.18: Repealed by Session Laws 2009-445, s. 7, effective August 7, 2009.

Editor's Note. - Former G.S. 105-130.18, Failure to file returns; supplementary returns, was derived from Session Laws 1939, c. 158, s. 331, and amended by 1959, c. 1259, s. 8; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1998-98, s. 69; 2000-140, s. 64(c).

§ 105-130.19. When tax must be paid.

Except as provided in Article 4C of this Chapter, the full amount of the tax payable as shown on the return must be paid to the Secretary within the time allowed for filing the return.
, (c) Repealed by Session Laws 1989, c. 37, s. 1.
Repealed by Session Laws 1993, c. 450, s. 3.

History

(1939, c. 158, s. 332; 1943, c. 400, s. 4; 1947, c. 501, s. 4; 1951, c. 643, s. 4; 1955, c. 17, s. 2; 1959, c. 1259, s. 2; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1977, c. 1114, s. 7; 1989, c. 37, s. 1; 1989 (Reg. Sess., 1990), c. 984, s. 9; 1991 (Reg. Sess., 1992), c. 930, s. 14; 1993, c. 450, s. 3.)

§ 105-130.20. Federal determinations and amended returns.

Federal Determination. - If a taxpayer's federal taxable income or a federal tax credit is changed or corrected by the Commissioner of Internal Revenue or an agreement of the U.S. competent authority, and the change or correction affects the amount of State tax payable, the taxpayer must file an income tax return reflecting each change or correction from a federal determination within six months after being notified of each change or correction. The Secretary must propose an assessment for any additional tax due from the taxpayer as provided in Article 9 of this Chapter. The Secretary must refund any overpayment of tax as provided in Article 9 of this Chapter. A federal determination has the same meaning as defined in G.S. 105-228.90.
Amended Return. - The following applies to an amended return filed by a taxpayer with the Commissioner of Internal Revenue:
1. If the amended return contains an adjustment that would increase the amount of State tax payable under this Part, then notwithstanding the provisions of G.S. 105-241.8(a), the taxpayer must file within six months thereafter an amended return with the Secretary.
2. If the amended return contains an adjustment that would decrease the amount of State tax payable under this Part, the taxpayer may file an amended return with the Secretary within the provisions of G.S. 105-241.6.
Penalties. - A taxpayer that fails to comply with this section is subject to the penalties in G.S. 105-236 and forfeits the right to any refund due by reason of the determination.

History

(1939, c. 158, s. 334; 1947, c. 501, s. 4; 1949, c. 392, s. 3; 1957, c. 1340, s. 14; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1993 (Reg. Sess., 1994), c. 582, s. 2; 2006-18, s. 4; 2007-491, s. 15; 2017-39, s. 4(a); 2018-5, s. 38.3(a); 2019-169, s. 6.3(b).)

Session Laws 2018-5, s. 38.3(h), made the rewriting of this section by Session Laws 2018-5, s. 38.3(a), effective June 12, 2018, and applicable to federal amended returns filed on or after that date.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-169, s. 6.3(d), made the amendment to subsection (a) by Session Laws 2019-169, s. 6.3(b), effective July 26, 2019, and applicable to a federal determination on or after that date.

Effect of Amendments. - Session Laws 2006-18, s. 4, effective July 1, 2006, and applicable to federal determinations made on or after that date, substituted "six months" for "two years" in the first sentence of the first undesignated paragraph.

Session Laws 2007-491, s. 15, effective for taxable years beginning on or after January 1, 2007, rewrote the second and third sentences of the former first paragraph and the first sentence of the former second paragraph as the present second sentence; and substituted "must refund" for "shall refund" in the present third sentence. For applicability, see Editor's note.

Session Laws 2017-39, s. 4(a), effective June 21, 2017, inserted "or federal tax credit that affects the amount of State tax payable" in the first sentence.

Session Laws 2018-5, s. 38.3(a), rewrote the section. For effective date and applicability, see editor's note.

Session Laws 2019-169, s. 6.3(b), substituted "or an agreement of the U.S. competent authority" for "or other officer of the United States or other competent authority" in the first sentence of subsection (a). For effective date and applicability, see editor's note.

§ 105-130.21. Information at the source.

Every corporation having a place of business or having one or more employees, agents or other representatives in this State, in whatever capacity acting, including lessors or mortgagors of real or personal property, or having the control, receipt, custody, disposal, or payment of interest (other than interest coupons payable to the bearer), rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable annual or periodical gains or profits paid or payable during any year to any taxpayer, shall make complete return thereof to the Secretary of Revenue under such regulations and in such form and manner and to such extent as may be prescribed by him. The filing of any report in compliance with the provisions of this section by a foreign corporation shall not constitute an act in evidence of and shall not be deemed to be evidence that such corporation is doing business in this State.
Every corporation doing business or having a place of business in this State shall file with the Secretary of Revenue, on such form and in such manner as he may prescribe, the names and addresses of all taxpayers, residents of North Carolina, to whom dividends have been paid and the amount of such dividends during the income year.

History

(1939, c. 158, s. 328; 1945, c. 708, s. 4; 1957, c. 1340, s. 4; 1967, c. 1110, s. 3; 1973, c. 476, s. 193.)

§ 105-130.22: Repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1973, c. 910, s. 1; 1979, c. 803, ss. 1, 2; 1981, c. 682, s. 16; 1997-6, s. 3; 1998-98, s. 69; repealed by 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.22 pertained to tax credit for construction of dwelling units for handicapped persons.

§ 105-130.23: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§ 105-130.24: Repealed by Session Laws 1983 (Regular Session, 1984), c. 1004, s. 2.

§ 105-130.25. Credit against corporate income tax for construction of cogenerating power plants.

Credit. - A corporation or a partnership, other than a public utility as defined in G.S. 62-3(23), that constructs a cogenerating power plant in North Carolina is allowed as a credit against the tax imposed by this Part an amount equal to ten percent (10%) of the costs paid during the taxable year to purchase and install the electrical or mechanical power generation equipment of that plant. The credit may not be taken for the year in which the costs are paid but shall be taken for the taxable year beginning during the calendar year following the calendar year in which the costs were paid. To be eligible for the credit allowed by this section, the corporation or partnership must own or control the power plant at the time of construction. The credit allowed by this section may not exceed the amount of tax imposed by this Part for the year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.
Cogenerating Power Plant Defined. - For purposes of this section, a cogenerating power plant is a power plant that sequentially produces electrical or mechanical power and useful thermal energy using natural gas as its primary energy source.
Alternative Method. - A taxpayer eligible for the credit allowed by this section may elect to treat the costs paid during an earlier year as if they were paid during the year the plant becomes operational. This election must be made on or before April 15 following the calendar year in which the plant becomes operational. The election must be in the form prescribed by the Secretary and must contain any supporting documentation the Secretary may require. An election with respect to costs paid by a partnership must be made by the partnership and is binding on any partners to whom the credit is passed through.
Application. - To be eligible for the credit allowed in this section, a taxpayer must file an application for the credit with the Secretary on or before April 15 following the calendar year in which the costs were paid. The application shall be in the form prescribed by the Secretary and shall include any supporting documentation the Secretary may require. An application with respect to costs paid by a partnership must be made by the partnership on behalf of its partners.
Ceiling. - The total amount of all tax credits allowed to taxpayers under this section for payments for construction and installation made in a calendar year may not exceed five million dollars ($5,000,000). The Secretary shall calculate the total amount of tax credits claimed from the applications filed pursuant to subsection (d). If the total amount of tax credits claimed for payments made in a calendar year exceeds five million dollars ($5,000,000), the Secretary shall allow a portion of the credits claimed by allocating the total allowable amount among all taxpayers claiming the credits in proportion to the size of the credit claimed by each taxpayer. In no case may the total amount of all tax credits allowed under this section for costs paid in a calendar year exceed five million dollars ($5,000,000).

The costs with respect to which this election is made will be treated, for the purposes of this section, as if they had actually been paid in the year the plant becomes operational. If a taxpayer makes this election, however, the credit may not exceed one-fourth the amount of tax imposed by this Part for the year reduced by the sum of all credits allowed, except payments of tax by or on behalf of the taxpayer, but any unused portion of the credit may be carried forward for the next 10 taxable years. An election made under this subsection is irrevocable.

If a credit claimed under this section is reduced as provided in this subsection, the Secretary shall notify the taxpayer of the amount of the reduction of the credit on or before December 31 of the year the taxpayer applied for the credit. The amount of the reduction of the credit may be carried forward and claimed for the next 10 taxable years if the taxpayer reapplies for a credit for the amount of the reduction, as provided in subsection (d). In such a reapplication, the costs for which a credit is claimed shall be considered as if they had been paid in the year preceding the reapplication. The Secretary's allocations based on applications filed pursuant to subsection (d) are final and shall not be adjusted to account for credits applied for but not claimed.

History

(1979, c. 801, s. 34; 1993 (Reg. Sess., 1994), c. 674, ss. 1, 2, 4; 1995, c. 17, s. 2; 1998-98, s. 69.)

Editor's Note. - Subsections (a1) and (b) through (d) were redesignated as subsections (b) through (e), respectively, at the direction of the Revisor of Statutes.

§ 105-130.26: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§ 105-130.27: Expired.

Editor's Note. - Pursuant to former subsection (g) of this section, this section applied only to costs incurred during taxable years beginning prior to January 1, 1998.

§ 105-130.27A: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§ 105-130.28: Repealed by Session Laws 2000-128, s. 3, effective for costs incurred during taxable years beginning on or after January 1, 2006.

Editor's Note. - Session Laws 2000-128, s. 4, effective July 14, 2000, provides: "This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under the statute repealed by this act before the effective date of its repeal, nor does it affect the right to any refund or credit of a tax that accrued under the repealed statute before the effective date of its repeal."

§§ 105-130.29 through 105-130.33: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

Editor's Note. - Repealed G.S. 105-130.33 was amended by Session Laws 1999-337, s. 23, effective July 22, 1999, which, in subsection (a), inserted a second instance of "generator" and deleted "under this Part" following "allowable."

§ 105-130.34: Repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1983, c. 793, s. 1; 1989, c. 716, s. 1; c. 727, s. 218 (41); 1997-226, s. 1; 1997-443, s. 11A.119(a); 1998-98, s. 69; 1998-212, s. 29A.13(c); 2002-72, s. 15(a); 2007-309, s. 1; 2009-445, s. 9(c); 2010-167, s. 5(a); repealed by 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.34 pertained to credit for certain real property donations.

§ 105-130.35: Recodified as G.S. 105-269.5 by Session Laws 1991, c. 45, s. 20.

§§ 105-130.36, 105-130.37: Repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-130.36: 1983 (Reg. Sess., 1984), c. 969, s. 1; 1998-98, s. 88; ; repealed by 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014. 105-130.37: 1983 (Reg. Sess., 1984), c. 1018, s. 1; 1993 (Reg. Sess., 1994), c. 745, s. 6; 1997-261, s. 12; 1998-98, s. 89; repealed by 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.36 pertained to credit for conservation tillage equipment. Former G.S. 105-130.37 pertained to credit for gleaned crop.

§ 105-130.38: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 1, effective for taxable years beginning on or after January 1, 1996.

§ 105-130.39: Repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1985, c. 694, s. 2; 1998-98, s. 90; repealed by 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.39 pertained to credit for certain telephone subscriber line charges.

§ 105-130.40: Recodified as G.S. 105-129.8 by Session Laws 1996, Second Extra Session, c. 13, s. 3.2, effective for taxable years beginning on or after January 1, 1996.

§ 105-130.41: Repealed pursuant to the terms of former subsection (d) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(1991 (Reg. Sess., 1992), c. 977, s. 1; 1993 (Reg. Sess., 1994), c. 681, s. 1; 1995, c. 17, s. 17; c. 495, ss. 1, 3, 4; 1996, 2nd Ex. Sess., c. 18, s. 15.3(a); 1997-443, s. 29.1(a)-(c); 1998-98, s. 69; 2001-517, ss. 1, 2; 2002-99, s. 6(c); 2003-414, s. 7; 2005-429, s. 2.9; 2007-527, s. 26(a); 2008-107, s. 28.5(a), (b); 2010-166, s. 1.11; repealed pursuant to the terms of former subsection (d) of this section, effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.41 pertained to credit for North Carolina State Ports Authority wharfage, handling, and throughput charges.

§ 105-130.42: Recodified as G.S. 105-129.35 through 105-129.37 by Session Laws 1999-389, ss. 2-4, effective for taxable years beginning on or after January 1, 1999.

Editor's Note. - Session Laws 1999-389, s. 6 provides that Article 3D of Chapter 105, as amended by Session Laws 1999-389, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

§§ 105-130.43, 105-130.44: Repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-130.43: 1985, c. 750, s. 1; 1989, c. 76, s. 24; c. 751, s. 7(8); 1991 (Reg. Sess., 1992), c. 959, s. 22; 1998-98, s. 1(d), (e); 2001-193, s. 16; repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014. 105-130.44: 1985, c. 750, s. 1; 1989, c. 76, s. 24; c. 751, s. 7(8); 1991 (Reg. Sess., 1992), c. 959, s. 22; 1998-98, s. 1(d), (e); 2001-193, s. 16; repealed by Session Laws 2013-316, s. 2.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-130.43 pertained to credit for savings and loan supervisory fees. Former G.S. 105-130.44 pertained to credit for construction of poultry composting facility.

§ 105-130.45: Repealed by Session Laws 1999-333, s. 10, effective for cigarettes exported on or after January 1, 2018.

History

(1999-333, s. 4; 2003-435, 2nd Ex. Sess., ss. 5.1, 5.2, 5.3; 2005-429, s. 2.10; 2010-166, s. 1.12; repealed by 1999-333, s. 10, effective for cigarettes exported on or after January 1, 2018.)

Editor's Note. - Former G.S. 105-130.45 pertained to credit for manufacturing cigarettes for exportation.

§ 105-130.46: Expired.

History

(2003-435, 2nd Ex. Sess., s. 6.1; 2004-170, s. 16(a); 2010-166, s. 1.13; expired by 2003-434, 2nd Ex. Sess., s. 6.2, for exports occurring on or after January 1, 2018.)

Editor's Note. - Former G.S. 105-130.46 pertained to credit for manufacturing cigarettes for exportation while increasing employment and utilizing State Ports.

§ 105-130.47: Repealed pursuant to former subsection (k) of this section, effective for qualifying expenses occurring on or after January 1, 2015.

History

(2005-276, s. 39.1(a); 2005-345, ss. 47(a), 47(b); 2006-162, s. 4(a); 2006-220, s. 2; 2007-527, s. 24; 2008-107, s. 28.24(a); 2009-445, s. 8(a); 2009-529, s. 1; 2010-147, s. 2.1; 2010-166, s. 1.14; 2012-194, s. 79.10(a); 2015-241, s. 15.4(g).)

Editor's Note. - Former G.S. 105-130.47 pertained to the credit for qualifying expenses of a production company.

§ 105-130.48: Repealed pursuant to former subsection (f) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(2006-66, s. 24.18(a); 2007-527, s. 9(a); 2010-147, s. 4.1; 2011-330, s. 36; 2012-36, s. 6(a).)

Editor's Note. - Former G.S. 105-130.48 pertained to credit for recycling oyster shells.

PART 1A. S CORPORATION INCOME TAX.

§ 105-131. Title; definitions; interpretation.

This Part of the income tax Article shall be known and may be cited as the S Corporation Income Tax Act.
For the purpose of this Part, unless otherwise required by the context:
1. "Code" has the same meaning as in G.S. 105-228.90.
2. "C Corporation" means a corporation that is not an S Corporation and is subject to the tax levied under Part 1 of this Article.
3. "Department" means the Department of Revenue.
4. "Income attributable to the State" means items of income, loss, deduction, or credit of the S Corporation apportioned and allocated to this State pursuant to G.S. 105-130.4.
5. "Income not attributable to the State" means all items of income, loss, deduction, or credit of the S Corporation other than income attributable to the State.
6. "Post-termination transition period" means that period defined in section 1377(b)(1) of the Code.
7. "Pro rata share" means the share determined with respect to an S Corporation shareholder for a taxable period in the manner provided in section 1377(a) of the Code.
8. "S Corporation" means a corporation for which a valid election under section 1362(a) of the Code is in effect.
9. "Secretary" means the Secretary of Revenue.
10. "Taxable period" means any taxable year or portion of a taxable year during which a corporation is an S Corporation.
Except as otherwise expressly provided or clearly appearing from the context, any term used in this Part shall have the same meaning as when used in a comparable context in the Code, or in any statute relating to federal income taxes, in effect during the taxable period. Due consideration shall be given in the interpretation of this Part to applicable sections of the Code in effect and to federal rulings and regulations interpreting those sections, except where the Code, ruling, or regulation conflicts with the provisions of this Part.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1989 (Reg. Sess., 1990), c. 981, s. 4; 1991, c. 689, s. 251; 1991 (Reg. Sess., 1992), c. 922, s. 5; 1993, c. 12, s. 6; 1998-98, ss. 43, 68-70.)

Editor's Note. - Another section, also numbered G.S. 105-131, which was in Division I [now Part I] of Article 4 of this Chapter, was repealed by Session Laws 1967, c. 1110, s. 3. For present provisions similar to the repealed section, see G.S. 105-130.1, 105-134.

§ 105-131.1. Taxation of an S Corporation and its shareholders.

An S Corporation shall not be subject to the tax levied under G.S. 105-130.3.
Each shareholder's pro rata share of an S Corporation's income attributable to the State and each resident shareholder's pro rata share of income not attributable to the State, shall be taken into account by the shareholder in the manner and subject to the adjustments provided in Parts 2 and 3 of this Article and section 1366 of the Code and shall be subject to the tax levied under Parts 2 and 3 of this Article.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1998-98, ss. 5, 68.)

§ 105-131.2. Adjustment and characterization of income.

Adjustment. - Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6.
Repealed by Session Laws 1989, c. 728, s. 1.35.
Characterization of Income. - S Corporation items of income, loss, deduction, and credit taken into account by a shareholder pursuant to G.S. 105-131.1(b) are characterized as though received or incurred by the S Corporation and not its shareholder.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1993, c. 485, s. 8; 2006-17, s. 1; 2013-316, s. 1.3(a).)

Section 105-134.6, referred to in subsection (a), was repealed by Session Laws 2013-316, s. 1.1(b), effective January 1, 2014.

Effect of Amendments. - Session Laws 2006-17, s. 1, effective for taxable years beginning on or after January 1, 2006, rewrote subsection (a); in subsection (c) substituted "are" for "shall be."

Session Laws 2013-316, s. 1.3(a), effective for taxable years beginning on or after January 1, 2014, substituted "G.S. 105-153.5 and G.S. 105-153.6" for "G.S. 105-134.6" in subsection (a).

§ 105-131.3. Basis and adjustments.

The initial basis of a resident shareholder in the stock of an S Corporation and in any indebtedness of the corporation owed to that shareholder shall be determined, as of the later of the date the stock is acquired, the effective date of the S Corporation election, or the date the shareholder became a resident of this State, as provided under the Code.
The basis of a resident shareholder in the stock and indebtedness of an S Corporation shall be adjusted in the manner and to the extent required by section 1011 of the Code except that:
1. Any adjustments made (other than for income exempt from federal or State income taxes) pursuant to G.S. 105-131.2 shall be taken into account; and
2. Any adjustments made pursuant to section 1367 of the Code for a taxable period during which this State did not measure S Corporation shareholder income by reference to the corporation's income shall be disregarded.
The initial basis of a nonresident shareholder in the stock of an S Corporation and in any indebtedness of the corporation to that shareholder shall be zero.
The basis of a nonresident shareholder in the stock and indebtedness of an S Corporation shall be adjusted as provided in section 1367 of the Code, except that adjustments to basis shall be limited to the income taken into account by the shareholder pursuant to G.S. 105-131.1(b).
The basis of a shareholder in the stock of an S Corporation shall be reduced by the amount allowed as a loss or deduction pursuant to G.S. 105-131.4(c).
The basis of a resident shareholder in the stock of an S Corporation shall be reduced by the amount of any cash distribution that is not taxable to the shareholder as a result of the application of G.S. 105-131.6(b).
For purposes of this section, a shareholder shall be considered to have acquired stock or indebtedness received by gift at the time the donor acquired the stock or indebtedness, if the donor was a resident of this State at the time of the gift.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35.)

§ 105-131.4. Carryforwards; carrybacks; loss limitation.

Carryforwards and carrybacks to and from an S Corporation shall be restricted in the manner provided in section 1371(b) of the Code.
The aggregate amount of losses or deductions of an S Corporation taken into account by a shareholder pursuant to G.S. 105-131.1(b) may not exceed the combined adjusted bases, determined in accordance with G.S. 105-131.3, of the shareholder in the stock and indebtedness of the S Corporation.
Any loss or deduction that is disallowed for a taxable period pursuant to subsection (b) of this section shall be treated as incurred by the corporation in the succeeding taxable period with respect to that shareholder.
1. Any loss or deduction that is disallowed pursuant to subsection (b) of this section for the corporation's last taxable period as an S Corporation shall be treated as incurred by the shareholder on the last day of any post-termination transition period. (d) (1) Any loss or deduction that is disallowed pursuant to subsection (b) of this section for the corporation's last taxable period as an S Corporation shall be treated as incurred by the shareholder on the last day of any post-termination transition period.
2. The aggregate amount of losses and deductions taken into account by a shareholder pursuant to subdivision (1) of this subsection may not exceed the adjusted basis of the shareholder in the stock of the corporation (determined in accordance with G.S. 105-131.3 at the close of the last day of any post-termination transition period and without regard to this subsection).
Expired.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1989 (Reg. Sess., 1990), c. 984, s. 1; 1991, c. 752, s. 1.)

§ 105-131.5. Part-year resident shareholder.

If a shareholder of an S Corporation is both a resident and nonresident of this State during any taxable period, the shareholder's pro rata share of the S Corporation's income attributable to the State and income not attributable to the State for the taxable period shall be further prorated between the shareholder's periods of residence and nonresidence, in accordance with the number of days in each period, as provided in G.S. 105-153.4.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 2017-204, s. 1.7(a).)

Editor's Note. - Session Laws 2017-204, s. 1.7(b), made the amendment to this section by Session Laws 2017-204, s. 1.7(a), effective for taxable years beginning on or after January 1, 2014.

Effect of Amendments. - Session Laws 2017-204, s. 1.7(a), effective for taxable years beginning on or after January 1, 2014, substituted "G.S. 105-153.4" for "G.S. 105-134.5."

§ 105-131.6. Distributions.

Subject to the provisions of subsection (c) of this section, a distribution made by an S Corporation with respect to its stock to a resident shareholder is taxable to the shareholder as provided in Parts 2 and 3 of this Article to the extent that the distribution is characterized as a dividend or as gain from the sale or exchange of property pursuant to section 1368 of the Code.
Subject to the provisions of subsection (c) of this section, any distribution of money made by a corporation with respect to its stock to a resident shareholder during a post-termination transition period is not taxable to the shareholder as provided in Parts 2 and 3 of this Article to the extent the distribution is applied against and reduces the adjusted basis of the stock of the shareholder in accordance with section 1371(e) of the Code.
In applying sections 1368 and 1371(e) of the Code to any distribution referred to in this section:
1. The term "adjusted basis of the stock" means the adjusted basis of the shareholder's stock as determined under G.S. 105-131.3.
2. The accumulated adjustments account maintained for each resident shareholder must be equal to, and adjusted in the same manner as, the corporation's accumulated adjustments account defined in section 1368(e)(1)(A) of the Code, except that:
  1. The accumulated adjustments account shall be modified in the manner provided in G.S. 105-131.3(b)(1).
  2. The amount of the corporation's federal accumulated adjustments account that existed on the day this State began to measure the S Corporation shareholders' income by reference to the income of the S Corporation is ignored and is treated for purposes of this Article as additional accumulated earnings and profits of the corporation.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1998-98, s. 6.)

§ 105-131.7. Returns; shareholder agreements; mandatory withholding.

An S Corporation incorporated or doing business in the State shall file with the Department an annual return, on a form prescribed by the Secretary, on or before the due date prescribed for the filing of C Corporation returns in G.S. 105-130.17. The return shall show the name, address, and social security or federal identification number of each shareholder, income attributable to the State and the income not attributable to the State with respect to each shareholder as defined in G.S. 105-131(b)(4) and (5), and such other information as the Secretary may require.
The Department shall permit S Corporations to file composite returns and to make composite payments of tax on behalf of some or all nonresident shareholders. The Department may permit S Corporations to file composite returns and make composite payments of tax on behalf of some or all resident shareholders.
An S Corporation shall file with the Department, on a form prescribed by the Secretary, the agreement of each nonresident shareholder of the corporation (i) to file a return and make timely payment of all taxes imposed by this State on the shareholder with respect to the income of the S Corporation, and (ii) to be subject to personal jurisdiction in this State for purposes of the collection of any unpaid income tax, together with related interest and penalties, owed by the nonresident shareholder. If the corporation fails to timely file an agreement required by this subsection on behalf of any of its nonresident shareholders, then the corporation shall at the time specified in subsection (d) of this section pay to the Department on behalf of each nonresident shareholder with respect to whom an agreement has not been timely filed an estimated amount of the tax due the State. The estimated amount of tax due the State shall be computed at the rate levied in G.S. 105-153.7 on the shareholder's pro rata share of the S Corporation's income attributable to the State reflected on the corporation's return for the taxable period. An S Corporation may recover a payment made pursuant to the preceding sentence from the shareholder on whose behalf the payment was made.
The agreements required to be filed pursuant to subsection (c) of this section shall be filed at the following times:
1. At the time the annual return is required to be filed for the first taxable period for which the S Corporation becomes subject to the provisions of this Part.
2. At the time the annual return is required to be filed for any taxable period in which the corporation has a nonresident shareholder on whose behalf such an agreement has not been previously filed.
Amounts paid to the Department on account of the corporation's shareholders under subsections (b) and (c) constitute payments on their behalf of the income tax imposed on them under Parts 2 and 3 of this Article for the taxable period.
Critical Infrastructure Disaster Relief. - An S Corporation that is not doing business in this State because it is a nonresident business performing disaster-related work during a disaster response period at the request of a critical infrastructure company is not required to file a return with the Department. However, the corporation must furnish to each shareholder who would be entitled to share in the corporation income any information necessary for that person to properly file a State income tax return. The definitions and provisions in G.S. 166A-19.70A concerning disaster-related work apply to this subsection.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1991, c. 689, s. 301; 1998-98, s. 7; 1999-337, s. 24; 2013-316, s. 1.3(b); 2017-204, s. 1.8; 2019-187, s. 1(h).)

Session Laws 2019-187, s. 3, made subsection (f), as added by Session Laws 2019-187, s. 1(h), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2013-316, s. 1.3(b), effective for taxable years beginning on or after January 1, 2014, substituted "rate levied in G.S. 105-153.7" for "rates levied in G.S. 105-134.2(a)(3)" in the third sentence of subsection (c).

Session Laws 2017-204, s. 1.8, effective August 11, 2017, substituted "G.S. 105-131(b)(4) and (5)" for "G.S. 105-131(4) and (5)" in subsection (a).

Session Laws 2019-187, s. 1(h), added subsection (f). For effective date and applicability, see editor's note.

CASE NOTES

Bankrupt Corporate Distribution to Pay Personal Taxes of Shareholders. - Bankruptcy court denied a Chapter 11 corporate debtor's motion seeking permission to distribute $44,578 to its shareholders so they could pay personal tax liabilities they owed to the North Carolina Department of Revenue ("NCDOR"). The debtor made distributions totaling $262,500 to its shareholders in 2011, before it declared bankruptcy, and the court approved additional distributions in the amount of $45,000 to the shareholders after the debtor declared bankruptcy, and those payments were sufficient to pay taxes the shareholders allegedly owed to the NCDOR; there was no merit to the debtor's claim that it would lose its Subchapter S status if it did not file composite returns and pay the taxes on behalf of its shareholders pursuant to G.S. 105-131.7, and approving the debtor's motion would have contravened the priority scheme that was embodied in 11 U.S.C.S. §§ 507 and 1129(b)(2)(B)(ii) by allowing the debtor to distribute property to its equity security holders when it had substantial unpaid general unsecured creditors of a higher priority. In re Carolina Internet, Ltd., - Bankr. - (Bankr. W.D.N.C. July 11, 2012).

§ 105-131.8. Tax credits.

For purposes of G.S. 105-153.9 and G.S. 105-160.4, each resident shareholder is considered to have paid a tax imposed on the shareholder in an amount equal to the shareholder's pro rata share of any net income tax paid by the S Corporation to a state that does not measure the income of S Corporation shareholders by the income of the S Corporation. For purposes of the preceding sentence, the term "net income tax" means any tax imposed on or measured by a corporation's net income.
Except as otherwise provided in G.S. 105-160.3, each shareholder of an S Corporation is allowed as a credit against the tax imposed by Parts 2 and 3 of this Article an amount equal to the shareholder's pro rata share of the tax credits for which the S Corporation is eligible.

History

(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35; 1991, c. 45, s. 7; 1998-98, s. 8; 2020-58, s. 4.1.)

Cross References. - As to credits for rehabilitated mill property, see G.S. 105-129.71 and 105-129.72.

Effect of Amendments. - Session Laws 2020-58, s. 4.1, effective June 30, 2020, substituted "G.S. 105-153.9" for "G.S. 105-151" in the first sentence of subsection (a).

§ 105-132: Recodified as G.S. 105-135 by Session Laws 1967, c. 1110, s. 3.

Editor's Note. - G.S. 105-132, at the end of this Part, is reserved for future codification purposes. Another section, also numbered G.S. 105-132, was transferred to G.S. 105-135 by Session Laws 1967, c. 1110, s. 3, but was repealed by Session Laws 1989, c. 728, s. 1.3.

PART 2. INDIVIDUAL INCOME TAX.

§ 105-133: Recodified as G.S. 105-153.1 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

§ 105-134: Recodified as G.S. 105-153.2 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

History

(1939, c. 158, s. 301; 1967, c. 1110, s. 3; 1989, c. 728, s. 1.2; 1998-98, s. 69; 2005-276, s. 31.1(dd), (jj); 2005-344, s. 10.3; 2006-259, s. 8(j); 2006-264, s. 91(a).)

Editor's Note. - Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014, recodified G.S. 105-134 as G.S. 105-153.2. For provisions effective for taxable years beginning on or after January 1, 2014, see G.S. 105-153.2.

Effect of Amendments. - Session Laws 2005-344, s. 10.3, as added by Session Laws 2005-276, s. 31.1(dd), and as amended by Session Laws 2005-276, s. 31.1(jj), as added by Session Laws 2006-259, s. 8(j), and 2006-264, s. 91(a), effective for taxable years beginning on or after January 1, 2005, inserted "or deriving income from gambling activities in this state" at the end of subdivision (2), and made related, stylistic changes.

CASE NOTES

Cited in Fowler v. N.C. Dep't of Revenue, 242 N.C. App. 404, 775 S.E.2d 350 (2015).

Aronov v. Secretary of Revenue, 323 N.C. 132, 371 S.E.2d 468 (1988).

§ 105-134.1: Recodified as G.S. 105-153.3 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

Editor's Note. - Session Laws 2017-204, s. 1.9(a), applicable to taxable years beginning before January 1, 2014, amended this section by adding subdivision (5a). For present provisions, see G.S. 105-153.3.

§ 105-134.2: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1989, c. 728, s. 1.4; 1989 (Reg. Sess., 1990), c. 814, s. 16; 1991, c. 45, s. 8; c. 689, s. 300; 1991 (Reg. Sess., 1992), c. 930, s. 15; 2001-424, s. 34.18(a); 2003-284, s. 39.1(a); 2003-284, ss. 39.1, 39.2; 2005-276, s. 36.1(a); 2006-66, ss. 24.2(a)-(c); 2013-414, s. 1(e); repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-134.2 pertained to individual income tax imposed.

§ 105-134.2A. Expired.

History

(2009-451, s. 27A.1(b); expired effective for taxable years beginning on or after January 1, 2011.)

Editor's Note. - Former G.S. 105-134.2A pertained to income tax surtax.

§ 105-134.3: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1989, c. 728, s. 1.4; 1998-98, s. 69; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-134.3 pertained to year of assessment.

§ 105-134.4: Repealed by Session Laws 2011-145, s. 31A.1(d), effective for taxable years beginning on or after January 1, 2012.

History

(1989, c. 728, s. 1.4; 2011-145, s. 31A.1(d); repealed by 2011-145, s. 31A.1(d), effective for taxable years beginning on or after January 1, 2012.)

Editor's Note. - Former G.S. 105-134.4 pertained to computing taxable income on the basis of taxable year.

§ 105-134.5: Recodified as G.S. 105-153.4 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

Editor's Note. - Session Laws 2017-204, s. 1.9(c), applicable to taxable years beginning before January 1, 2014, amended this section by amending subsection (d). For present provisions, see G.S. 105-153.4.

§§ 105-134.6, 105-134.6A: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-134.6: 1989, c. 718, s. 2; c. 728, s. 1.4; c. 770, ss. 41.2, 41.3; c. 792, s. 1.1; 1989 (Reg. Sess., 1990), c. 984, s. 4; c. 1002, s. 2; 1991, c. 45, s. 9; c. 453, s. 1; c. 689, ss. 253, 254; 1991 (Reg. Sess., 1992), c. 1007, s. 3; 1993, c. 12, s. 8; c. 443, s. 8; c. 485, s. 9; 1993 (Reg. Sess., 1994), c. 745, s. 7; 1995, c. 17, s. 5; c. 42, ss. 1, 2(a), (b); c. 46, s. 3; c. 370, s. 3; 1996, 2nd Ex. Sess., c. 13, s. 8.1; c. 14, s. 9; 1997-226, s. 3; 1997-328, s. 1; 1997-388, s. 4; 1997-525, s. 1; 1998-98, s. 69; 1998-171, ss. 2, 3; 1998-212, ss. 29A.2(c), 29A.13(a); 1999-333, s. 3; 1999-463, Ex Sess., s. 4.6 (a); 2000-140, ss. 65, 93.1(a); 2001-424, ss. 12.2(b), 34.19(a), (b); 2002-126, ss. 30B.1(a), 30B.1(b), 30C.2(b), 30C.2(d), 30C.4; 2003-284, s. 37A.2; 2005-1, s. 5.7(a); 2005-276, ss. 35.1(e), 39.1(f); 2005-435, s. 55; 2006-17, ss. 2, 3; 2006-66, ss. 24.12(a), 24.18(e); 2006-220, s. 3; 2006-221, s. 27(a); 2007-323, ss. 31.19(a)-(d), 31.24(a); 2007-397, s. 13(c); 2008-107, ss. 28.1(e), (f), (h), 28.25(c), 28.27(b), (c); 2008-134, s. 2(c); 2009-445, s. 43; 2009-451, s. 27A.6(e), (f); 2010-31, s. 31.1(b); 2011-5, ss. 2(c), (d), 3(d), (c); 2011-106, s. 1; 2011-145, s. 31A.1(c); 2011-330, ss. 11, 12(b)-(e), 13, 36; 2012-74, s. 2(a); 2012-79, s. 1.3; 2013-10, ss. 2(c), (d), 3(c), (d), 5(a), (b), 6(a), (b), 7, 8; 2013-414, ss. 5(a), 6(a)-(e), 34(c), 35(a); 2015-6, s. 2.20(d); 2016-5, s. 2.4(a); repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-134.6A: 2013-414, ss. 34(d), 58(b); 2014-3, s. 2.1(b); 2015-6, s. 2.8(a); repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-134.6 pertained to modifications to adjusted gross income. Former G.S. 105-134.6A pertained to adjustments when State decouples from federal accelerated depreciation and expensing.

Session Laws 2008-107, s. 28.27(d), provides, in part, that the amendment to this section by s. 28.27(b), which added subdivision (b)(19), expires for taxable years beginning on or after January 1, 2015.

Effect of Amendments. - Session Laws 2001-424, s. 34.19(a), as amended by Session Laws 2002-126, s. 30B.1(a), effective for taxable years beginning on or after January 1, 2003, in subdivision (c)(3), substituted "the taxpayer is required to add to taxable income under subdivision (4) of this subsection" for "by which the taxpayer's allowable standard deduction has been increased under section 63(c)(4) of the Code," and in subdivision (c)(4), inserted "additional," "for aged and blind," and the language beginning "plus the amount by which," and added the table.

Session Laws 2001-424, s. 34.19(b), as amended by Session Laws 2002-126, s. 30B.1(b), effective for taxable years beginning on or after January 1, 2004, amended subdivision (c)(4), as amended by Session Laws 2001-424, s. 34.19(a), by changing the standard deduction for married filing jointly/surviving spouse from $5,500 to $6,000 and for married filing separately from $2,750 to $3,000.

Session Laws 2003-284, s. 37A.2, effective June 30, 2003, in subdivision (c)(8), twice substituted "special accelerated depreciation" for "thirty percent (30%) accelerated depreciation," changed the applicable percentage for 2004 to "70%," and added an applicable percentage of "0" for "2005 and thereafter."

Session Laws 2005-1, s. 5.7(a), effective for taxable years beginning on or after January 1, 2004, added subdivision (b)(18).

Session Laws 2005-276, s. 35.1(e), effective for taxable years beginning on or after January 1, 2005, in subdivision (c)(3), inserted "or as state or local general sales tax" and added subdivision (c)(9); because of a conflicting amendment, it was subsequently renumbered as subdivision (c)(10) at the direction of the Revisor of Statutes.

Session Laws 2005-276, s. 39.1(f), effective for taxable years beginning on or after January 1, 2005, and applicable to qualifying expenses incurred on or after July 1, 2005, added subdivision (c)(9).

Session Laws 2005-435, s. 55, effective September 27, 2005, substituted "G.S. 105-151.29" for "G.S. 105-130.47" in subdivision (c)(9).

Session Laws 2006-17, ss. 2 and 3, effective for taxable years beginning on or after January 1, 2006, rewrote subsection (a), and added subdivision (c)(3a).

Session Laws 2006-66, s. 24.12(a), as amended by Session Laws 2007-323, s. 31.19(b), effective for taxable years beginning on or after January 1, 2006, added subdivisions (d)(4), and (d)(5).

Session Laws 2006-66, s. 24.18(e), as amended by Session Laws 2011-330, s. 36, effective for taxable years beginning on or after January 1, 2006, and expiring for taxable years beginning on or after January 1, 2013, added subdivision (c)(5a).

Session Laws 2006-220, s. 3, effective for taxable years beginning on and after January 1, 2007, repealed subdivision (c)(9), which read: "The amount of qualifying expenses for which the taxpayer claims a credit under G.S. 105-151.29."

Session Laws 2007-323, ss. 31.19(c), (d) and 31.24(a), rewrote subdivision (d)(4); and added subdivision (d)(6). For effective dates, see Editor's note.

Session Laws 2007-397, s. 13(c), effective for taxable years beginning on or after January 1, 2008, added subdivision (c)(5b).

Session Laws 2008-107, ss. 28.1(e), (f), (h), and 28.27(b), effective for taxable years beginning on or after January 1, 2008, added subdivisions (b)(17a) and (b)(19); in subdivision (c)(8), in the introductory paragraph, added "For taxable years 2002-2005," at the beginning of the first sentence, and in the table, deleted "and thereafter" following "2005"; and added subdivision (c)(8a). For expiration of amendment made by s. 28.27(b), see Editor's note.

Session Laws 2008-107, s. 28.25(c), as amended by Session Laws 2009-445, s. 43, effective for taxable years beginning on or after January 1, 2008, inserted "or a unit of State or local government" in subdivision (c)(5b).

Session Laws 2008-134, s. 2(c), effective July 28, 2008, substituted "allowed by this Chapter" for "allowed by this Part" near the end of subdivision (d)(2).

Session Laws 2009-451, s. 27A.6(e) and (f), effective for taxable years beginning on or after January 1, 2009, rewrote subdivision (b)(17a); added subdivision (b)(20); rewrote subdivision (c)(8a); and added subdivisions (c)(11) through (c)(14).

Session Laws 2010-31, s. 31.1(b), effective June 30, 2010, added subdivisions (d)(7) and (d)(8).

Session Laws 2011-5, ss. 2(c), (d) and 3(c), (d), as amended by Session Laws 2011-330, s. 11, effective March 17, 2011, and applicable to the estates of decedents dying on or after January 1, 2011, added subdivisions (b)(17b), (b)(21), (c)(8b), and (c)(15).

Session Laws 2011-145, s. 31A.1(c), effective for taxable years beginning on or after January 1, 2012, added subsections (a1) and (a2); rewrote the introductory paragraph of subsection (b), which formerly read: "Deductions. - The following deductions from taxable income shall be made in calculating North Carolina taxable income, to the extent each item is included in taxable income"; added subdivision (b)(22); rewrote the introductory paragraph of subsection (c), which formerly read: "Additions. - The following additions to taxable income shall be made in calculating North Carolina taxable income, to the extent each item is not included in taxable income"; deleted subdivisions (c)(4), (c)(4a), and (11), which pertained to taxpayer's additional standard deduction for aged and blind, taxpayer's personal exemptions, and taxpayer's real property tax deduction, respectively; deleted "or section 63(c)(1)(E)" following "section 164(a)(6)" in subdivision (c)(12); and rewrote the last sentence in subsection (d), which read: "The following adjustments to taxable income shall be made in calculating North Carolina taxable income."

Session Laws 2011-330, s. 12(b)-(e), effective for taxable years beginning on or after January 1, 2012, in the introductory paragraph of subsection (a1), substituted "same personal exemptions allowed" for "same number of personal exemptions claimed"; in subsection (a2), in the introductory paragraph, substituted "claimed under the Code" for "elected under section 63 of the Code" in the first sentence, deleted the former last sentence, which read: "A taxpayer may not deduct both the standard deduction amount and the itemized deductions amount," and added the present last sentence; and added the second paragraph; in subdivision (b)(22), substituted "An amount not to exceed" for "The first" at the beginning of the first sentence, and added the present second sentence; rewrote subdivision (c)(3); and repealed subdivision (c)(12), which read: "The amount of the taxpayer's deduction for motor vehicle sales taxes under section 164(a)(6) of the Code."

Session Laws 2011-330, s. 13, effective June 27, 2011, rewrote subdivision (d)(8).

Session Laws 2012-74, s. 2(a), effective for taxable years beginning on or after January 1, 2012, added subdivision (d)(9).

Session Laws 2012-79, s. 1.3, effective June 26, 2012, in the first paragraph of subsection (a2), inserted "North Carolina" and deleted "listed in the table below" preceding "taxpayer's filing status" in the first sentence, added the second sentence, and added "the taxpayer or" in the third sentence.

Session Laws 2013-10, ss. 2(c), (d), 3(c), (d), 5(a), (b), 6(a), (b), 7, and 8, added subdivisions (b)(21a), (c)(15a), (c)(16), (c)(17), (c)(18), (c)(19), and (d)(23) (now (d)(10)); in the fourth sentence of subdivision (b)(17b), substituted "adjusted gross income" for "taxable income" and added the last sentence; substituted "2013" for "2012" in the first sentence of subdivision (c)(8b); in the last sentence of subdivision (d)(2), added "not" and "in the following circumstances"; redesignated subdivision (d)(2) as the introductory language of (d)(2) and subdivision (d)(2)a.; in subdivision (d)(2)a., substituted "If" for "only to the extent that" and deleted "not" preceding "allowed"; and added subdivision (d)(2)b. For effective date and applicability, see editor's note.

Session Laws 2013-414, ss. 5(a) and 6(b), effective for taxable years beginning on or after January 1, 2012, substituted "adjusted gross income" for "taxable income" throughout subdivision (d)(3), and in subdivisions (b)(17b), (d)(4), (d)(5), and (d)(6); deleted "to federal taxable income as accelerated depreciation" following "amount added" in the first sentence of subdivision (b)(17b); substituted "105-134.6A" for "105-134.7" twice in the first paragraph of subdivision (d)(1); deleted "from taxable income" following "amount deducted" in subdivision (d)(5); and deleted "shall be added to taxable income" from the end of subdivision (c)(21).

Session Laws 2013-414, s. 34(c), effective August 23, 2013, deleted subdivisions (b)(17), (b)(17a), (b)(17b), (b)(21), (b)(21a), (c)(8), (c)(8a), (c)(8b), (c)(15), and (c)(15a); and added subdivisions (b)(23) and (c)(22).

Session Laws 2013-414, s. 35(a), effective for taxable years beginning on or after January 1, 2013, renumbered subdivision (d)(23), as enacted by Session Laws 2013-10, s. 6(b), as subdivision (d)(10), and inserted "who elects to itemize deductions under G.S. 105-134.6(a2)" in the first sentence, and added the last sentence.

Session Laws 2015-6, s. 2.20(d), effective retroactively for taxable years beginning on or after January 1, 2012, and before January 1, 2014, substituted "Married, filing jointly/surviving spouse" for "Married, filing jointly" in the table in subsection (a2).

Session Laws 2016-5, s. 2.4(a), effective for taxable years beginning on or after January 1, 2009, deleted the former last sentence in subdivision (b)(20), which read: "This deduction applies to taxable years beginning on or after January 1, 2014."

§ 105-134.7: Repealed by Session Laws 2013-414, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1989, c. 728, s. 1.4; 1993, c. 485, s. 10; 1998-98, s. 91; 2013-414, s. 6(a)-(f); repealed by 2013-414, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-134.7 pertained to traditional adjustments.

§ 105-134.8: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1989, c. 728, s. 1.4; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-134.8 pertained to inventory.

§§ 105-135 through 105-149: Repealed by Session Laws 1989, c. 728, s. 1.3.

§ 105-150: Repealed by Session Laws 1973, c. 1287, s. 5.

§ 105-151: Recodified as G.S. 105-153.9 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

§ 105-151.1: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1973, c. 910, s. 2; 1979, c. 803, ss. 3, 4; 1981, c. 682, s. 17; 1989, c. 728, s. 1.6; 1997-6, s. 4; 1998-98, s. 69; 1998-100, s. 1; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.1 pertained to credit for construction of dwelling units for handicapped persons.

§ 105-151.2: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§ 105-151.3: Repealed by Session Laws 1983 (Regular Session 1984), c. 1004, s. 2.

§ 105-151.4: Repealed by Session Laws 1989, c. 728, s. 1.8.

§ 105-151.5: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§ 105-151.6: Expired.

Editor's Note. - Pursuant to former subsection (g) of this section, this section applied only to costs incurred during taxable years beginning prior to January 1, 1998.

§ 105-151.6A: Repealed by Session Laws 1989, c. 728, s. 1.11.

§§ 105-151.7 through 105-151.10: Repealed by Session Laws 1999-342, s. 1, effective for taxable years beginning on or after January 1, 2000.

§§ 105-151.11 through 105-151.14: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-151.11: 1981, c. 899, s. 1; 1985, c. 656, ss. 8-11; 1989, c. 728, s. 1.16; 1993, c. 432, s. 1; 1998-98, ss. 69, 99; 1998-100, s. 2; 2006-18, s. 9; 2013-414, s. 5(c); repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-151.12: 1983, c. 793, s. 3; 1985, c. 278, s. 2; 1989, c. 716, s. 2; c. 727, s. 218(43); c. 728, s. 1.17; 1989 (Reg. Sess., 1990), c. 869, s. 3; 1991, c. 45, s. 10; c. 453, ss. 2, 4; 1991 (Reg. Sess., 1992), c. 930, s. 21; 1993 (Reg. Sess., 1994), c. 717, s. 4; 1997- 226, s. 2; 1997-443, s. 11A.119(a); 1998-98, s. 69; 1998-179, s. 2; 1998-212, s. 29A.13(b), (d); 2001-335, s. 2; 2002-72, s. 15(b); 2004-134, s. 1; 2006-66, s. 24.15(a); 2007-309, s. 2; 2009-445, s. 9(d); 2010-167, s. 5(b); repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-151.13: 1983 (Reg. Sess., 1984), c. 969, s. 2; 1989, c. 728, s. 1.18; 1991 (Reg. Sess., 1992), c. 930, s. 22; 1998-98, s. 100; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-151.14: 1983 (Reg. Sess., 1984), c. 1018, s. 2; 1989, c. 728, s. 1.19; 1991, c. 453, s. 3; 1997-261, s. 13; 1998-98, s. 101; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.11 pertained to credit for child care and certain employment-related expenses. Former G.S. 105-151.12 pertained to credit for certain real property donations. Former G.S. 105-151.13 pertained to credit for conservation tillage equipment. Former G.S. 105-151.14 pertained to credit for gleaned crop.

§ 105-151.15: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 1, effective for taxable years beginning on or after January 1, 1996.

§ 105-151.16: Repealed by Session Laws 1989, c. 728, s. 1.21.

§ 105-151.17: Recodified as G.S. 105-129.8 by Session Laws 1996, Second Extra Session, c. 13, s. 3.4, effective for taxable years beginning on or after January 1, 1996.

§ 105-151.18: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(1989, c. 728, s. 1.22; 1989 (Reg. Sess., 1990), c. 984, s. 5; 1998-98, ss. 69, 102; 2013-414, s. 7; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.18 pertained to credit for the disabled.

§ 105-151.19: Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 2, effective for taxable years beginning on or after January 1, 1996.

§§ 105-151.20, 105-151.21: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-151.20: 1989 (Reg. Sess., 1990), c. 984, s. 6; 1991, c. 45, s. 11; 1996, 2nd Ex. Sess., c. 19, s. 1; 1997-499, ss. 1, 2; 1998-98, s. 69; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-151.21: 1985, c. 656, s. 13(3); 1987, c. 804, s. 6; 1991, c. 45, s. 14(a); 1998-98, s. 103; 2001-414, s. 11; 2005-276, s. 33.25; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.20 pertained to credit or partial refund for taxes paid on certain federal retirement benefits. Former G.S. 105-151.21 pertained to credit for property taxes paid on farm machinery.

§ 105-151.22: Repealed pursuant to former subsection (d) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(1991 (Reg. Sess., 1992), c. 977, s. 2; 1993 (Reg. Sess., 1994), c. 681, s. 2; 1995, c. 17, s. 17; c. 495, ss. 2-4; 1996, 2nd Ex. Sess., c. 18, s. 15.3(b); 1997-443, s. 29.1 (a), (b), (d); 1998-98, s. 69; 2001-517, ss. 1, 2; 2002-99, s. 6(d); 2003-414, s. 8; 2005-429, s. 2.11; 2007-527, s. 26(b); 2008-107, s. 28.5(c), (d); 2010-166, s. 1.15.)

Editor's Note. - Former G.S. 105-151.22 pertained to credit for North Carolina State Ports Authority wharfage, handling, and throughput charges.

§ 105-151.23: Recodified as G.S. 105-129.35 through 105-129.37 by Session Laws 1999-389, s. 6, effective for taxable years beginning on or after January 1, 1999.

Editor's Note. - Session Laws 1999-389, s. 6 provides that Article 3D of Chapter 105, as amended by Session Laws 1999-389, incorporates both G.S. 105-130.42 and G.S. 105-151.23.

§ 105-151.24: Recodified as G.S. 105-153.10 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

History

(1995, c. 42, s. 3; 1998-98, s. 69; 2001-424, s. 34.20(a); 2002-126, s. 30B.2(a), (b); 2003-284, s. 39B.2.)

Editor's Note. - Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014, recodified G.S. 105-151.24 as G.S. 105-153.10. For provisions effective for taxable years beginning on or after January 1, 2014, see G.S. 105-153.10.

Effect of Amendments. - Session Laws 2001-424, 34.20(b), as amended by Session Laws 2002-126, s. 30B.2(b), in this section as amended by Session Laws 2001-424, s. 34.20(a), effective for taxable years beginning on or after January 1, 2004, substituted "one hundred dollars ($100.00)" for "seventy-five dollars ($75.00)" in the first paragraph.

Session Laws 2003-284, s. 39B.2, effective for taxable years beginning on or after January 1, 2003, designated the previously undesignated provisions of the section as subsections (a) and (b); in subsection (a), added "Credit. - " at the beginning, inserted "who is allowed a federal child tax credit under section 24 of the Code for the taxable year and" following "An individual," and substituted "is allowed the federal credit" for "was allowed to deduct a personal exemption under section 151(c)(1)(B) of the code"; and in subsection (b), added "Limitations. - " at the beginning.

§§ 105-151.25, 105-151.26: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(105-151.25: 1995, c. 543, s. 1; 1998-134, ss. 2, 3; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014. 105-151.26: repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.25 pertained to credit for construction of a poultry composting facility. Former G.S. 105-151.26 pertained to credit for charitable contributions by nonitemizers.

§ 105-151.27: Repealed by Session Laws 2001-424, s. 34.21(a), effective for taxable years beginning on or after January 1, 2001.

§ 105-151.28: Repealed pursuant to former subsection (d) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(1998-212, s. 29A.6(a); 2007-323, s. 31.5(a); 2012-36, s. 7.)

Editor's Note. - Former G.S. 105-151.28 pertained to credit for premiums paid on long-term care insurance.

§ 105-151.29: Repealed pursuant to former subsection (k) of this section, effective for qualifying expenses occurring on or after January 1, 2015.

History

(2005-276, s. 39.1(b); 2005-345, ss. 47(c), 47(d); 2006-162, s. 4(b); 2006-220, s. 4; 2007-527, s. 24; 2008-107, s. 28.24(b); 2009-445, s. 8(b); 2009-529, s. 2; 2010-147, s. 2.2; 2010-166, s. 1.16; 2012-194, s. 79.10(b); 2015-241, s. 15.4(g); repealed by 2012-194, s. 79.10(b), effective July 17, 2012.)

Editor's Note. - Former G.S. 105-151.29 pertained to credit for qualifying expenses of a production company.

§ 105-151.30: Repealed pursuant to former subsection (d) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(2006-66, s. 24.18(c); 2007-527, s. 9(b); 2010-147, s. 4.2; 2011-330, s. 36; 2012-36, s. 6(b); 2013-414, s. 5(d).)

Editor's Note. - Former G.S. 105-151.30 pertained to credit for recycling oyster shells.

§ 105-151.31: Repealed pursuant to former subsection (c) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(2007-323, s. 31.4(a); 2008-107, s. 28.9(a); 2012-36, s. 8; 2013-10, s. 9.)

Editor's Note. - Former G.S. 105-151.31 pertained to earned income tax credit.

§ 105-151.32: Repealed pursuant to former subsection (c) of this section, effective for taxable years beginning on or after January 1, 2014.

History

(2007-323, s. 31.6(a); 2012-36, s. 9; 2013-10, s. 10.)

Editor's Note. - Former G.S. 105-151.32 pertained to credit for adoption expenses.

§ 105-151.33: Repealed by Session Laws 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.

History

(2011-395, ss. 1, 2; 2013-364, s. 2; repealed by 2013-316, s. 1.1(b), effective for taxable years beginning on or after January 1, 2014.)

Editor's Note. - Former G.S. 105-151.33 pertained to education expenses credit.

§ 105-152: Recodified as G.S. 105-153.8 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

History

(1939, c. 158, s. 326; 1941, c. 50, s. 5; 1943, c. 400, s. 4; 1945, c. 708, s. 4; 1951, c. 643, s. 4; 1957, c. 1340, s. 4; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; c. 903, s. 1; c. 1287, s. 5; 1977, c. 315; 1989, c. 728, s. 1.23; 1991 (Reg. Sess., 1992), c. 930, s. 1; 1998-98, ss. 69, 104; 1999-337, s. 25; 2006-66, s. 24.11(a); 2012-79, s. 2.5; 2013-414, s. 5(e).)

Editor's Note. - Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014, recodified G.S. 105-152 as G.S. 105-153.8. For provisions effective for taxable years beginning on or after January 1, 2014, see G.S. 105-153.8.

Effect of Amendments. - Session Laws 2006-66, s. 24.11(a), effective for taxable years beginning on or after January 1, 2006, rewrote the first sentence in subsection (e).

Session Laws 2012-79, s. 2.5, effective June 26, 2012, substituted "qualifies for relief of" for "has been relieved of" in the next-to-last sentence of subsection (e).

Session Laws 2013-414, s. 5(e), effective for taxable years beginning on or after January 1, 2012, substituted "adjusted gross income" for "taxable income" in subsection (c) and throughout subsection (d).

CASE NOTES

Cited in Garrou Knitting Mills v. Gill, 228 N.C. 764, 47 S.E.2d 240 (1948); State v. Sinnott, 163 N.C. App. 268, 593 S.E.2d 439 (2004).

Deduction of Tax Refunds Received from Estate Share Proper. - Order allowing an estate to deduct one-half of the federal income tax refund and a portion of the State income tax refund received by a widow from joint tax returns from the widow's share of the estate was proper. Bryant v. Bowers, 182 N.C. App. 338, 641 S.E.2d 855 (2007).

§ 105-152.1: Repealed by Session Laws 1991 (Reg. Sess., 1992), c. 930, s. 12.

§ 105-153: Repealed by Session Laws 1967, c. 1110, s. 3.

§ 105-153.1. Short title.

This Part of the income tax Article shall be known as the Individual Income Tax Act.

History

(1967, c. 1110, s. 3; 1989, c. 728, s. 1.1; 1998-98, ss. 44, 68; 2013-316, s. 1.1(a).)

Editor's Note. - This section was former G.S. 105-133. It was recodified as G.S. 105-153.1 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014. For provisions effective for taxable years beginning before January 1, 2014, see G.S. 105-133.

Legal Periodicals. - For comment on definition of rents from foreign real estate, see 17 N.C.L. Rev. 382 (1939).

For discussion of the provisions of this and other sections of the North Carolina income tax law designed to guard against excessive duplicate taxation, see 27 N.C.L. Rev. 582 (1949).

For note on income tax consequences of alimony payments, see 29 N.C.L. Rev. 319 (1951).

For notes as to employees' death benefits and the relation between trust income and beneficiary income under the 1957 amendments, see 36 N.C.L. Rev. 163, 166 (1958).

For comment discussing state adoption of federal taxing concepts, see 51 N.C.L. Rev. 834 (1973).

For survey of 1977 tax law, see 56 N.C.L. Rev. 1128 (1978).

For survey of 1979 tax law, see 58 N.C.L. Rev. 1548 (1980).

For comment on the tax effects of equitable distribution upon divorce, see 18 Wake Forest L. Rev. 555 (1982).

For survey of 1982 law on taxation, see 61 N.C.L. Rev. 1217 (1983).

For note, "Stone v. Lynch: North Carolina Takes a Different Approach to Defining Gift," see 64 N.C.L. Rev. 677 (1986).

I. GENERAL CONSIDERATION.

Editor's Note. - Reserved for future annotations.

II. DECISIONS UNDER PRIOR LAW.

Editor's Note. - Session Laws 1989, c. 728, effective for taxable years beginning on or after January 1, 1989, repealed former G.S. 105-135 to 105-149, relating to individual income tax, and enacted new G.S. 105-134.1 to 105-134.8 (now repealed). The following annotations were taken from the repealed sections and arranged under this analysis for convenience.

A. INDIVIDUALS.

Editor's Note. - The cases cited below were decided under former G.S. 105-136.

Former G.S. 105-136 imposed a tax on all of a resident's net income. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Only Portion of Income Derived from This State Taxed. - Former G.S. 105-136 imposed a tax only on that portion of the net income of a nonresident which is derived from North Carolina sources. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Basis for Taxation of Nonresident Partner. - Former G.S. 105-142(c) determined the basis on which this section levied an income tax on a nonresident partner. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

B. GROSS INCOME DEFINED.

Editor's Note. - The cases cited below were decided under former G.S. 105-141.

This Division taxes income derived from any source whatever and in whatever form paid. Foreman Mfg. Co. v. Johnson, 261 N.C. 504, 135 S.E.2d 205 (1964).

Section Does Not Include Loans. - Neither former G.S. 105-141, which defined income, nor former G.S. 105-147, which specified deductions, included loans. In re Fleishman, 264 N.C. 204, 141 S.E.2d 256 (1965).

Loans to a taxpayer do not constitute taxable income and should not, therefore, be included as gross income on his income tax return. In re Fleishman, 264 N.C. 204, 141 S.E.2d 256 (1965).

Nor Value of Property Acquired by Gift. - The value of property acquired by gift is excluded from both State and federal income tax. Foreman Mfg. Co. v. Johnson, 261 N.C. 504, 135 S.E.2d 205 (1964).

Meaning of "Gift." - For North Carolina income tax purposes the definition of gift remains what it was at common law: "A voluntary transfer of property by one to another without any consideration therefor." Stone v. Lynch, 68 N.C. App. 441, 315 S.E.2d 350 (1984), aff'd, 312 N.C. 739, 325 S.E.2d 230 (1985).

Federal Practice Not Controlling. - Whereas the General Assembly has specifically provided at numerous places in the income tax statutes that the State shall follow federal practice, the absence of such language in former G.S. 105-141(b)(3) leads to the inference that, by exclusion, the legislature intended federal practice not to control it. Stone v. Lynch, 68 N.C. App. 441, 315 S.E.2d 350 (1984), aff'd, 312 N.C. 739, 325 S.E.2d 230 (1985).

Union strike benefits are not taxable as income to the recipient under North Carolina law; such strike benefits qualify as a gift, thereby allowing the taxpayer to exclude them from taxable income. Stone v. Lynch, 68 N.C. App. 441, 315 S.E.2d 350 (1984), aff'd, 312 N.C. 739, 325 S.E.2d 230 (1985).

Damages for Wrongful Death Not Exempt. - It is reversible error for the trial court to instruct the jury that damages awarded in a wrongful death action are exempt from federal and State income taxes. Scallon v. Hooper, 58 N.C. App. 551, 293 S.E.2d 843, cert. denied, 306 N.C. 744, 295 S.E.2d 480 (1982).

C. BASIS OF RETURN OF NET INCOME.

Editor's Note. - The cases cited below were decided under former G.S. 105-142.

Statutes providing exemption from taxation are strictly construed. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Taxation is the rule; exemption the exception. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Former G.S. 105-142(a) does not authorize any deductions not specifically authorized by North Carolina statute, nor does it require use of federal tax treatments. Stone v. Lynch, 68 N.C. App. 441, 315 S.E.2d 350 (1984), aff'd, 312 N.C. 739, 325 S.E.2d 230 (1985).

Former G.S. 105-142(a) authorizes no deductions not included in former G.S. 105-147. In re Fleishman, 264 N.C. 204, 141 S.E.2d 256 (1965).

Accounting Practices. - While it is true that former G.S. 105-142(a) provided that accounting methods selected by the State shall follow as nearly as practicable the federal practice, this provision, however, does not mandate use of federal accounting practices. Stone v. Lynch, 68 N.C. App. 441, 315 S.E.2d 350 (1984), aff'd, 312 N.C. 739, 325 S.E.2d 230 (1985).

Determining Basis of Income Tax on Nonresident Partner. - Former G.S. 105-142(c) determined the basis on which former G.S. 105-136 levied an income tax on a nonresident partner. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Determination of Net Income of Multistate Partnerships Attributable to This State. - The proviso following the third sentence of former G.S. 105-142(c) relates solely to the second and third sentences of that subsection and its sole purpose was to provide how the net income of a multistate partnership attributable to North Carolina was to be determined. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

The proviso of former G.S. 105-142(c) relates solely to the method for determining the portion of the net income attributable to North Carolina of a multistate partnership with nonresident members. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Proviso Not Enacted in Substitution for Former G.S. 105-147(10)(b). - The contention that the proviso of former G.S. 105-142(c) was enacted in substitution for former G.S. 105-147(10)(b) is without substance. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Loan Not Income and Repayment Not Deductible. - The classification of a loan as income for the year in which the money was borrowed and as a deduction for the year in which the money was repaid, not only is not an approved and generally accepted method of accounting but also is a procedure directly contrary to "the context and intent" of this Article. In re Fleishman, 264 N.C. 204, 141 S.E.2d 256 (1965).

A gain resulting from the involuntary conversion of a capital asset by fire was taxable under the State law as income, notwithstanding that the proceeds of the fire insurance plus additional cash were necessary for and used in the restoration of the building, under former G.S. 105-142 and former G.S. 105-141, prior to the passage of former G.S. 105-144.1. State v. Speizman, 230 N.C. 459, 53 S.E.2d 533 (1949).

Requirement That Secretary of Revenue Follow Federal Practice. - Subsection (a) of former G.S. 105-142, stipulating that the Secretary of Revenue shall follow the federal practice as nearly as practicable in instances where the method of accounting of the taxpayer does not clearly reflect the income of the taxpayer, does not require the Secretary to apply the provisions of G.S. 112(f), 26 U.S.C.A. 95, in computing the income of a taxpayer from involuntary conversion of a capital asset. State v. Speizman, 230 N.C. 459, 53 S.E.2d 533 (1949).

Necessity of Reliance on Federal Tax Returns. - Recognizing the practical necessity for the North Carolina Department of Revenue to rely upon tax returns accepted by the Federal Internal Revenue Service for a proper reflection of taxable income upon foreign corporations, the General Assembly enacted this section. In re Virginia-Carolina Chem. Corp., 248 N.C. 531, 103 S.E.2d 823 (1958).

D. DETERMINATION OF GAIN OR LOSS.

Editor's Note. - The cases cited below were decided under former G.S. 105-144.

Former G.S. 105-144 had to do only with fixing for tax purposes the mode of ascertaining realized gains or losses sustained in respect to the disposal of property. Hence the statute was not applicable to a gift of property to a charitable institution. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

Former G.S. 105-144 prescribed the method for ascertaining the amount of a loss resulting "from the sale or other disposition of property." Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

When Method for Ascertaining Loss Is Applicable. - The method for ascertaining the amount of a loss prescribed is applicable whenever property is disposed of by sale, casualty or otherwise, in such manner as to result in a taxable gain or a deductible loss. Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

Income tax law is concerned only with realized losses, as with realized gains. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Basis Where Loss Is from Sale or Other Disposition of Property. - Former G.S. 105-144 clearly provided that in ascertaining a loss from the sale or other disposition of property, the basis shall be the adjusted cost of the property. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Casualty loss is an "other disposition of property." Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

A taxpayer's loss of timber by fire is an "other disposition of property", and therefore the income tax deduction allowable under former G.S. 105-147 for such casualty loss may not exceed the taxpayer's cost basis of the property so destroyed. Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

And Is Not Treated Differently Than a Loss from a Sale. - Nothing indicates the General Assembly intended a taxpayer's deductible loss by fire or other casualty to be treated differently from a loss resulting from a sale. Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

Taxpayer showed no cost basis whereby a realized loss could be measured. See Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

E. DEDUCTIONS.

1. IN GENERAL.

Editor's Note. - The cases cited below were decided under former G.S. 105-147.

Deduction Defined. - A deduction is defined as "something that is or may be subtracted." Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Nature of Deductions. - Deductions are in the nature of exemptions; they are privileges, not matters of right, and are allowed as a matter of legislative grace. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Taxpayer claiming deduction must bring himself within the statutory provisions authorizing the deduction. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

The allowance of a deduction in the computation of taxable income is a privilege granted as a matter of legislative grace. One claiming the deduction must bring himself within the statutory provisions authorizing it, and in general the deduction may be taken only by the taxpayer to whom it accrues. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Deduction of Particular Charges, Expenses, or Disbursements. - The states may allow deductions in the computation of income for income tax purposes as they choose, and statutes imposing a tax on incomes ordinarily authorize the deduction from gross income of particular charges, expenses, or disbursements, in arriving at the income on which the tax is to be imposed. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Strict Accounting on Annual Basis Formerly Required. - The North Carolina income tax statutes formerly required all taxpayers to account strictly on an annual basis, reporting for each taxable year all items of gross income and claiming as deductions for that year only items properly pertaining to that accounting period. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Burden of proof to establish a deductible loss and the amount of it is on the plaintiff. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Amounts expended to repay the principal of a loan are not allowed as deductions from taxable income. In re Fleishman, 264 N.C. 204, 141 S.E.2d 256 (1965).

Income from Business Situated in Another State. - In order for a resident taxpayer to be entitled to deduct income derived from a business situated in another state from his income taxable by this State, the taxpayer must show that he has a business or investment in such other state, that the income therefrom is taxable in that state, and that the questioned income is derived from such business or investment. Sabine v. Gill, 229 N.C. 599, 51 S.E.2d 1 (1948).

2. ORDINARY AND NECESSARY EXPENSES.

What are "ordinary and necessary" expenses necessarily vary in individual cases, and depend upon the nature of a particular business, its size, its location, its mode of operations, and to some extent the business customs and practices prevailing at the time and in the locality or area where the taxpayer operates. Therefore, in order to take care of the varying situations as they arise, former G.S. 105-147 should be left flexible in form for application in individual cases according to the practical meaning of the statutory language. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

In order for an item of expense to be deductible it must be both an "ordinary" expense and a "necessary" expense, since these words are used conjunctively. Also of controlling significance is this phrase appearing in the section: "in carrying on any trade or business." Here, the connotation is that the expense in order to be deductible must relate to the cost of "carrying on" the business, and carrying on a business in plain language means operating the business. Therefore, it would seem that an expense in order to be deductible not only must be an "ordinary and necessary" business expense, but as a general rule it must relate in a substantial way to the costs of current operations, - to the cost of producing the gross income from which the deduction is sought. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

Business expenses are proper deductions from one's taxable income. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

3. CAPITAL EXPENDITURES.

Capital Expenditures Not Deductible. - Former G.S. 105-147 did not sanction the deduction of an expenditure the underlying purpose and predominant effect of which are to provide permanent improvements or betterments reasonably calculated to enhance the value of the taxpayer's business or property for a period substantially beyond the year in which the outlay is made. Such an outlay is a capital expenditure, as distinguished from an item of normal operating business expense, and it is not deductible for income tax purposes. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

Ordinarily, the expense of installing sewers is treated as a capital expenditure and is not deductible. And the fact that the taxpayer does not own the property on which the mains were laid and did not by contractual arrangement with the city acquire some vested property rights therein in return for the sums paid to the city does not have the effect of transforming these capital expenditures into ordinary and necessary business expenses to be written off entirely within the year. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

4. RENTALS OR OTHER PAYMENTS.

Former G.S. 105-147(4) was intended to provide for the deduction only of "rentals or other payments" as and when the items accrue from year to year, and in no event may it be interpreted as authorizing the deduction in one year of a prepayment of rentals or other like charges for a period of years in advance. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

Advance Rentals, Bonuses, etc., to Be Spread over Life of Lease. - Rentals required to be paid for the use or possession of business property, not owned by the taxpayer and in which he has no equity, may usually be deducted in computing income tax. However, where an expenditure made by a lessee is in the nature of an investment in property used in his trade or business, or is the cost, or part of the cost, of the lease itself, it cannot be deducted in toto from the lessee's taxable income as an expense for the year in which it occurred, but must be recovered in annual allowances. Thus, advances, rentals and bonuses, the price paid for an assignment of a lease, and other similar expenditures by a lessee are not deductible as ordinary and necessary business expenses in the year of payment but are required to be spread over the entire life of the lease. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

5. INTEREST.

Interest on Estate Tax Deficiency Not Part of Tax. - Although collected as part of the tax, interest paid on an estate or inheritance tax deficiency is not part of the tax, but something in addition to the tax. Holt v. Lynch, 307 N.C. 234, 297 S.E.2d 594 (1982).

No distinction between interest paid on debt created to pay taxes and interest paid on tax itself. To deny a deduction merely because the government is the lending party has the practical effect of treating such interest in the same manner as a penalty if the estate does not have sufficient taxable income to benefit from deducting the interest paid on its income tax returns. Interest in the tax law, as elsewhere, is merely the cost of the use of money and is not a penalty. Holt v. Lynch, 307 N.C. 234, 297 S.E.2d 594 (1982).

Interest on Tax Is Deductible. - Inasmuch as the definition of "tax" in former G.S. 105-241.1(i1) [repealed] specifically applied to the subchapter dealing with state inheritance taxes, interest on tax, although administratively treated as tax for assessment, collection and payment purposes, remains substantively interest paid for the use of money and was deductible. Holt v. Lynch, 307 N.C. 234, 297 S.E.2d 594 (1982).

6. CASUALTY LOSSES.

Former G.S. 105-147 authorized a deduction for certain casualty losses, including fire, to property not connected with a trade or business. Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969), aff'd, 276 N.C. 411, 172 S.E.2d 531 (1970).

Section Prescribed No Method for Ascertaining Amount of Casualty Loss. - Former G.S. 105-147 enumerated the items, including casualty losses, which were deductible, but prescribed no method for ascertaining the amount of such casualty loss. Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

Determining Deduction for Loss of Timber by Fire. - A taxpayer's loss of timber by fire was an "other disposition of property" within the meaning of former G.S. 105-144, and therefore the income tax deduction allowable for such casualty loss may not exceed the taxpayer's cost basis of the property so destroyed. Ward v. Clayton, 276 N.C. 411, 172 S.E.2d 531 (1970).

7. CARRY-OVER LOSSES.

Constitutionality of Carryover Losses Requirement. - The requirement that the taxpayer reduce his North Carolina carryover losses by his non-North Carolina income did not result in a sophisticated scheme which belatedly taxed the non-North Carolina income and did not violate either the due process clause of the United States Constitution or the law of the land clause of N.C. Const., Art. I, § 20. Aronov v. Secretary of Revenue, 323 N.C. 132, 371 S.E.2d 468, cert. denied, 323 N.C. 480, 373 S.E.2d 860 (1988), , 489 U.S. 1096, 109 S. Ct. 1568, 103 L. Ed. 2d 935 (1989).

Requirement of Taxpayer to Reduce Carryover Losses Does Not Exceed Legislative Authority. - The Secretary's interpretation of former G.S. 105-147(9)(d)(2) to require a taxpayer to reduce his North Carolina carryover losses by his non-North Carolina income does not exceed legislative authority. Aronov v. Secretary of Revenue, 323 N.C. 132, 371 S.E.2d 468, cert. denied, 323 N.C. 480, 373 S.E.2d 860 (1988), , 489 U.S. 1096, 109 S. Ct. 1568, 103 L. Ed. 2d 935 (1989).

Deductions, such as that authorized in former G.S. 105-147(9)(d)(2), were in the nature of exemptions: they were privileges, not rights, and were allowed as a matter of legislative grace. Aronov v. Secretary of Revenue, 323 N.C. 132, 371 S.E.2d 468, cert. denied, 323 N.C. 480, 373 S.E.2d 860 (1988), , 489 U.S. 1096, 109 S. Ct. 1568, 103 L. Ed. 2d 935 (1989).

Deduction of Prior Year's Net Economic Loss from Current Gross Income. - Subdivision (9)d of former G.S. 105-147 permits, under certain conditions, a deduction of a prior year's net economic loss from current gross income in order to determine taxable income. The legislature was under no constitutional or other legal compulsion to allow any carry-over to be deducted from taxable income in a future year. It enacted the carry-over provisions purely as a matter of grace, gratuitously conferring a benefit but limiting such benefit to the net economic loss of the taxpayer after deducting therefrom the allocable portion of such taxpayer's nontaxable income. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Loss Carry-Over Provision Was Added for Purpose of Tax Relief. - For the purpose of granting some measure of relief to taxpayers who have incurred economic misfortune of who are otherwise materially affected by strict adherence to the annual accounting rule in the determination of taxable income, the legislature added a loss carry-over provision to the State income tax statute which was subdivision (9)d of former G.S. 105-147. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Former G.S. 105-147(9)d required the inclusion of nontaxable income in arriving at an allowable deduction for carry-over purposes to be deducted from taxable income in a succeeding year. Dayton Rubber Co. v. Shaw, 244 N.C. 170, 92 S.E.2d 799 (1956), decided prior to the 1963 amendment.

Deduction of Loss Carry-Over from Post-Merger Income Depends on Continuity of Business. - A corporation resulting from a merger may not deduct from its post-merger income the loss carry-over of one or more of its constituent corporations unless there is a continuity of business enterprise - that is, unless the income-producing business has not been altered, enlarged, or materially affected by the merger. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Type of Merger Makes No Difference. - In determining whether there is a "continuity of business enterprise" after a merger, for purposes of determining the loss carry-over of the surviving corporation it makes no difference that there was a "vertical type" merger in which the several merged corporations were doing jobs in one continuous chain of processing, rather than a "horizontal type" in which each of the corporations was doing basically the same job. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Nor Does Purpose of Merger. - The fact that mergers were made in pursuance of an overall plan to bring into being an "integrated" operation and were not for tax avoidance purposes is not determinative of the question of whether the surviving corporation can carry forward and deduct from its own gross income pre-merger losses incurred by corporations with which it merged. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

No Continuity of Business in Surviving Corporation after Merger. - There was no "continuity of business enterprise" where the net worth of the surviving corporation into which two other corporations were merged was increased substantially by each merger, and the surviving corporation was transformed from a manufacturer of poultry feeds into a combined manufacturing and feeding operation; consequently, the surviving corporation was not entitled to carry over and deduct for North Carolina income tax purposes the pre-merger net economic losses of the two submerged corporations from the post-merger income earned by the combined corporate businesses. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

A corporation resulting from the merger of several separate incorporated businesses was not entitled to carry over and deduct the pre-merger net operating losses of some of its constituent corporations from the post-merger income attributable to the other businesses, since the income against which the offset was claimed was not produced by substantially the same businesses which incurred the losses. Holly Farms Poultry Indus., Inc. v. Clayton, 9 N.C. App. 345, 176 S.E.2d 367, cert. denied, 277 N.C. 351, 177 S.E.2d 900 (1970).

Deduction by Successor Corporation of Loss Sustained by Submerged Corporation. - See Good Will Distribs. (N.), Inc. v. Shaw, 247 N.C. 157, 100 S.E.2d 334 (1957); Good Will Distribs., Inc. v. Currie, 251 N.C. 120, 110 S.E.2d 880 (1959).

Regulation in Respect to Carry-Over Losses Held to Comply. - The Supreme Court found no conflict between the Income Tax Regulation No. 2, promulgated on 10 February, 1944, by the Secretary of Revenue and followed by the Department of Revenue in its administrative practice with respect to carry-over losses, and the statutory provisions with respect thereto. Dayton Rubber Co. v. Shaw, 244 N.C. 170, 92 S.E.2d 799 (1956).

8. DEPLETION.

Deduction for Depletion Not Required to Be on Basis of Cost. - Deduction on basis of percentage of cost is applicable to depreciation and not to depletion. A reasonable allowance is provided for depletion. There is no requirement that it should be on the basis of cost. In re Virginia-Carolina Chem. Corp., 248 N.C. 531, 103 S.E.2d 823 (1958).

Prior to the 1953 amendment to former G.S. 105-147, the section permitted a reasonable allowance for depletion without requiring that it should be calculated on percentage of cost; the 1953 amendment made mandatory that which was permissible before. In re Virginia-Carolina Chem. Corp., 248 N.C. 531, 103 S.E.2d 823 (1958).

9. GIFTS.

"Amount" of Gift. - Former G.S. 105-147(15) contained no technical language. Thus, it must be interpreted in accordance with the ordinary use and common understanding of the words used. According to ordinary use, the "amount" of a gift and the value of a gift have the same meaning and effect. It follows, then, that when a contribution was made in property rather than in cash, the amount of the gift, and the amount of the deduction, was the fair market value of the property at the time of the gift. Wiscassett Mills Co. v. Shaw, 235 N.C. 14, 68 S.E.2d 816 (1952).

10. NONRESIDENT INDIVIDUALS AND PARTNERSHIPS.

Constitutionality. - Subdivision (18) of former G.S. 105-147 limiting the right of a nonresident taxpayer, in computing his net income taxable by this State, to claim only those deductions which are related to his business in this State, was valid and did not constitute an unlawful discrimination in that residents of this State were permitted personal deductions not allowed to the nonresident, since only the income of the nonresident earned within this State was subject to income taxes here. Stiles v. Currie, 254 N.C. 197, 118 S.E.2d 428 (1961).

11. PAYMENTS TO ESTATE OR HEIRS OF DECEASED EMPLOYEE.

Legal Obligation Need Not Exist. - The contention that payments by an employer to the widow of an employee are allowable as deductions only when a legal obligation to make such payments exists would seem to render meaningless the 1957 amendment of subsection (23) of former G.S. 105-147. Boylan-Pearce, Inc. v. Johnson, 257 N.C. 582, 126 S.E.2d 492 (1962).

Preexisting Contract or Resolution Not Required. - The 1957 amendment of subsection (23) of former G.S. 105-147 made no reference to a previous or preexisting "contract, resolution of the board of directors, or custom," of the corporation with respect to payments by an employer to a deceased employee's estate, widow or heirs. Boylan-Pearce, Inc. v. Johnson, 257 N.C. 582, 126 S.E.2d 492 (1962).

Payments by an employer to the widow of a deceased executive were authorized and allowable as deductions in computing employer's net income, and were not taxable as gifts under G.S. 105-188 [repealed], and no legal significance was attached to the fact that there was no preexisting plan or policy, or to the fact that the resolution authorizing the payments was not adopted until some 13 months after the death of the executive, or to the fact that the employer was a so-called family corporation. Boylan-Pearce, Inc. v. Johnson, 257 N.C. 582, 126 S.E.2d 492 (1962).

Opinions of Attorney General

Member of Religious Order Not Exempt from Tax. - See opinion of Attorney General to Mr. J.A. Porter, Jr., Director, Division of Auditing and Accounting, State Board of Education, 40 N.C.A.G. 841 (1970), decided under former G.S. 105-136.

Court May Not Assign Dependency Exemption to One Spouse Without Regard to Which Furnished More Than One Half the Support. - See opinion of Attorney General to Representative Marcus Short, 41 N.C.A.G. 866 (1972), decided under former G.S. 105-149.

§ 105-153.2. Purpose.

The general purpose of this Part is to impose a tax for the use of the State government upon the taxable income collectible annually:

Of every resident of this State.
Of every nonresident individual deriving income from North Carolina sources attributable to the ownership of any interest in real or tangible personal property in this State, deriving income from a business, trade, profession, or occupation carried on in this State, or deriving income from gambling activities in this State. This subdivision does not apply to a nonresident business or a nonresident employee who solely derives income from North Carolina sources attributable to a business, trade, profession, or occupation carried on in this State to perform disaster-related work during a disaster response period at the request of a critical infrastructure company. The definitions and provisions in G.S. 166A-19.70A apply to this subdivision.

History

(1939, c. 158, s. 301; 1967, c. 1110, s. 3; 1989, c. 728, s. 1.2; 1998-98, s. 69; 2005-276, s. 31.1(dd), (jj); 2005-344, s. 10.3; 2006-259, s. 8(j); 2006-264, s. 91(a); 2013-316, s. 1.1(a); 2019-187, s. 1(j).)

Editor's Note. - This section was former G.S. 105-134. It was recodified as G.S. 105-153.2 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014. For provisions effective for taxable years beginning before January 1, 2014, see G.S. 105-134.

Session Laws 2019-187, s. 3, made the last two sentences in subdivision (2), as added by Session Laws 2019-187, s. 1(j), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Session Laws 2019-187, s. 1(j), added the last two sentences in subdivision (2). For effective date and applicability, see editor's note.

CASE NOTES

Cited in Aronov v. Secretary of Revenue, 323 N.C. 132, 371 S.E.2d 468 (1988).

§ 105-153.3. Definitions.

The following definitions apply in this Part:

Adjusted gross income. - Defined in section 62 of the Code.
Code. - Defined in G.S. 105-228.90.
Department. - The Department of Revenue.
Educational institution. - An educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on.
Fiscal year. - Defined in section 441(e) of the Code.
Gross income. - Defined in section 61 of the Code.
Guaranteed payments. - Defined in section 707(c) of the Code.
Head of household. - Defined in section 2(b) of the Code.
Individual. - A human being.
Limited liability company. - Either a domestic limited liability company organized under Chapter 57D of the General Statutes or a foreign limited liability company authorized by that Chapter to transact business in this State that is classified for federal income tax purposes as a partnership. As applied to a limited liability company that is a partnership under this Part, the term "partner" means a member of the limited liability company.
Married individual. - An individual who is married and is considered married as provided in section 7703 of the Code.
Nonresident individual. - An individual who is not a resident of this State.
North Carolina taxable income. - Defined in G.S. 105-153.4.
Partnership. - A domestic partnership, a foreign partnership, or a limited liability company.
Person. - Defined in G.S. 105-228.90.
Resident. - An individual who is domiciled in this State at any time during the taxable year or who resides in this State during the taxable year for other than a temporary or transitory purpose. In the absence of convincing proof to the contrary, an individual who is present within the State for more than 183 days during the taxable year is presumed to be a resident, but the absence of an individual from the state for more than 183 days raises no presumption that the individual is not a resident. A resident who removes from the State during a taxable year is considered a resident until he has both established a definite domicile elsewhere and abandoned any domicile in this State. The fact of marriage does not raise any presumption as to domicile or residence.
S Corporation. - Defined in G.S. 105-131(b).
Secretary. - The Secretary of Revenue.
Surviving spouse. - Defined in section 2(a) of the Code.
Taxable year. - Defined in section 441(b) of the Code.
Taxpayer. - An individual subject to the tax imposed by this Part.
This State. - The State of North Carolina.

History

(1989, c. 728, s. 1.4; c. 792, s. 1.2; 1989 (Reg. Sess., 1990), c. 814, s. 15; c. 981, s. 5; 1991, c. 689, s. 252; 1991 (Reg. Sess., 1992), c. 922, s. 6; 1993, c. 12, s. 7; c. 354, s. 13; 1996, 2nd Ex. Sess., c. 13, s. 8.2; 1998-98, ss. 9, 69; 2011-145, s. 31A.1(a); 2011-330, s. 12(a); 2013-157, s. 28; 2013-316, s. 1.1(a), (c); 2013-414, s. 58(c); 2015-6, s. 2.20(a); 2017-204, s. 1.9(a), (b).)

Editor's Note. - This section was former G.S. 105-134.1. It was recodified as G.S. 105-153.3 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

Session Laws 2011-330, s. 12(a), effective for taxable years beginning on or after January 1, 2012, reenacted subdivision (19), which was repealed by Session Laws 2011-145, s. 31A.1(a).

Session Laws 2013-414, s. 58(f), made the amendments to subdivisions (9) and (12) by Session Laws 2013-414, s. 58(c), applicable to taxable years that begin on or after January 1, 2014, and to purchases made on or after that date.

Session Laws 2015-6, s. 2.20(a), enacted a new subdivision as subdivision (18), and redesignated existing subdivisions (18) through (20) as subdivisions (19) through (21). The new subdivision was redesignated as subdivision (17a), with subdivisions (18) through (20) retaining their designations, at the direction of the Revisor of Statutes.

Subdivision (6a) was originally enacted as subdivision (5a) by Session Laws 2017-204, s. 1.9(b). It has been redesignated as subdivision (6a) at the direction of the Revisor of Statutes to maintain alphabetical order.

Session Laws 2017-204, s. 1.9(g), provides: "The General Assembly finds that the amendments made by this section clarify the intent of the existing law and do not represent a change in the law. Accordingly, subsections (a) and (c) of this section apply to taxable years beginning before January 1, 2014, subsections (b) and (d) of this section apply to taxable years beginning on or after January 1, 2014, and subsection (f) of this section applies to all taxable years."

Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2011-145, s. 31A.1(a), effective for taxable years beginning on or after January 1, 2012, added present subdivision (1) and redesignated former subdivision (1) as present subdivision (1a); and repealed subdivisions (16) and (19), which were the definitions for "Taxable income" and "This State," respectively.

Session Laws 2013-157, s. 28, effective January 1, 2014, substituted "Chapter 57D" for "Chapter 57C" in subdivision (7a) (now (9)).

Session Laws 2013-316, s. 1.1(c), effective for taxable years beginning on or after January 1, 2014, redesignated former subdivisions (1a) through (19) as present subdivisions (2) through (20); deleted subdivisions (7b), (13), and (16); and substituted "G.S. 105-153.5" for "G.S. 105-134.5" in subdivision (12).

Session Laws 2013-414, s. 58(c), effective January 1, 2014, substituted "Chapter 57D" for "Chapter 57C" in subdivision (9); and substituted "G.S. 105-153.4" for "G.S. 105-153.5" in subdivision (12). For applicability, see editor's note.

Session Laws 2015-6, s. 2.20(a), effective for taxable years beginning on or after January 1, 2014, added subdivision (17a). See editor's note.

Session Laws 2017-204, s. 1.9(a), (b), added subdivision (5a). For effective date and applicability, and for redesignation of subdivision, see editor's notes.

§ 105-153.4. North Carolina taxable income defined.

Residents. - For an individual who is a resident of this State, the term "North Carolina taxable income" means the taxpayer's adjusted gross income as modified in G.S. 105-153.5 and G.S. 105-153.6.
Nonresidents. - For a nonresident individual, the term "North Carolina taxable income" means the taxpayer's adjusted gross income as modified in G.S. 105-153.5 and G.S. 105-153.6, multiplied by a fraction the denominator of which is the taxpayer's gross income as modified in G.S. 105-153.5 and G.S. 105-153.6, and the numerator of which is the amount of that gross income, as modified, that is derived from North Carolina sources and is attributable to the ownership of any interest in real or tangible personal property in this State, is derived from a business, trade, profession, or occupation carried on in this State, or is derived from gambling activities in this State.
Part-year Residents. - If an individual was a resident of this State for only part of the taxable year, having moved into or removed from the State during the year, the term "North Carolina taxable income" has the same meaning as in subsection (b) of this section except that the numerator includes gross income, as modified under G.S. 105-153.5 and G.S. 105-153.6, derived from all sources during the period the individual was a resident.
S Corporations and Partnerships. - In order to calculate the numerator of the fraction provided in subsection (b) of this section, the amount of a shareholder's pro rata share of S Corporation income, as modified in G.S. 105-153.5 and G.S. 105-153.6, that is includable in the numerator is the shareholder's pro rata share of the S Corporation's income attributable to the State, as defined in G.S. 105-131(b)(4). In order to calculate the numerator of the fraction provided in subsection (b) of this section for a partner in a partnership or a member of another unincorporated business that has one or more nonresident partners or members and operates in one or more other states, the amount of the partner's or member's distributive share of the total net income of the business, as modified in G.S. 105-153.5 and G.S. 105-153.6, plus any guaranteed payments made to a partner from the partnership that is includable in the numerator is determined in accordance with the provisions of G.S. 105-130.4. As used in this subsection, total net income means the entire gross income of the business less all expenses, taxes, interest, and other deductions allowable under the Code that were incurred in the operation of the business.
Tax Year. - A taxpayer must compute North Carolina taxable income on the basis of the taxable year used in computing the taxpayer's income tax liability under the Code.

History

(1989, c. 728, s. 1.4; 1995, c. 17, s. 4; 2005-276, s. 31.1(aa); 2005-344, s. 10.4; 2011-145, s. 31A.1(b); 2012-79, s. 1.2; 2013-414, s. 55; 2013-316, ss. 1.1(a), 1.3(c); 2015-6, s. 2.22(a); 2017-204, s. 1.9(c), (d).)

Editor's Note. - This section was former G.S. 105-134.5. It was recodified as G.S. 105-153.4 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014.

Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2011-145, s. 31A.1(b), effective for taxable years beginning on or after January 1, 2012, rewrote the section.

Session Laws 2012-79, s. 1.2, effective June 26, 2012, in subsection (b), deleted "adjusted" preceding the second and third occurrences of "gross income"; and in subsection (c), deleted "adjusted" preceding "gross income".

Session Laws 2013-316, s. 1.3(c), effective for taxable years beginning on or after January 1, 2014, substituted "G.S. 105-153.5 and G.S. 105-153.6" for "G.S. 105-134.6" in subsections (a) through (c).

Session Laws 2013-414, s. 55, effective August 23, 2013, inserted "and G.S. 105-134.6A" in subsection (a), twice in subsection (b), and in subsection (c).

Session Laws 2015-6, s. 2.22(a), effective for taxable years beginning on or after January 1, 2015, deleted "and G.S. 105-134.6A" following "G.S. 105-153.6" throughout subsections (a) through (c); and in subsection (d), inserted "as modified in G.S. 105-153.5 and G.S. 105-153.6" throughout, substituted "the total net income" for "income" and "in accordance with the provisions" for "by multiplying the total net income of the business by the ratio ascertained under the provisions" in the second sentence.

Session Laws 2017-204, s. 1.9(c), (d), rewrote the second sentence in subsection (d). For effective date and applicability, see editor's note.

CASE NOTES

I. In General.
II. Taxable Year.

I. IN GENERAL.

Reserved.

II. TAXABLE YEAR.

Editor's Note. - The following annotations were decided under former G.S. 105-134.4.

Operation of tax increase. - Midyear tax rate increase implemented by 2001 N.C. Sess. Laws 424, as codified in G.S. 105-134.2(a) (now repealed), was not levied until the conclusion of the taxable year under G.S. 105-134.4; thus, the tax operated prospectively from the date of enactment and did not violate N.C. Const., Art. I, § 16. Coley v. State, 360 N.C. 493, 631 S.E.2d 121 (2006).

Cited in Union Carbide Corp. v. Offerman, 132 N.C. App. 665, 513 S.E.2d 341 (1999), aff'd, 351 N.C. 310, 526 S.E.2d 167 (2000).

§ 105-153.5. Modifications to adjusted gross income.

(Effective for taxable years beginning before January 1, 2018) Deduction Amount. - In calculating North Carolina taxable income, a taxpayer may deduct from adjusted gross income either the standard deduction amount provided in subdivision (1) of this subsection or the itemized deduction amount provided in subdivision (2) of this subsection that the taxpayer claimed under the Code. The deduction amounts are as follows:
1. (Effective for taxable years beginning before January 1, 2017) Standard deduction amount. - The standard deduction amount is zero for a person who is not eligible for a standard deduction under section 63 of the Code. For all other taxpayers, the standard deduction amount is equal to the amount listed in the table below based on the taxpayer's filing status:
2. Itemized deduction amount. - An amount equal to the sum of the items listed in this subdivision. The amounts allowed under this subdivision are not subject to the overall limitation on itemized deductions under section 68 of the Code:
  1. Charitable Contribution. - The amount allowed as a deduction for charitable contributions under section 170 of the Code for that taxable year. For taxable years 2014 through 2018, a taxpayer who elected to take the income exclusion under section 408(d)(8) of the Code for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70 1/2 may 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.
  2. Mortgage Expense and Property Tax. - The amount allowed as a deduction for interest paid or accrued during the taxable year under section 163(h) of the Code with respect to any qualified residence plus the amount allowed as a deduction for property taxes paid or accrued on real estate under section 164 of the Code for that taxable year. For taxable years 2014, 2015, 2016, and 2017, the amount allowed as a deduction for interest paid or accrued during the taxable year under section 163(h) of the Code with respect to any qualified residence shall not include the amount for mortgage insurance premiums treated as qualified residence interest. The amount allowed under this sub-subdivision may not exceed twenty thousand dollars ($20,000). For spouses filing as married filing separately or married filing jointly, the total mortgage interest and real estate taxes claimed by both spouses combined may not exceed twenty thousand dollars ($20,000). For spouses filing as married filing separately with a joint obligation for mortgage interest and real estate taxes, the deduction for these items is allowable to the spouse who actually paid them. If the amount of the mortgage interest and real estate taxes paid by both spouses exceeds twenty thousand dollars ($20,000), these deductions must be prorated based on the percentage paid by each spouse. For joint obligations paid from joint accounts, the proration is based on the income reported by each spouse for that taxable year.
  3. Medical and Dental Expense. - The amount allowed as a deduction for medical and dental expenses under section 213 of the Code for that taxable year.
  4. Repayment in the current taxable year of an amount included in adjusted gross income in an earlier taxable year because it appeared that the taxpayer had an unrestricted right to such item, to the extent the repayment is not deducted in arriving at adjusted gross income in the current taxable year. If the repayment is three thousand dollars ($3,000) or less, the deduction is the amount of repayment less (i) the limitation provided under section 67(a) of the Code minus (ii) all other items deductible under section 67(b) of the Code, not to exceed the limitation provided under section 67(a) of the Code. If the repayment is more than three thousand dollars ($3,000), the deduction is the amount of repayment. No deduction is allowed if the taxpayer calculates the federal income tax for the year of repayment under section 1341(a)(5) of the Code.

Standard Deduction Married, filing jointly/surviving spouse $16,500 Head of Household 12,200 Single 8,250 Married, filing separately 8,250.

(1) (Effective for taxable years beginning on or after January 1, 2017, and before January 1, 2019) Standard deduction amount. - The standard deduction amount is zero for a person who is not eligible for a standard deduction under section 63 of the Code. For all other taxpayers, the standard deduction amount is equal to the amount listed in the table below based on the taxpayer's filing status:

Standard Deduction Married, filing jointly/surviving spouse $17,500 Head of Household 14,000 Single 8,750 Married, filing separately 8,750.

(Effective for taxable years beginning on or after January 1, 2018) Deduction Amount. - In calculating North Carolina taxable income, a taxpayer may deduct from adjusted gross income either the standard deduction amount provided in subdivision (1) of this subsection or the itemized deduction amount provided in subdivision (2) of this subsection. The deduction amounts are as follows:
1. (Effective for taxable years beginning on or after January 1, 2017, and before January 1, 2019) Standard deduction amount. - The standard deduction amount is zero for a person who is not eligible for a standard deduction under section 63 of the Code. For all other taxpayers, the standard deduction amount is equal to the amount listed in the table below based on the taxpayer's filing status:
2. Itemized deduction amount. - An amount equal to the sum of the items listed in this subdivision. The amounts allowed under this subdivision are not subject to the overall limitation on itemized deductions under section 68 of the Code:
  1. Charitable Contribution. - The amount allowed as a deduction for charitable contributions under section 170 of the Code for that taxable year. For taxable years 2014 through 2018, a taxpayer who elected to take the income exclusion under section 408(d)(8) of the Code for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70 1/2 may 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. For taxable year 2020, notwithstanding G.S. 105-228.90(b)(7), for purposes of this sub-subdivision the term "Code" means the Internal Revenue Code as enacted as of January 1, 2020. For taxable years beginning on or after January 1, 2021, a taxpayer may only carry forward the charitable contributions from taxable year 2020 that exceed the applicable percentage limitation for the 2020 taxable year allowed under this sub-subdivision. The purpose for defining the Internal Revenue Code differently for the 2020 taxable year is to decouple from the modification of limitations on charitable contributions during 2020 allowed under section 2205 of the CARES Act.
  2. Mortgage Expense and Property Tax. - The amount allowed as a deduction for interest paid or accrued during the taxable year under section 163(h) of the Code with respect to any qualified residence plus the amount allowed as a deduction for property taxes paid or accrued on real estate under section 164 of the Code for that taxable year. For taxable years 2014 through 2020, the amount allowed as a deduction for interest paid or accrued during the taxable year under section 163(h) of the Code with respect to any qualified residence shall not include the amount for mortgage insurance premiums treated as qualified residence interest. The amount allowed under this sub-subdivision may not exceed twenty thousand dollars ($20,000). For spouses filing as married filing separately or married filing jointly, the total mortgage interest and real estate taxes claimed by both spouses combined may not exceed twenty thousand dollars ($20,000). For spouses filing as married filing separately with a joint obligation for mortgage interest and real estate taxes, the deduction for these items is allowable to the spouse who actually paid them. If the amount of the mortgage interest and real estate taxes paid by both spouses exceeds twenty thousand dollars ($20,000), these deductions must be prorated based on the percentage paid by each spouse. For joint obligations paid from joint accounts, the proration is based on the income reported by each spouse for that taxable year.
  3. Medical and Dental Expense. - The amount allowed as a deduction for medical and dental expenses under section 213 of the Code for that taxable year.
  4. Repayment in the current taxable year of an amount included in adjusted gross income in an earlier taxable year because it appeared that the taxpayer had an unrestricted right to such item, to the extent the repayment is not deducted in arriving at adjusted gross income in the current taxable year. If the repayment is three thousand dollars ($3,000) or less, the deduction is the amount of repayment less (i) the limitation provided under section 67(a) of the Code minus (ii) all other items deductible under section 67(b) of the Code, not to exceed the limitation provided under section 67(a) of the Code. If the repayment is more than three thousand dollars ($3,000), the deduction is the amount of repayment. No deduction is allowed if the taxpayer calculates the federal income tax for the year of repayment under section 1341(a)(5) of the Code.
(Effective for taxable years beginning on or after January 1, 2018) Child Deduction Amount. - A taxpayer who is allowed a federal child tax credit under section 24 of the Code for the taxable year is allowed a deduction under this subsection for each qualifying child for whom the taxpayer is allowed the federal tax credit. The amount of the deduction is equal to the amount listed in the table below based on the taxpayer's adjusted gross income, as calculated under the Code:
Other Deductions. - In calculating North Carolina taxable income, a taxpayer may deduct from the taxpayer's adjusted gross income any of the following items that are included in the taxpayer's adjusted gross income:
1. Interest upon the obligations of any of the following:
  1. The United States or its possessions.
  2. This State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State.
  3. A nonprofit educational institution organized or chartered under the laws of this State.
  4. A hospital authority created under G.S. 131E-17.
2. Gain from the disposition of obligations issued before July 1, 1995, to the extent the gain is exempt from tax under the laws of this State.
3. Benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937.
4. Refunds of State, local, and foreign income taxes included in the taxpayer's gross income.
5. The amount received during the taxable year from one or more State, local, or federal government retirement plans to the extent the amount is exempt from tax under this Part pursuant to a court order in settlement of any of the following cases:
  1. Bailey v. State, 92 CVS 10221, 94 CVS 6904, 95 CVS 6625, 95 CVS 8230.
  2. Emory v. State, 98 CVS 0738.
  3. Patton v. State, 95 CVS 04346.
6. Income that meets both of the following requirements:
  1. Is earned or received by an enrolled member of a federally recognized Indian tribe.
  2. Is derived from activities on a federally recognized Indian reservation while the member resides on the reservation. Income from intangibles having a situs on the reservation and retirement income associated with activities on the reservation are considered income derived from activities on the reservation.
7. The amount by which the basis of property under this Article exceeds the basis of the property under the Code, in the year the taxpayer disposes of the property.
8. The amount allowed as a deduction under G.S. 105-153.6 as a result of an add-back for federal accelerated depreciation and expensing.
9. Expired.
10. Repealed by Session Laws 2020-58, s. 4.2, effective June 30, 2020.
11. The amount by which the deduction for an ordinary and necessary business expense was required to be reduced or was not allowed under the Code because the taxpayer claimed a federal tax credit against its federal income tax liability for the income year in lieu of a deduction. This deduction is allowed only to the extent that a similar credit is not allowed by this Chapter for the amount.
12. (Effective for taxable years beginning on or after January 1, 2018) The amount deposited during the taxable year to a personal education savings account under Article 41 of Chapter 115C of the General Statutes.
13. (Effective for taxable years beginning on or after January 1, 2017) The amount paid to the taxpayer during the taxable year from the State Emergency Response and Disaster Relief Reserve Fund for hurricane relief or assistance, but not including payments for goods or services provided by the taxpayer.
14. (Effective for taxable years beginning on or after January 1, 2019) The amount received by a taxpayer as an economic incentive pursuant to G.S. 143B-437.012 or Part 2G or Part 2H of Article 10 of Chapter 143B of the General Statutes.
Additions. - In calculating North Carolina taxable income, a taxpayer must add to the taxpayer's adjusted gross income any of the following items that are not included in the taxpayer's adjusted gross income:
1. Interest upon the obligations of states other than this State, political subdivisions of those states, and agencies of those states and their political subdivisions.
2. The amount by which a shareholder's share of S Corporation income is reduced under section 1366(f)(2) of the Code for the taxable year by the amount of built-in gains tax imposed on the S Corporation under section 1374 of the Code.
3. The amount by which the basis of property under the Code exceeds the basis of the property under this Article, in the year the taxpayer disposes of the property.
4. (Repealed effective for taxable years beginning on or after January 1, 2018) The amount excluded from gross income under section 199 of the Code.
5. The amount required to be added under G.S. 105-153.6 when the State decouples from federal accelerated depreciation and expensing.
6. The amount of net operating loss carried to and deducted on the federal return but not absorbed in that year and carried forward to a subsequent year.
7. (Effective for taxable years beginning before January 1, 2018) The amount deducted in a prior taxable year to the extent this amount was withdrawn from the Parental Savings Trust Fund of the State Education Assistance Authority established pursuant to G.S. 116-209.25 and not used to pay for the qualified higher education expenses of the designated beneficiary, unless the withdrawal was made without penalty under section 529 of the Code due to the death or permanent disability of the designated beneficiary.
  1. The withdrawal was not subject to the additional tax imposed by section 529(c)(6) of the Code.
  2. The withdrawal was rolled over to an ABLE account as defined in G.S. 147-86.70(b).
Other Additions. - S Corporations subject to the provisions of Part 1A of this Article, partnerships subject to the provisions of this Part, and estates and trusts subject to the provisions of Part 3 of this Article must add any amount deducted under section 164 of the Code as state, local, or foreign income tax.
Decoupling Adjustments. - In calculating North Carolina taxable income, a taxpayer must make the following adjustments to the taxpayer's adjusted gross income:
1. For taxable years 2014 through 2020, the taxpayer must add the amount excluded from the taxpayer's gross income for the discharge of qualified principal residence indebtedness under section 108 of the Code. The purpose of this subdivision is to decouple from the income exclusion available under federal tax law. If the taxpayer is insolvent, as defined in section 108(d)(3) of the Code, then the addition required under this subdivision is limited to the amount of discharge of qualified principal residence indebtedness excluded from adjusted gross income under section 108(a)(1)(E) of the Code that exceeds the amount of discharge of indebtedness that would have been excluded under section 108(a)(1)(B) of the Code.
2. For taxable years 2014 through 2020, the taxpayer must add the amount of the taxpayer's deduction for qualified tuition and related expenses under section 222 of the Code. The purpose of this subdivision is to decouple from the above-the-line deduction available under federal tax law.
3. For taxable years 2014 through 2018, the taxpayer must add the amount excluded from the taxpayer's gross income for a qualified charitable distribution from an individual retirement plan by a person who has attained age 70 1/2 under section 408(d)(8) of the Code. The purpose of this subdivision is to decouple from the income exclusion available under federal tax law.
4. For taxable years prior to 2014, the taxpayer must add the amount excluded from the taxpayer's gross income for amounts received by a wrongfully incarcerated individual under section 139F of the Code for which the taxpayer took a deduction under former G.S. 105-134.6(b)(14). The purpose of this subdivision is to prevent a double benefit where federal tax law provides an income exclusion for income for which the State previously provided a deduction.
5. The taxpayer must add the amount of gain that would be included for federal income tax purposes without regard to section 1400Z-2(a) of the Code. The adjustment made in this subsection does not result in a difference in basis of the affected assets for State and federal income tax purposes. The purpose of this subdivision is to decouple from the deferral of gains reinvested into an Opportunity Fund available under federal law.
6. The taxpayer may deduct the amount of gain included in the taxpayer's adjusted gross income under section 1400Z-2(a) of the Code to the extent the same income was included in the taxpayer's North Carolina taxable income in a prior taxable year under subdivision (5) of this subsection. The purpose of this subdivision is to prevent double taxation of income the taxpayer was previously required to include in the calculation of North Carolina taxable income.
7. The taxpayer must add the amount of gain that would be included in the taxpayer's adjusted gross income but for the step-up in basis under section 1400Z-2(c) of the Code. The purpose of this subdivision is to decouple from the exclusion of gains from the sale or exchange of an investment in an Opportunity Fund available under federal law.
8. For taxable years 2013, 2014, 2015, 2016, or 2017, the taxpayer must add the amount of any 2018 net operating loss deducted and absorbed on a federal return under section 172 of the Code. The purpose of the adjustments made under this subdivision is to decouple from the net operating loss carryback provisions of section 2303 of the CARES Act. The addition under this subdivision is not required to the extent the 2018 net operating loss is carried back under the provisions of section 172(b)(1)(B) of the Code.
9. For taxable years 2014, 2015, 2016, 2017, or 2018, the taxpayer must add the amount of any 2019 net operating loss deducted and absorbed on a federal return under section 172 of the Code. The purpose of the adjustments made under this subdivision is to decouple from the net operating loss carryback provisions of section 2303 of the CARES Act. The addition under this subdivision is not required to the extent the 2019 net operating loss is carried back under the provisions of section 172(b)(1)(B) of the Code.
10. For taxable years 2015, 2016, 2017, 2018, or 2019, the taxpayer must add the amount of any 2020 net operating loss deducted and absorbed on a federal return under section 172 of the Code. The purpose of the adjustments made under this subdivision is to decouple from the net operating loss carryback provisions of section 2303 of the CARES Act. The addition under this subdivision is not required to the extent the 2020 net operating loss is carried back under the provisions of section 172(b)(1)(B) of the Code.
11. For taxable years 2013, 2014, 2015, 2016, 2017, 2018, or 2019, the taxpayer must add the amount of any 2018, 2019, or 2020 net operating loss carried back and deducted on a federal return pursuant to section 2303(b) of the CARES Act but not absorbed in that year and carried forward to a subsequent year. The addition under this subdivision is not required to the extent an addition is required under G.S. 105-153.5(c)(6). The purpose of the adjustments made under this subdivision is to decouple from the net operating loss carryback provision of section 2303 of the CARES Act.
12. For taxable years 2018, 2019, and 2020, the taxpayer must add an amount equal to the taxpayer's excess business loss, as defined under the provisions of section 461(l) of the Internal Revenue Code as enacted as of January 1, 2019. The addition under this subdivision is not required to the extent the loss is added under subdivision (8), (9), or (10) of this subsection.
13. The taxpayer must add the amount by which the taxpayer's net operating loss carryforward deduction exceeds the amount allowed under the provisions of section 172(a)(2)(B) of the Internal Revenue Code as enacted as of January 1, 2019. This add-back only applies to net operating losses arising during taxable years 2018, 2019, and 2020.
14. For taxable years 2021 through 2025, a taxpayer who made an addition under subdivision (8), (9), or (10) of this subsection may deduct twenty percent (20%) per tax year of the sum of the amount added under subdivisions (8), (9), and (10) of this subsection.
15. A taxpayer who made an addition under subdivision (12) of this subsection may deduct twenty percent (20%) of the addition in each of the taxable years 2021 through 2025.
16. A taxpayer who made an addition under subdivision (13) of this subsection may deduct twenty percent (20%) of the add-back in each of the taxable years 2021 through 2025.
17. For taxable years 2019 and 2020, a taxpayer must add an amount equal to the amount by which the taxpayer's interest expense deduction under section 163(j) of the Code exceeds the interest expense deduction that would have been allowed under the Internal Revenue Code as enacted as of January 1, 2020. The purpose of this subdivision is to decouple from the modification of limitation on business interest allowed under section 2306 of the CARES Act.
18. For taxable year 2020, a taxpayer must add the amount excluded from the taxpayer's gross income for payment by an employer, whether paid to the taxpayer or to a lender, of principal or interest on any qualified education loan, as defined in section 221(d)(1) of the Code, incurred by the taxpayer for education of the taxpayer. The purpose of this subdivision is to decouple from the exclusion for certain employer payments of student loans under section 2206 of the CARES Act.
19. For taxable year 2020, a taxpayer must add the amount excluded from the taxpayer's gross income under section 62(a)(22) of the Code. The purpose of this subdivision is to decouple from the allowance of a partial above-the-line deduction of qualified charitable contributions under section 2204 of the CARES Act.
20. A taxpayer must add the amount of any expense deducted under the Code to the extent that payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act, and the income associated with the forgiveness is excluded from gross income pursuant to section 1106(i) of the CARES Act. The term "covered loan" has the same meaning as defined in section 1106 of the CARES Act.
S Corporations. - Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in this section and in G.S. 105-153.6.

Standard Deduction Married, filing jointly/surviving spouse $17,500 Head of Household 14,000 Single 8,750 Married, filing separately 8,750.

(1) (Effective for taxable years beginning on or after January 1, 2019, and before January 1, 2020) Standard deduction amount. - The standard deduction amount is zero for a person who is not eligible for a standard deduction under section 63 of the Code. For all other taxpayers, the standard deduction amount is equal to the amount listed in the table below based on the taxpayer's filing status:

Standard Deduction Married, filing jointly/surviving spouse $20,000 Head of Household 15,000 Single 10,000 Married, filing separately 10,000.

(1) (Effective for taxable years beginning on or after January 1, 2020) Standard deduction amount. - The standard deduction amount is zero for a person who is not eligible for a standard deduction under section 63 of the Code. For all other taxpayers, the standard deduction amount is equal to the amount listed in the table below based on the taxpayer's filing status:

Standard Deduction Married, filing jointly/surviving spouse $21,500 Head of Household 16,125 Single 10,750 Married, filing separately 10,750.

Filing Status AGI Deduction Amount Married, filing jointly/ Up to $40,000 $2,500.00 surviving spouse Over $40,000 Up to $60,000 2,000.00 Over $60,000 Up to $80,000 1,500.00 Over $80,000 Up to $100,000 1,000.00 Over $100,000 Up to $120,000 500.00 Over $120,000 0 Head of Household Up to $30,000 $2,500.00 Over $30,000 Up to $45,000 2,000.00 Over $45,000 Up to $60,000 1,500.00 Over $60,000 Up to $75,000 1,000.00 Over $75,000 Up to $90,000 500.00 Over $90,000 0 Single Up to $20,000 $2,500.00 Over $20,000 Up to $30,000 2,000.00 Over $30,000 Up to $40,000 1,500.00 Over $40,000 Up to $50,000 1,000.00 Over $50,000 Up to $60,000 500.00 Over $60,000 0 Married, filing separately Up to $20,000 $2,500.00 Over $20,000 Up to $30,000 2,000.00 Over $30,000 Up to $40,000 1,500.00 Over $40,000 Up to $50,000 1,000.00 Over $50,000 Up to $60,000 500.00 Over $60,000 0.

(14) (Effective for taxable years beginning on or after January 1, 2020 and expiring for taxable years beginning on or after January 1, 2021) The amount granted to the taxpayer during the taxable year under the Extra Credit grant program. This subdivision expires for taxable years beginning on or after January 1, 2021.

(7) (Effective for taxable years beginning on or after January 1, 2018) The amount deducted in a prior taxable year to the extent this amount was withdrawn from the Parental Savings Trust Fund of the State Education Assistance Authority established pursuant to G.S. 116-209.25 and not used to pay for education expenses of the designated beneficiary as permitted under section 529 of the Code, unless the withdrawal meets at least one of the following conditions:

History

(2013-316, s. 1.1(d); 2013-360, s. 6.18(b); 2014-3, s. 2.2(a); 2015-2, s. 1.3; 2015-6, ss. 2.20(b), 2.22(b); 2015-241, s. 32.16(a), (b); 2016-5, ss. 2.1(a)-(c), 2.2(a), 5.3(c); 2016-6, ss. 3, 4; 2016-92, s. 1.2; 2016-94, s. 38.1(a), (b); 2017-57, ss. 10A.4(b), 38.2(a), 38.4(a); 2018-5, ss. 5.6(j), 38.1(c), (f), (h), 35.25(g); 2018-97, s. 8.1(b); 2019-6, ss. 3.1, 3.2, 3.3; 2019-237, ss. 1(a), (b), 2(b); 2019-246, s. 1(a); 2020-58, ss. 1(d)-(f), 4.2; 2020-97, s. 1.4(a).)

Subsection (a) Set Out Twice. - The first version of subsection (a) set out above is effective for taxable years beginning before January 1, 2018. The second version of subsection (a) set out above is effective for taxable years beginning on or after January 1, 2018.

Subdivision (a)(1) Set Out Three Times. - The first version of subdivision (a)(1) set out above is effective for taxable years beginning on or after January 1, 2017 and before January 1, 2019. The second version of subdivision (a)(1) set out above is effective for taxable years beginning on or after January 1, 2019 and before January 1, 2020. The third version of subdivision (a)(1) set out above is effective for taxable years beginning on or after January 1, 2020.

Subdivision (c)(7) Set Out Twice. - The first version of subdivision (c)(7) set out above is effective for taxable years beginning before January 1, 2018. The second version of subdivision (c)(7) set out above is effective for taxable years beginning on or after January 1, 2018.

Editor's Note. - Subsection (c2) was enacted as subsection (d) by Session Laws 2015-2, s. 1.3. It has been redesignated at the direction of the Revisor of Statutes.

Session Laws 2015-6, s. 2.9(a), (b), provides: "Notwithstanding G.S. 105-163.15, the Secretary of Revenue may not impose interest with respect to an underpayment of income tax to the extent the underpayment was created or increased by the changes made in Section 2.2 of S.L. 2014-3 [which amended the deduction amounts in subsection (a)]. Notwithstanding G.S. 105-163.8, a withholding agent is not liable for the amount of tax the agent fails to withhold to the extent the amount of tax not withheld was created or increased by the changes made in Section 2.2 of S.L. 2014-3.

"(b) This section is effective when it becomes law and applies to taxable years beginning on or after January 1, 2014, and before January 1, 2015, and to payroll periods beginning on or after January 1, 2014, and before January 1, 2015."

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2016-94, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2016.'"

Session Laws 2016-94, s. 39.7, is a severability clause.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Session Laws 2018-5, s. 35.25(g), effective for taxable years beginning on or after January 1, 2018, added subdivision (b)(13). Session Laws 2018-97, s. 8.1(b), effective July 1, 2018, provides: "If Senate Bill 99, 2017 Regular Session, becomes law, then G.S. 105-153.5(b)(13), as enacted by Section 35.25(g) of that act, is repealed." Senate Bill 99 is Session Laws 2018-5.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2018-5, 38.1(j), as amended by Session Laws 2019-6, s. 3.1, provides, in part: "G.S. 105-153.5(a), as amended by subsection (c) of this section, is effective for taxable years beginning on or after January 1, 2018. The remainder of this section is effective when it becomes law [June 12, 2018]."

Session Laws 2019-237, s. 2(c), made subdivision (b)(14), as added by Session Laws 2019-237, s. 2(b), effective for taxable years beginning on or after January 1, 2019, and applicable to amounts received by a taxpayer on or after that date.

Session Laws 2019-237, s. 9, provides: "If any provision of this act and G.S. 143C-5-4 are in conflict, the provisions of this act shall prevail."

Session Laws 2020-97, s. 4.5, is a severability clause.

Effect of Amendments. - Session Laws 2013-360, s. 6.18(b), effective for taxable years beginning on or after January 1, 2015, added subdivision (b)(9).

Session Laws 2014-3, s. 2.2(a), effective for taxable years beginning on or after January 1, 2014, in subsection (a), rewrote the last sentence in the introductory language, rewrote the introductory language in subdivision (a)(1), and added the last four sentences in subdivision (a)(1)b.

Session Laws 2015-2, s. 1.3, effective March 31, 2015, added the second sentence in subdivision (a)(2)a.; added the present second sentence in subdivision (a)(2)b.; and added subsection (c2). See editor's note.

Session Laws 2015-6, s. 2.20(b), effective for taxable years beginning on or after January 1, 2014, substituted "Married, filing jointly/surviving spouse" for "Married, filing jointly" in the table in subdivision (a)(1).

Session Laws 2015-6, s. 2.22(b), effective for taxable years beginning on or after January 1, 2015, added subsection (c1).

Session Laws 2015-241, s. 32.16(a), effective for taxable years beginning on or after January 1, 2016, increased the Standard Deduction amounts in subdivision (a)(1).

Session Laws 2015-241, s. 32.16(b), effective for taxable years beginning on or after January 1, 2015, in subdivision (a)(2), added the headings in sub-subdivisions a. and b., substituted "amount allowed" for "amount claimed by the taxpayer" in the first sentence of sub-subdivision b., and added sub-subdivision c.

Session Laws 2016-5, s. 2.1(a), (b), effective for taxable years beginning on or after January 1, 2014, added sub-subdivision (a)(2)d. and subdivision (b)(10).

Session Laws 2016-5, ss. 2.1(c), 2.2(a), effective for taxable years beginning on or after January 1, 2016, added subdivision (b)(11) and subdivisions (c)(6) and (7).

Session Laws 2016-5, s. 5.3(c), effective May 11, 2016, added sub-subdivision (b)(1)d.

Session Laws 2016-6, ss. 3, 4, effective June 1, 2016, in subdivision (a)(2)a., substituted "years beginning on or after 2014" for "year 2014"; substituted "years 2014, 2015, and 2016" for "year 2014" in subdivision (a)(2)b; and rewrote subdivisions (c2)(1) through (3); and added subdivision (c2)(24).

Session Laws 2016-92, s. 1.2, effective July 11, 2016, added the last sentence in subdivision (c2)(1).

Session Laws 2016-94, s. 38.1(a), effective for taxable years beginning on or after January 1, 2016, in the "Standard Deduction" column of the table in subdivision (a)(1), substituted "$16,500" for "$15,500," "13,200" for "12,400," and "8,250" for "7,750".

Session Laws 2016-94, s. 38.1(b), effective for taxable years beginning on or after January 1, 2017, in the "Standard Deduction" column of the table in subdivision (a)(1), substituted "$17,500" for "$16,500," "14,000" for "13,200," and "8,750" for "8,250."

Session Laws 2017-57, s. 10A.4(b), effective for taxable years beginning on or after January 1, 2018, added subdivision (b)(12).

Session Laws 2017-57, s. 38.2(a), effective for taxable years beginning on or after January 1, 2019, in the "Standard Deduction" column of the table in subdivision (a)(1), substituted "$20,000 for "$17,500, "$15,000" for "$14,000", and "$10,000" for "$8,750".

Session Laws 2017-57, s. 38.4(a), effective for taxable years beginning on or after January 1, 2018, added subsection (a1).

Session Laws 2018-5, s. 5.6(j), effective for taxable years beginning on or after January 1, 2017, added subdivision (b)(13).

Session Laws 2018-5, s. 38.1(c), in subsection (a), in the first sentence of the introductory language, deleted "that the taxpayer claimed under the Code" following "subsection"; in sub-subdivision (a)(2)b, substituted "2016, and 2017" for "and 2016"; in subsection (c2), in the introductory language, substituted "must make the following adjustments to the taxpayer's adjusted gross income:" for "add to the taxpayer's adjusted gross income any of the following items that are not included in the taxpayer's adjusted gross income:"; in subdivisions (c2)(1) and (2), substituted "2016, and 2017, the taxpayer must add the amount" for "2016, the taxpayer must add the amount"; in subdivisions (c2)(3) and (4), added "taxpayer must add the"; and added subdivisions (c2)(5), (6), and (7). For effective date, see editor's note.

Session Laws 2018-5, s. 38.1(f), (h), effective for taxable years beginning on or after January 1, 2018, repealed subdivision (c)(4); and rewrote subdivision (c)(7).

Session Laws 2019-6, s. 3.2, effective March 20, 2019, substituted "qualifying" for "dependent" in subsection (a1).

Session Laws 2019-6, ss. 3.2, 3,3, effective March 20, 2019, substituted "qualifying" for "dependent" in the first sentence of subsection (a1); substituted "1400Z-2(a)" for "1400Z-2(b)" in subdivision (c2)(5); and substituted "North Carolina taxable" for "adjusted gross" in subdivision (c2)(6).

Session Laws 2019-237, s. 1(a), (b), effective November 1, 2019, substituted "2014 through 2018" for "beginning on or after 2014" near the beginning of the second sentence of subdivision (a)(2)a. and in the first sentence of subdivision (c2)(3).

Session Laws 2019-237, s. 2(b), added subdivision (b)(14). For effective date and applicability, see editor's note.

Session Laws 2019-246, s. 1(a), effective for taxable years beginning on or after January 1, 2020, increased the Standard Deduction amounts in subdivision (a)(1).

Session Laws 2020-58, s. 1(d), (e), (f), effective June 30, 2020, added the last three sentences in sub-subdivision (a)(2)a.; substituted "2014 through 2020" for "2014, 2015, 2016, and 2017" in the first sentence of sub-subdivision (a)(2)b.; substituted "2014 through 2020" for "2014, 2015, 2016, and 2017" in subdivision (c2)(1); substituted "years 2014 through 2020" for "year 2014, 2015, 2016, and 2017" in subdivision (c2)(2); and added subdivisions (c2)(8) through (c2)(20).

Session Laws 2020-58, s. 4.2, effective June 30, 2020, deleted subdivision (b)(10), which read: "The amount added to federal taxable income under section 108(i)(1) of the Code."

Session Laws 2020-97, s. 1.4(a), effective for taxable years beginning on or after January 1, 2020, and expiring for taxable years beginning on or after January 1, 2021, added subdivision (b)(14).

§ 105-153.6. Adjustments when State decouples from federal accelerated depreciation and expensing.

Special Accelerated Depreciation. - A taxpayer who takes a special accelerated depreciation deduction for that property under section 168(k) or 168(n) of the Code must add to the taxpayer's federal taxable income or adjusted gross income, as appropriate, eighty-five percent (85%) of the amount taken for that year under those Code provisions. For taxable years before 2012, the taxpayer must add the amount to the taxpayer's federal taxable income. For taxable year 2012 and after, the taxpayer must add the amount to the taxpayer's adjusted gross income. A taxpayer is allowed to deduct twenty percent (20%) of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.
2009 Depreciation Exception. - A taxpayer who placed property in service during the 2009 taxable year and whose North Carolina taxable income for the 2009 taxable year reflected a special accelerated depreciation deduction allowed for the property under section 168(k) of the Code must add eighty-five percent (85%) of the amount of the special accelerated depreciation deduction to its federal taxable income for the 2010 taxable year. A taxpayer is allowed to deduct this add-back under subsection (a) of this section as if it were for property placed in service in 2010.
Section 179 Expense. - For purposes of this subdivision, the definition of section 179 property has the same meaning as under section 179 of the Code. A taxpayer who places section 179 property in service during a taxable year must add to the taxpayer's federal taxable income or adjusted gross income, as appropriate, eighty-five percent (85%) of the amount by which the taxpayer's expense deduction under section 179 of the Code exceeds the dollar and investment limitation for that taxable year. For taxable years before 2012, the taxpayer must add the amount to the taxpayer's federal taxable income. For taxable year 2012 and after, the taxpayer must add the amount to the taxpayer's adjusted gross income. For taxable years 2010, 2011, and 2012, the dollar limitation is two hundred and fifty thousand dollars ($250,000) and the investment limitation is eight hundred thousand dollars ($800,000). For taxable years beginning on or after 2013, the dollar limitation is twenty-five thousand dollars ($25,000) and the investment limitation is two hundred thousand dollars ($200,000).
Asset Basis. - The adjustments made in this section do not result in a difference in basis of the affected assets for State and federal income tax purposes, except as modified in subsection (e) of this section.
Bonus Asset Basis. - In the event of an actual or deemed transfer of an asset occurring on or after January 1, 2013, wherein the tax basis of the asset carries over from the transferor to the transferee for federal income tax purposes, the transferee must add any remaining deductions allowed under subsection (a) of this section to the basis of the transferred asset and depreciate the adjusted basis over any remaining life of the asset. Notwithstanding the provisions of subsection (a) of this section, the transferor and any owner in a transferor are not allowed any remaining future bonus depreciation deductions associated with the transferred asset. This subsection applies only to the extent that each transferor or owner in a transferor that added bonus depreciation to its federal taxable income or adjusted gross income associated with the transferred asset certifies in writing to the transferee, that the transferor or owner in a transferor will not take any remaining future bonus depreciation deduction associated with the transferred asset.
Prior Transactions. - For any transaction meeting both the requirements of subsection (e) of this section prior to January 1, 2013, and the conditions of this subsection, the transferor and transferee can make an election to make the basis adjustment allowed in that subsection on the transferee's 2013 tax return. If the asset has been disposed of or has no remaining useful life on the books of the transferee, the remaining bonus depreciation deduction may be allowed on the transferee's 2013 tax return. For this subsection to apply, the following conditions must be met:
1. The transferor or any owner in a transferor has not taken the bonus depreciation deduction on a prior return.
2. The transferor is not allowed any remaining future bonus depreciation deductions associated with the transferred asset and each transferor or owner in a transferor certifies in writing to the transferee that the transferor or owner in a transferor will not take any remaining deductions allowed under subsection (a) of this section for tax years beginning on or after January 1, 2013, for depreciation associated with the transferred asset.
3. The amount of the basis adjustment under this subsection is limited to the total remaining future bonus depreciation deductions forfeited by the transferor and any owner in the transferor at the time of the transfer.
Tax Basis. - For transactions described in subsection (e) or (f) of this section, adjusted gross income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property that has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes.
Definitions. - The following definitions apply in this section:
1. Owner in a transferor. - One or more of the following of a transferor:
  1. A partner, shareholder, or member.
  2. A beneficiary subject to tax under Part 2 or 3 of Article 4 of this Chapter of a transferor.
2. Transferor. - An individual, partnership, corporation, S Corporation, limited liability company, or an estate or trust that does not fully distribute income to its beneficiaries.

A taxpayer is allowed to deduct twenty percent (20%) of the add-back in each of the first five taxable years following the year the taxpayer is required to include the add-back in income.

History

(2013-316, s. 1.1(d); 2013-414, s. 58(a); 2014-3, s. 2.1(c); 2015-2, s. 1.2(b); 2015-6, s. 2.8(b); 2016-6, s. 2(b).)

Session Laws 2013-414, s. 58(a), provides, in part: "If House Bill 998, 2013 Regular Session, becomes law, then G.S. 105-153.6, as enacted by House Bill 998, reads as rewritten." House Bill 998 is Session Laws 2013-316.

Session Laws 2013-414, s. 58(f), made the amendments to this section by Session Laws 2013-414, s. 58(a), applicable to taxable years that begin on or after January 1, 2014, and to purchases made on or after that January 1, 2014.

Effect of Amendments. - Session Laws 2013-414, s. 58(a), effective January 1, 2014, added "except as modified in subsection (e) of this section" in subsection (d); and added subsections (e) through (h). For applicability, see editor's note.

Session Laws 2014-3, s. 2.1(c), effective for taxable years beginning on or after January 1, 2014, substituted "$200,000" for "125,000" in the last entry of the table in subsection (c); rewrote subsection (f); deleted "prior to the effective date of this section" at the end of subsection (g); and inserted "corporation" preceding "S corporation" in subsection (h).

Session Laws 2015-2, s. 1.2(b), effective March 31, 2015, in subsection (c), substituted "January 1, 2015" for "January 2, 2013" in the first paragraph and added the last entry in the table.

Session Laws 2015-6, s. 2.8(b), effective for taxable years beginning on or after January 1, 2014, rewrote subsection (h).

Session Laws 2016-6, s. 2(b), effective June 1, 2016, in subsection (c), in the first paragraph, deleted "as of January 1, 2015" following "Code" at the end of the first sentence, in the second sentence, twice deleted "listed in the table below" following "during a taxable year" and following "dollar and investment limitation," and added the last two sentences, and deleted the table detailing taxable dollar and investment limitations that formerly followed the second paragraph.

§ 105-153.7. Individual income tax imposed.

(Effective for taxable years beginning before January 1, 2017) Tax. - A tax is imposed for each taxable year on the North Carolina taxable income of every individual. The tax shall be levied, collected, and paid annually. The tax is five and seventy-five hundredths percent (5.75%) of the taxpayer's North Carolina taxable income.

(Effective for taxable years beginning on or after January 1, 2017 and before January 1, 2019) Tax. - A tax is imposed for each taxable year on the North Carolina taxable income of every individual. The tax shall be levied, collected, and paid annually. The tax is five and four hundred ninety-nine thousandths percent (5.499%) of the taxpayer's North Carolina taxable income.

(Effective for taxable years beginning on or after January 1, 2019) Tax. - A tax is imposed for each taxable year on the North Carolina taxable income of every individual. The tax shall be levied, collected, and paid annually. The tax is five and one-quarter percent (5.25%) of the taxpayer's North Carolina taxable income.
Withholding Tables. - The Secretary may provide tables that compute the amount of tax due for a taxable year under this Part. The tables do not apply to an individual who files a return under section 443(a)(1) of the Code for a period of less than 12 months due to a change in the individual's annual accounting period or to an estate or trust.

History

(2013-316, s. 1.1(d); 2013-316, s. 1.2(a); 2015-241, s. 32.16(c); 2017-57, s. 38.1(a).)

Subsection (a) Set Out Three Times. - The first version of subsection (a) set out above is effective for taxable years beginning before January 1, 2017. The second version of subsection (a) set out above is effective for taxable years beginning on or after January 1, 2017 and before January 1, 2019. The third version of subsection (a) set out above is effective for taxable years beginning on or after January 1, 2019.

Editor's Note. - Session Laws 2013-316, s. 1.1(f), made this section effective for taxable years beginning on or after January 1, 2014.

Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'"

Session Laws 2015-241, s. 33.6, is a severability clause.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Effect of Amendments. - Session Laws 2013-316, s. 1.2(a), effective for taxable years beginning on or after January 1, 2015, substituted "five and seventy-five hundredths percent (5.75%)" for "five and eight-tenths percent (5.8%)" in the third sentence of subsection (a).

Session Laws 2015-241, s. 32.16(c), effective for taxable years beginning on or after January 1, 2017, substituted "five and four hundred ninety-nine thousandths percent (5.499%)" for "five and seventy-five hundredths percent (5.75%)" in the last sentence of subsection (a).

Session Laws 2017-57, s. 38.1(a), effective for taxable years beginning on or after January 1, 2019, substituted "five and one-quarter percent (5.25%)" for "five and four hundred ninety-nine thousandths percent (5.499%)" in subsection (a).

§ 105-153.8. Income tax returns.

Who Must File. - The following individuals must file with the Secretary an income tax return under affirmation:
1. Every resident who for the taxable year has gross income under the Code that exceeds the standard deduction amount provided in G.S. 105-153.5(a)(1).
2. Every nonresident individual who meets all of the following requirements:
  1. Receives during the taxable year gross income that is derived from North Carolina sources and is attributable to the ownership of any interest in real or tangible personal property in this State, is derived from a business, trade, profession, or occupation carried on in this State, or is derived from gambling activities in this State. This sub-subdivision does not apply to a nonresident business or a nonresident employee who solely derives income from North Carolina sources attributable to a business, trade, profession, or occupation carried on in this State to perform disaster-related work during a disaster response period at the request of a critical infrastructure company. The definitions and provisions in G.S. 166A-19.70A apply to this sub-subdivision.
  2. Has gross income under the Code that exceeds the applicable standard deduction amount provided in G.S. 105-153.5(a)(1).
3. Any individual whom the Secretary believes to be liable for a tax under this Part, when so notified by the Secretary and requested to file a return.
Taxpayer Deceased or Unable to Make Return. - If a taxpayer is unable to file an income tax return, a duly authorized agent of the taxpayer or a guardian or other person charged with the care of the person or property of the taxpayer must file the return. If an individual who was required to file an income tax return for the taxable year while living has died before making the return, the administrator or executor of the estate must file the return in the decedent's name and behalf, and the tax is payable by the estate.
Information Required With Return. - The income tax return must show the adjusted gross income and modifications required by this Part, and any other information the Secretary requires. The Secretary may require some or all individuals required to file an income tax return to attach to the return a copy of their federal income tax return for the taxable year. The Secretary may require a taxpayer to provide the Department with copies of any other return the taxpayer has filed with the Internal Revenue Service and to verify any information in the return.
Secretary May Require Additional Information. - When the Secretary has reason to believe that any taxpayer conducts a trade or business in a way that directly or indirectly distorts the taxpayer's adjusted gross income or North Carolina taxable income, the Secretary may require any additional information for the proper computation of the taxpayer's adjusted gross income and North Carolina taxable income. In computing the taxpayer's adjusted gross income and North Carolina taxable income, the Secretary must consider the fair profit that would normally arise from the conduct of the trade or business.
(Effective for taxable years beginning before January 1, 2018) Joint Returns. - A husband and wife whose adjusted gross income is determined on a joint federal return must file a single income tax return jointly if each spouse either is a resident of this State or has North Carolina taxable income and may file a single income tax return jointly if one spouse is not a resident and has no North Carolina taxable income. Except as otherwise provided in this Part, a wife and husband filing jointly are treated as one taxpayer for the purpose of determining the tax imposed by this Part. A husband and wife filing jointly are jointly and severally liable for the tax imposed by this Part reduced by the sum of all credits allowable including tax payments made by or on behalf of the husband and wife. However, if a spouse qualifies for relief of liability for federal tax attributable to a substantial understatement by the other spouse pursuant to section 6015 of the Code, that spouse is not liable for the corresponding tax imposed by this Part attributable to the same substantial understatement by the other spouse. A wife and husband filing jointly have expressly agreed that if the amount of the payments made by them with respect to the taxes for which they are liable, including withheld and estimated taxes, exceeds the total of the taxes due, refund of the excess may be made payable to both spouses jointly or, if either is deceased, to the survivor alone.
(Effective for taxable years beginning on or after January 1, 2018) Joint Returns. - A husband and wife whose adjusted gross income is determined on a joint federal return must file a single income tax return jointly if each spouse either is a resident of this State or has North Carolina taxable income and may file a single income tax return jointly if one spouse is not a resident and has no North Carolina taxable income. Except as otherwise provided in this Part, a wife and husband filing jointly are treated as one taxpayer for the purpose of determining the tax imposed by this Part. A husband and wife filing jointly are jointly and severally liable for the tax imposed by this Part reduced by the sum of all credits allowable including tax payments made by or on behalf of the husband and wife. However, if a spouse qualifies for relief of liability for federal tax pursuant to section 6015 of the Code, that spouse is not liable for the corresponding tax imposed by this Part. A wife and husband filing jointly have expressly agreed that if the amount of the payments made by them with respect to the taxes for which they are liable, including withheld and estimated taxes, exceeds the total of the taxes due, refund of the excess may be made payable to both spouses jointly or, if either is deceased, to the survivor alone.

History

Subsection (e) Set Out Twice. - The first version of subsection (e) set out above is effective for taxable years beginning before January 1, 2018. The second version of subsection (e) set out above is effective for taxable years beginning on or after January 1, 2018.

Editor's Note. - This section was former G.S. 105-152. It was recodified as G.S. 105-153.8 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014. For provisions effective for taxable years beginning before January 1, 2014, see G.S. 105-152.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-169, s. 2.1(b), made the amendments to this section by Session Laws 2019-169, s. 2.1(a) effective for taxable years beginning on or after January 1, 2018.

Session Laws 2019-187, s. 3, made the last two sentences in sub-subdivision (a)(2)a., as added by Session Laws 2019-187, s. 1(k), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2006-66, s. 24.11(a), effective for taxable years beginning on or after January 1, 2006, rewrote the first sentence in subsection (e).

Session Laws 2012-79, s. 2.5, effective June 26, 2012, substituted "qualifies for relief of" for "has been relieved of" in the next-to-last sentence of subsection (e).

Session Laws 2013-316, s. 1.3(d), effective for taxable years beginning on or after January 1, 2014, substituted "must" for "shall" throughout the section; deleted "and every" following "Code" in subdivision (a)(1); redesignated former subdivision (a)(1) as present subdivisions (a)(1) and (a)(2); deleted former subdivision (a)(2) and rewrote present subdivision (a)(2); in subsection (b), substituted "a" for "the" preceding "taxpayer," "an" for "there" preceding "income tax," and "is payable by" for "shall be levied upon an collected from," deleted "the return shall be file by" preceding "a duly authorized" and "by" preceding "a guardian," and added "of the taxpayer" and "must file the return"; substituted "adjusted gross income and modifications" for "taxable income and adjustments" in subsection (c); substituted "adjusted gross income" for "taxable income" throughout subsection (d); substituted "adjusted gross income" for "federal taxable income" in subsection (e); and deleted the repeal line that was formerly located in subsection (f).

Session Laws 2018-5, s. 38.1(g), effective June 12, 2018, in subdivision (a)(1), substituted "who for the taxable year has gross income under the Code that exceeds the standard deduction amount provided in G.S. 105-153.5(a)(1)" for "required to file an income tax return for the taxable year under the Code"; and, in sub-subdivision (a)(2)b., substituted "Has gross income under the Code that exceeds the applicable standard deduction amount provided in G.S. 105-153.5(a)(1)." for "Is required to file an income tax return for the taxable year under the Code."

Session Laws 2019-169, s. 2.1(a), in subsection (e), in the fourth sentence, deleted "attributable to a substantial understatement by the other spouse" following "federal tax" near the middle and deleted "attributable to a substantial understatement by the other spouse" following "this Part" at the end. For effective date, see editor's note.

Session Laws 2019-187, s. 1(k), added the last two sentences in sub-subdivision (a)(2)a. For effective date and applicability, see editor's note.

CASE NOTES

Cited in Garrou Knitting Mills v. Gill, 228 N.C. 764, 47 S.E.2d 240 (1948); State v. Sinnott, 163 N.C. App. 268, 593 S.E.2d 439 (2004).

§ 105-153.9. Tax credits for income taxes paid to other states by individuals.

An individual who is a resident of this State is allowed a credit against the taxes imposed by this Part for income taxes imposed by and paid to another state or country on income taxed under this Part, subject to the following conditions:
1. The credit is allowed only for taxes paid to another state or country on income that is derived from sources within that state or country and is taxed under its laws irrespective of the residence or domicile of the recipient, except that whenever a taxpayer who is considered a resident of this State under this Part is considered a resident of another state or country under the laws of that state or country, the Secretary may allow a credit against the taxes imposed by this Part for taxes imposed by and paid to the other state or country on income taxed under this Part.
2. The fraction of the gross income, as modified as provided in G.S. 105-134.6A, G.S. 105-153.5, and G.S. 105-153.6, that is subject to income tax in another state or country shall be ascertained, and the North Carolina net income tax before credit under this section shall be multiplied by that fraction. The credit allowed is either the product thus calculated or the income tax actually paid the other state or country, whichever is smaller.
3. Receipts showing the payment of income taxes to another state or country and a true copy of a return or returns upon the basis of which the taxes are assessed shall be filed with the Secretary when the credit is claimed. If credit is claimed on account of a deficiency assessment, a true copy of the notice assessing or proposing to assess the deficiency, as well as a receipt showing the payment of the deficiency, shall be filed.
If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer, a tax equal to that portion of the credit allowed for the taxes so credited or refunded is due and payable from the taxpayer and is subject to the penalties and interest provided in Subchapter I of this Chapter.

History

(1939, c. 158, s. 325; 1941, c. 50, s. 5; c. 204, s. 1; 1943, c. 400, s. 4; 1957, c. 1340, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1989, c. 728, s. 1.5; 1989 (Reg. Sess., 1990), c. 814, s. 17; 1998-98, s. 92; 2013-316, ss. 1.1(a), 1.3(d); 2013-414, s. 5(b).)

Editor's Note. - This section was former G.S. 105-151. It was recodified as G.S. 105-153.9 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014. For provisions effective for taxable years beginning before January 1, 2014, see G.S. 105-151.

Effect of Amendments. - Session Laws 2013-316, s. 1.3(d), effective for taxable years beginning on or after January 1, 2014, in subdivision (a)(1), inserted "that is," substituted "and is taxed" for "that is taxed," "considered" for "deemed to be" and similar language, and deleted "the provisions of" following "State under"; and substituted "modified as provided in G.S. 105-153.5 and G.S. 105-153.6" for "calculated under the Code and adjusted as provided in G.S. 105-134.6 and G.S. 105-134.7" in subdivision (a)(2).

Session Laws 2013-414, s. 5(b), effective for taxable years beginning on or after January 1, 2012, substituted "G.S. 105-134.6A" for G.S. 105-134.7" in subdivision (a)(2).

Legal Periodicals. - For discussion of the provisions of this and other sections of the North Carolina income tax law designed to guard against excessive duplicate taxation, see 27 N.C.L. Rev. 582 (1949).

For note, "Stone v. Lynch: North Carolina Takes a Different Approach to Defining Gift," see 64 N.C.L. Rev. 677 (1986).

CASE NOTES

Statutes providing exemption from taxation are strictly construed. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Taxation is the rule, exemption the exception. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Credit Allowed on Income Tax for Payments to Another State. - Under this section, instead of allowing a deduction in computing taxable net income, a credit is allowed against North Carolina tax for the amount of the tax paid to another state or country on the same income. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

That "another state or country" can lawfully impose an income tax only on that portion of the income of a resident of North Carolina derived from sources in that "state or country," implies that such income is to be taxed by North Carolina, but allows a credit on the North Carolina income tax for payments, if any, to "another state or country." In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

Tax Computed on Basis of Resident's Entire Net Income. - The income tax of a resident is computed on the basis of his entire net income. In re Dickinson, 281 N.C. 552, 189 S.E.2d 141 (1972).

§ 105-153.10. (Repealed effective for taxable years beginning on or after January 1, 2018) Credit for children.

Credit. - A taxpayer who is allowed a federal child tax credit under section 24 of the Code for the taxable year is allowed a credit against the tax imposed by this Part for each dependent child for whom the taxpayer is allowed the federal credit. The amount of credit allowed under this section for the taxable year is equal to the amount listed in the table below based on the taxpayer's adjusted gross income, as calculated under the Code:
Limitations. - A nonresident or part-year resident who claims the credit allowed by this section shall reduce the amount of the credit by multiplying it by the fraction calculated under G.S. 105-134.5(b) or (c), as appropriate. The credit allowed under this section may not exceed the amount of tax imposed by this Part for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.

Filing Status AGI Credit Amount Married, filing jointly Up to $40,000 $125.00 Over $40,000 Up to $100,000 $100.00 Over $100,000 0 Head of Household Up to $32,000 $125.00 Over $32,000 Up to $80,000 $100.00 Over $80,000 0 Single Up to $20,000 $125.00 Over $20,000 Up to $50,000 $100.00 Over $50,000 0 Married, filing separately Up to $20,000 $125.00 Over $20,000 Up to $50,000 $100.00 Over $50,000 0.

History

(1995, c. 42, s. 3; 1998-98, s. 69; 2001-424, s. 34.20(a); 2002-126, s. 30B.2(a), (b); 2003-284, s. 39B.2; 2013-316, s. 1.1(a), (e).)

Delayed Repeal of Section. - Session Laws 2017-57, s. 38.4(b), repealed this section for taxable years beginning on or after January 1, 2018.

Editor's note. - This section was former G.S. 105-151.24. It was recodified as G.S. 105-153.10 by Session Laws 2013-316, s. 1.1(a), effective for taxable years beginning on or after January 1, 2014. For provisions effective for taxable years beginning before January 1, 2014, see G.S. 105-151.24.

Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'"

Session Laws 2017-57, s. 39.6, is a severability clause.

Session Laws 2013-316, s. 1.1(e), effective for taxable years beginning on or after January 1, 2014, rewrote subsection (a).

§ 105-154. Information at the source returns.

Repealed by Session Laws 1993, c. 354, s. 14.
Information Returns of Payers. - A person who is a resident of this State, has a place of business in this State, or has an employee, an agent, or another representative in any capacity in this State shall file an information return as required by the Secretary if the person directly or indirectly pays or controls the payment of any income to any taxpayer. The return shall contain all information required by the Secretary. The filing of any return in compliance with this section by a foreign corporation is not evidence that the corporation is doing business in this State.
Information Returns of Partnerships. - A partnership doing business in this State and required to file a return under the Code shall file an information return with the Secretary. A partnership that the Secretary believes to be doing business in this State and to be required to file a return under the Code shall file an information return when requested to do so by the Secretary. The information return shall contain all information required by the Secretary. It shall state specifically the items of the partnership's gross income, the deductions allowed under the Code, each partner's distributive share of the partnership's income, and the adjustments required by this Part. A partner's distributive share of partnership net income includes any guaranteed payments made to the partner. The information return shall also include the name and address of each person who would be entitled to share in the partnership's net income, if distributable, and the amount each person's distributive share would be. The information return shall be signed by one of the partners under affirmation in the form required by the Secretary.
(Effective for taxable years beginning before January 1, 2019) Payment of Tax on Behalf of Nonresident Owner or Partner. - If a business conducted in this State is owned by a nonresident individual or by a partnership having one or more nonresident members, the manager of the business shall report information concerning the earnings of the business in this State, the distributive share of the income of each nonresident owner or partner, and any other information required by the Secretary. The distributive share of the income of each nonresident partner includes any guaranteed payments made to the partner. The manager of the business shall pay with the return the tax on each nonresident owner or partner's share of the income computed at the rate levied on individuals under G.S. 105-153.7. The business may deduct the payment for each nonresident owner or partner from the owner or partner's distributive share of the income of the business in this State. If the nonresident partner is not an individual and the partner has executed an affirmation that the partner will pay the tax with its corporate, partnership, trust, or estate income tax return, the manager of the business is not required to pay the tax on the partner's share. In this case, the manager shall include a copy of the affirmation with the report required by this subsection.
(Effective for taxable years beginning on or after January 1, 2019) Payment of Tax on Behalf of Nonresident Owner or Partner. - If a business conducted in this State is owned by a nonresident individual or by a partnership having one or more nonresident members, the manager of the business shall report information concerning the earnings of the business in this State, the distributive share of the income of each nonresident owner or partner, and any other information required by the Secretary. The distributive share of the income of each nonresident partner includes any guaranteed payments made to the partner. The manager of the business shall pay with the return the tax on each nonresident owner or partner's share of the income computed at the rate levied on individuals under G.S. 105-153.7. The business may deduct the payment for each nonresident owner or partner from the owner or partner's distributive share of the income of the business in this State. If the nonresident partner is not an individual and the partner has executed an affirmation that the partner will pay the tax with its corporate, partnership, trust, or estate income tax return, the manager of the business is not required to pay the tax on the partner's share. In this case, the manager shall include a copy of the affirmation with the report required by this subsection. The affirmation must be annually filed by the nonresident partner and submitted by the manager by the due date of the report required in this subsection. Otherwise, the manager of the business is required to pay the tax on the nonresident partner's share. Notwithstanding the provisions of G.S. 105-241.7(b), the manager of the business may not request a refund of an overpayment made on behalf of a nonresident owner or partner if the manager of the business has previously filed the return and paid the tax due. The nonresident owner or partner may, on its own income tax return, request a refund of an overpayment made on its behalf by the manager of the business within the provisions of G.S. 105-241.6.
Publicly Traded Partnership. - The information return and payment requirements under this section are modified as follows for a publicly traded partnership that is described in section 7704(c) of the Code:
1. The information return required under subsection (c) of this section is limited to partners whose distributive share of the partnership's net income during the tax year was more than five hundred dollars ($500.00).
2. The payment requirements under subsection (d) of this section do not apply.

A partnership that files an information return under this subsection shall furnish to each person who would be entitled to share in the partnership's net income, if distributable, any information necessary for that person to properly file a State income tax return. The information shall be in the form prescribed by the Secretary and must be furnished on or before the due date of the information return.

A partnership that is not doing business in this State because it is a nonresident business performing disaster-related work during a disaster response period at the request of a critical infrastructure company is not required to file an information return with the Secretary. However, the partnership must furnish to each person who would be entitled to share in the partnership's net income, if distributable, any information necessary for that person to properly file a State income tax return. The definitions and provisions in G.S. 166A-19.70A apply to this paragraph.

History

(1939, c. 158, s. 328; 1945, c. 708, s. 4; 1957, c. 1340, s. 4; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; c. 1287, s. 5; 1989, c. 728, s. 1.25; 1989 (Reg. Sess., 1990), c. 814, s. 19; 1991 (Reg. Sess., 1992), c. 930, s. 2; 1993, c. 314, s. 1; c. 354, s. 14; 1998-98, s. 69; 1999-337, s. 26; 2008-107, s. 28.8(a); 2013-316, s. 1.3(e); 2017-204, s. 1.9(f); 2019-169, s. 1.1(a); 2019-187, s. 1(i); 2020-58, s. 4.3.)

Subsection (d) Set Out Twice. - The first version of subsection (d) set out above is effective for taxable years beginning before January 1, 2019. The second version of subsection (d) set out above is effective for taxable years beginning on or after January 1, 2019.

Editor's Note. - Session Laws 2017-204, s. 1.9(g), provides: "The General Assembly finds that the amendments made by this section clarify the intent of the existing law and do not represent a change in the law. Accordingly, subsections (a) and (c) of this section apply to taxable years beginning before January 1, 2014, subsections (b) and (d) of this section apply to taxable years beginning on or after January 1, 2014, and subsection (f) of this section applies to all taxable years."

Session Laws 2017-204, s. 7.1, is a severability clause.

Session Laws 2019-169, s. 1.1(b), made the last two sentences in subsection (d) as added by Session Laws 2019-169, s. 1.1(a), effective for taxable years beginning on or after January 1, 2019, and applicable to a request for refund filed on or after that date.

Session Laws 2019-187, s. 3, made the last paragraph in subsection (c), as added by Session Laws 2019-187, s. 1(i), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2008-107, s. 28.8(a), effective for taxable years beginning on or after January 1, 2008, added subsection (e).

Session Laws 2013-316, s. 1.3(e), effective for taxable years beginning on or after January 1, 2014, substituted "G.S. 105-153.7" for "G.S. 105-134.2(a)(3)" in the second sentence of subsection (d).

Session Laws 2017-204, s. 1.9(f), in the first paragraph of subsection (c), inserted "each partner's distributive share of the partnership's income" in the fourth sentence, added the present fifth sentence, deleted the former sixth sentence, which read: "The information return shall specify the part of each person's distributive share of the net income that represents corporation dividends"; and, in subsection (d), inserted "information concerning" in the first sentence, inserted the present second sentence, and substituted "share of the income" for "share of the profit" in the present fourth sentence. For effective date and applicability, see editor's note.

Session Laws 2019-169, s. 1.1(a), added the last two sentences in subsection (d). For effective date and applicability, see editor's note.

Session Laws 2019-187, s. 1(i), added the last paragraph in subsection (c). For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 4.3, effective June 30, 2020, added the third-and-fourth-to-last sentences in subsection (d).

CASE NOTES

Preemption. - Chapter 7 trustee was not liable for income taxes attributable to resident or non-resident members of the LLC debtor because to the extent that the statute purported to require payment of member taxes prior to distributions to creditors, it was preempted by the distribution scheme under 11 U.S.C.S. § 726. In re N.C. Tobacco Int'l, - Bankr. - (Bankr. M.D.N.C. Aug. 10, 2020).

Applied in Reddington v. Thomas, 45 N.C. App. 236, 262 S.E.2d 841 (1980).

Cited in Lowder v. All Star Mills, Inc., 301 N.C. 561, 273 S.E.2d 247 (1981); Davis v. Davis, 58 N.C. App. 25, 293 S.E.2d 268 (1982).

§ 105-155. Time and place of filing returns; extensions; affirmation.

Return. - An income tax return shall be filed at the place and in the form prescribed by the Secretary. The income tax return of every taxpayer reporting on a calendar year basis is due on or before the fifteenth day of April in each year. The income tax return of every taxpayer reporting on a fiscal year basis is due on or before the fifteenth day of the fourth month following the close of the fiscal year. These dates do not apply to a nonresident alien whose federal income tax return is due at a later date under section 6072(c) of the Code. The return of a nonresident alien affected by that Code section is due on or before the fifteenth day of the sixth month following the close of the taxable year. An information return shall be filed at the times prescribed by the Secretary. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105-263.
Repealed by 1991 (Regular Session, 1992), c. 930, s. 3.
Repealed by Session Laws 1998-217, s. 44, effective October 31, 1998.
Forms. - Returns and affirmations shall be in the form prescribed by the Secretary.

History

(1939, c. 158, s. 329; 1943, c. 400, s. 4; 1951, c. 643, s. 4; 1953, c. 1302, s. 4; 1955, c. 17, s. 1; 1957, c. 1340, s. 4; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1989, c. 728, s. 1.26; 1989 (Reg. Sess., 1990), c. 984, s. 10; 1991, c. 45, s. 12; 1991 (Reg. Sess., 1992), c. 930, s. 3; 1998-217, s. 44; 2006-18, s. 8.)

Effect of Amendments. - Session Laws 2006-18, s. 8, effective for taxable years beginning on or after January 1, 2006, rewrote subsection (a).

Legal Periodicals. - For brief comment on the 1953 amendment which rewrote the second paragraph, see 31 N.C.L. Rev. 441 (1953).

CASE NOTES

Applied in City of Winston-Salem v. Powell Paving Co., 7 F. Supp. 424 (M.D.N.C. 1934).

§ 105-156: Repealed by Session Laws 2009-445, s. 7, effective August 7, 2009.

Editor's Note. - Former G.S. 105-156, Failure to file returns; supplementary returns, was derived from Session Laws 1939, c. 158, s. 331, and amended by 1959, c. 1259, s. 8; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1989, c. 728, s. 1.27; 1989 (Reg. Sess., 1990), c. 814, s. 20; 1998-98, s. 69.

§ 105-156.1: Repealed by Session Laws 1989, c. 728, s. 1.28.

§ 105-157. When tax must be paid.

Except as otherwise provided in this section and in Article 4A of this Chapter, the full amount of the tax payable as shown on the return must be paid to the Secretary within the time allowed for filing the return. If the amount shown to be due is less than one dollar ($1.00), no payment need be made.
Repealed by Session Laws 1993, c. 450, s. 4.

History

(1939, c. 158, s. 332; 1943, c. 400, s. 4; 1947, c. 501, s. 4; 1951, c. 643, s. 4; 1955, c. 17, s. 2; 1959, c. 1259, s. 2; 1963, c. 1169, s. 2; 1967, c. 702, s. 1; c. 1110, s. 3; 1973, c. 476, s. 193; c. 903, s. 2; c. 1287, s. 5; 1989, c. 728, s. 1.29; 1989 (Reg. Sess., 1990), c. 984, s. 11; 1991 (Reg. Sess., 1992), c. 930, s. 4; 1993, c. 450, s. 4.)

CASE NOTES

Applied in City of Winston-Salem v. Powell Paving Co., 7 F. Supp. 424 (M.D.N.C. 1934).

§ 105-158. Taxation of certain Armed Forces personnel and other individuals upon death.

An individual is not subject to the tax imposed by this Part for a taxable year if, under section 692 of the Code, the individual is not subject to federal income tax for that same taxable year.

History

(1969, c. 1116; 1979, c. 179, s. 2; 1989, c. 728, s. 1.30; 1991, c. 439, s. 2; 1998-98, s. 69; 2011-183, s. 72.)

Editor's Note. - Former G.S. 105-158 was repealed by Session Laws 1959, c. 1259, s. 9.

Effect of Amendments. - Session Laws 2011-183, s. 72, effective June 20, 2011, substituted "Armed Forces" for "armed forces" in the section catchline.

§ 105-159. Federal determinations and amended returns.

Federal Determination. - If a taxpayer's adjusted gross income, filing status, personal exemptions, standard deduction, itemized deductions, or federal tax credit are changed or corrected by the Commissioner of Internal Revenue or an agreement of the U.S. competent authority, and the change or correction affects the amount of State tax payable, the taxpayer must file an income tax return reflecting each change or correction from a federal determination within six months after being notified of each change or correction. The Secretary must propose an assessment for any additional tax due from the taxpayer as provided in Article 9 of this Chapter. The Secretary must refund any overpayment of tax as provided in Article 9 of this Chapter. A federal determination has the same meaning as defined in G.S. 105-228.90.
Amended Return. - The following applies to an amended return filed by a taxpayer with the Commissioner of Internal Revenue:
1. If the amended return contains an adjustment that would increase the amount of State tax payable under this Part, then notwithstanding the provisions of G.S. 105-241.8(a), the taxpayer must file within six months thereafter an amended return with the Secretary.
2. If the amended return contains an adjustment that would decrease the amount of State tax payable under this Part, the taxpayer may file an amended return with the Secretary within the provisions of G.S. 105-241.6.
Penalties. - A taxpayer that fails to comply with this section is subject to the penalties in G.S. 105-236 and forfeits the right to any refund due by reason of the determination.

History

(1939, c. 158, s. 334; 1947, c. 501, s. 4; 1949, c. 392, s. 3; 1957, c. 1340, s. 14; 1963, c. 1169, s. 2; 1967, c. 1110, s. 3; 1973, c. 476, s. 193; 1989, c. 728, s. 1.31; 1993 (Reg. Sess., 1994), c. 582, s. 1; 2006-18, s. 5; 2007-491, s. 16; 2013-414, s. 38; 2017-39, s. 4(b); 2018-5, s. 38.3(b); 2019-169, s. 6.3(c).)

Session Laws 2018-5, s. 38.3(h), made the rewriting of this section by Session Laws 2018-5, s. 38.3(b), effective June 12, 2018, and applicable to federal amended returns filed on or after that date.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-169, s. 6.3(d), made the amendment to subsection (a) by Session Laws 2019-169, s. 6.3(c), effective July 26, 2019, and applicable to a federal determination on or after that date.

Effect of Amendments. - Session Laws 2006-18, s. 5, effective July 1, 2006, and applicable to federal determinations made on or after that date, substituted "six months" for "two years" in the first sentence of the first undesignated paragraph.

Session Laws 2007-491, s. 16, effective for taxable years beginning on or after January 1, 2007, rewrote the second and third sentences of the former first paragraph; and substituted "Secretary must either refund" for "Secretary shall either refund" in the present third sentence. For applicability, see Editor's note

Session Laws 2013-414, s. 38, effective August 23, 2013, in the first sentence, substituted "If a taxpayer's adjusted gross income or federal tax credit that affects the amount of State tax payable" for "If a taxpayer's federal taxable income" at the beginning, and substituted "adjusted gross income or federal tax credit that affects the amount of State tax payable" for "taxable income" at the end.

Session Laws 2017-39, s. 4(b), effective June 21, 2017, inserted "filing status, personal exemptions, standard deduction, itemized deductions" in the first sentence.

Session Laws 2018-5, s. 38.3(b), rewrote the section. For effective date and applicability, see editor's note.

Session Laws 2019-169, s. 6.3(c), deleted "or other officer of the United States" following "Revenue", and inserted "an agreement of the U.S." in the first sentence in subsection (a). For effective date and applicability, see editor's note.

Legal Periodicals. - For survey of 1982 law on taxation, see 61 N.C.L. Rev. 1217 (1983).

CASE NOTES

This section imposes on the taxpayer a positive duty with respect to his income tax liability beyond that required by G.S. 105-152, respecting his original return; it is his duty not only to report the change made by the federal department but to file another return under oath reflecting it. Garrou Knitting Mills v. Gill, 228 N.C. 764, 47 S.E.2d 240 (1948).

This section imposes a positive duty upon taxpayers beyond the requirements as to their original return. State v. Patton, 57 N.C. App. 702, 292 S.E.2d 172 (1982).

Correction of Net Income by Federal Officer Requires New Return. - The taxpayer whose net income for any year is corrected by the Commissioner of Internal Revenue or other authorized federal officer must file a new return reflecting his corrected net income within two years [now 6 months] after receipt of the federal agent's report. Failure to make such a new return within the time specified subjects the taxpayer to all penalties provided by G.S. 105-236 including, when applicable, the criminal penalty provided by G.S. 105-236(7). State v. Patton, 57 N.C. App. 702, 292 S.E.2d 172 (1982).

Effect on North Carolina Net Income Not Required. - This section does not require that the taxpayer's North Carolina net income be affected before it governs a taxpayer's duty to report changes in his federal net income. McFarland v. Justus, 113 N.C. App. 107, 437 S.E.2d 668 (1993), decision based on pre-1989 law.

Procedure Under Former Statute Exclusive. - The procedure prescribed by the former statute requiring that a new return be made within 30 days of the receipt of the redetermination of the taxpayer's income tax by the federal government was held exclusive and had to be followed to entitle the taxpayer to the relief therein provided. State ex rel. Maxwell v. Hinsdale, 207 N.C. 37, 175 S.E. 847 (1934).

Statute of Limitations Extended. - Failure to notify the Secretary of Revenue of the assessment of additional taxes by the Commissioner of Internal Revenue pursuant to this section extended the statute of limitations. McFarland v. Justus, 113 N.C. App. 107, 437 S.E.2d 668 (1993), decision based on pre-1989 law.

Cited in American Bakeries Co. v. Johnson, 259 N.C. 419, 131 S.E.2d 1 (1963); Ward v. Clayton, 5 N.C. App. 53, 167 S.E.2d 808 (1969).

§ 105-159.1: Repealed by Session Laws 2013-381, s. 38.1(e), effective July 1, 2013.

History

(1977, 2nd Sess., c. 1298, s. 1; 1979, c. 801, s. 69; 1981, c. 963, s. 1; 1983, cc. 139, 480, 481; 1989, c. 37, s. 4; c. 713; c. 728, s. 1.32; c. 770, s. 41.1; 1991, c. 45, s. 13; c. 347, s. 3; c. 690, ss. 8, 9; 1997-515, s. 10(a); 1999-438, s. 3; 2002-106, s. 3; 2005-345, s. 46; 2010-95, s. 3; repealed by 2013-381, s. 38.1(e), effective July 1, 2013.)

Editor's Note. - Former G.S. 105-159.1 pertained to designation of tax by an individual to a political party.

§ 105-159.2: Repealed by Session Laws 2013-360, s. 21.1(c), as amended by Session Laws 2014-3, s. 14.15, and Session Laws 2013-381, s. 38.1(f), effective July 1, 2013.

History

(2002-158, s. 4; 2005-276, s. 23A.1(d); 2006-192, s. 18; repealed by 2013-360, s. 21.1(c), and 2013-381, s. 38.1(f).)

Editor's Note. - Former G.S. 105-159.2 pertained to designation of tax to North Carolina Public Campaign Fund.

This section was repealed in 2013 by two different Session Laws, each giving the repeal different effective dates. Session Laws 2013-360, s. 21.1(c), repealed this section effective for taxable years beginning on or after January 1, 2013. Session Laws 2013-381, s. 38.1(f), repealed this section effective July 1, 2013. Session Laws 2014-3, s. 14.15, amended Session Laws 2013-360, s. 21.1(m), the effective date provision affecting Session Laws 2013-360, s. 21.1(c), by changing the effective date of the repeal of this section to July 1, 2013.

Session Laws 2013-360, s. 1.1, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2013.'"

Session Laws 2013-360, s. 38.5 is a severability clause.

PART 3. INCOME TAX - ESTATES, TRUSTS, AND BENEFICIARIES.

§ 105-160. Short title.

This Part shall be known as the Income Tax Act for Estates, Trusts, and Beneficiaries.

History

(1967, c. 1110, s. 3; 1989, c. 728, s. 1.36; 1998-98, ss. 45, 68.)

§ 105-160.1. Definitions.

The definitions provided in Part 2 of this Article shall apply in this Part except where the context clearly indicates a different meaning. In addition, as used in this Part, "taxable income" is defined in sections 641 through 692 of the Code.

History

(1989, c. 728, s. 1.38; 1998-98, ss. 69, 71; 2013-414, s. 5(f).)

Effect of Amendments. - Session Laws 2013-414, s. 5(f), effective for taxable years beginning on or after January 1, 2012, added the second sentence.

§ 105-160.2. Imposition of tax.

The tax imposed by this Part applies to the taxable income of estates and trusts as determined under the provisions of the Code except as otherwise provided in this Part. The taxable income of an estate or trust is the same as taxable income for such an estate or trust under the provisions of the Code, adjusted as provided in G.S. 105-153.5 and G.S. 105-153.6, except that the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6 are apportioned between the estate or trust and the beneficiaries based on the distributions made during the taxable year. The tax is computed on the amount of the taxable income of the estate or trust that is for the benefit of a resident of this State, or for the benefit of a nonresident to the extent that the income (i) is derived from North Carolina sources and is attributable to the ownership of any interest in real or tangible personal property in this State or (ii) is derived from a business, trade, profession, or occupation carried on in this State. For purposes of the preceding sentence, taxable income and gross income is computed subject to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6. The tax on the amount computed above is at the rate levied in G.S. 105-153.7. The fiduciary responsible for administering the estate or trust shall pay the tax computed under the provisions of this Part.

History

(1989, c. 728, s. 1.38; 1989 (Reg. Sess., 1990), c. 814, s. 21; 1991, c. 689, s. 302; 1998-98, s. 69; 2013-414, s. 5(g); 2014-3, s. 2.3(a); 2017-204, s. 1.12.)

Editor's Note. - Session Laws 2017-204, s. 7.1, is a severability clause.

Effect of Amendments. - Session Laws 2013-414, s. 5(g), effective for taxable years beginning on or after January 1, 2012, substituted "G.S. 105-134.6A" for "G.S. 105-134.7" and "shall be" for "is" throughout; in the first sentence, substituted "applies" for "shall apply"; in the second sentence, substituted "are apportioned" for "shall be apportioned"; and rewrote the last sentence, which formerly read "The tax computer under the provisions of this Part shall be paid by the fiduciary responsible for administering the estate or trust."

Session Laws 2014-3, s. 2.3(a), effective for taxable years beginning on or after January 1, 2014, substituted "G.S. 105-153.5 and G.S. 105-153.6" for "G.S. 105-134.6 and G.S. 105-134.6A" throughout the section, and substituted "G.S. 105-153.7" for "G.S. 105-134.2(a)(3)" in the next-to-last sentence.

Session Laws 2017-204, s. 1.12, effective August 11, 2017, substituted "rate levied" for "rates levied" in the next-to-last sentence.

CASE NOTES

Constitutionality of Legislation. - Court of Appeals properly affirmed the North Carolina Business Court's grant of summary judgment in favor of a family trust because allowing taxation of trust income violated the due process requirements of the state and federal constitutions where the trust did not have sufficient minimum contacts with the State and due process was not satisfied solely from the beneficiaries' contacts with North Carolina since the trust and the trust's beneficiaries were separate legal entities. Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep't of Revenue, 248 N.C. App. 463, 790 S.E.2d 339 (2018), aff'd, 139 S. Ct. 2213, 2019 U.S. LEXIS 4198 (2019).

Minimum Connection Needed for Imposition of Tax. - Residence of the trust beneficiaries in North Carolina alone did not supply the minimum connection necessary to sustain the State's income tax under G.S. 105-160.2 where the beneficiaries received no income from the trust, had no right to demand trust income, and could not count on receiving any income in the future. N.C. Dep't of Revenue v. Kimberley Rice Kaestner 1992 F amily Trust, - U.S. - (June 21, 2019).

Residence of the trust beneficiaries in North Carolina alone did not supply the minimum connection necessary to sustain the State's tax because the beneficiaries did not receive any, income from the trust, they had no right to demand trust income or otherwise control, possess, or enjoy the trust assets, and they also could not count on necessarily receiving any specific amount of income from the trust in the future. Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep't of Revenue, - N.C. - , - S.E.2d - (July 23, 2019).

Presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to receive it. Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep't of Revenue, - N.C. - , - S.E.2d - (July 23, 2019).

Cited in Dunn v. State, 179 N.C. App. 753, 635 S.E.2d 604 (2006).

§ 105-160.3. Tax credits.

Except as otherwise provided in this section, the credits allowed to an individual against the tax imposed by Part 2 of this Article shall be allowed to the same extent to an estate or a trust against the tax imposed by this Part. Any credit computed as a percentage of income received shall be apportioned between the estate or trust and the beneficiaries based on the distributions made during the taxable year. No credit may exceed the amount of the tax imposed by this Part for the taxable year reduced by the sum of all credits allowable, except for payments of tax made by or on behalf of the estate or trust.
The tax credits allowed under G.S. 105-153.9 may not be claimed by an estate or trust.

History

(1989, c. 728, s. 1.38; 1998-1, s. 5(b); 1998-98, ss. 10, 105; 1998-212, s. 29A.6(b); 2004-170, s. 17; 2006-66, s. 24.18(f); 2007-323, ss. 31.4(b), 31.5(b), 31.6(b); 2011-330, s. 36; 2012-79, s. 2.6; 2013-316, s. 1.3(f); 2013-364, s. 3; 2018-5, s. 38.10( l ).)

Cross References. - For the Health Insurance Program for Children, see G.S. 108A-70.18 et seq.

Editor's Note. - Session Laws 1998-1, s. 5(d) provides that s. 5 of the act which added subdivision (b)(6) of G.S. 105-160.3, is effective for taxable years beginning on or after January 1, 1999, and expires on the effective date of an act repealing the Health Insurance Program for Children established under the act.

Session Laws 1998-1, s. 5(e) provides that s. 5 of the act becomes effective only if the United States Secretary of Health and Human Services approves the State Plan to implement the Health Insurance Program for Children established under this act. The Program was approved by letter dated July 14, 1998 from Secretary Donna E. Shalala.

Session Laws 1998-212, s. 29A.6(d), provided that subdivision (b)(7), as enacted by that act, was repealed effective for taxable years beginning on or after January 1, 2004. Session Laws 2007, 323, s. 31.5(b), effective for taxable years beginning on or after January 1, 2007, reenacted subdivision (b)(7).

Session Laws 2004-170, s. 17, effective August 2, 2004, repealed subdivision (b)(6).

Session Laws 2006-66, s. 24.18(g), as amended by Session Laws 2011-330, s. 36, provides that s. 24.18(f), which added subdivision (b)(8), expires for taxable years beginning on or after January 1, 2013.

Session Laws 2006-66, s. 1.2, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2006'."

Session Laws 2006-66, s. 28.6 is a severability clause.

Section 105-151.11, referred to in subdivision (b)(2), was repealed by Session Laws 2013-316, s. 1.1(b), effective January 1, 2014.

Section 105-151.18, referred to in subdivision (b)(3), was repealed by Session Laws 2013-316, s. 1.1(b), effective January 1, 2014.

Section 105-151.33, referred to in subdivision (b)(11), was repealed by Session Laws 2013-316, s. 1.1(b) and Session Laws 2013-364, s. 1, effective January 1, 2014.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2007-323, ss. 31.4(b), 31.5(b), and 31.6(b), effective for taxable years beginning on or after January 1, 2007, reenacted subdivision (b)(7); and added subdivisions (b)(9) and (b)(10).

Session Laws 2012-79, s. 2.6, effective June 26, 2012, added subdivision (b)(11).

Session Laws 2013-316, s. 1.3(f), effective for taxable years beginning on or after January 1, 2014, rewrote subsection (b).

Session Laws 2013-364, s. 3, effective for taxable years beginning on or after January 1, 2014, repealed subdivision (b)(11).

Session Laws 2018-5, s. 38.10( l ), effective June 12, 2018, deleted "and G.S. 105-153.10" following "G.S. 105-153.9" in subsection (b).

§ 105-160.4. Tax credits for income taxes paid to other states by estates and trusts.

If a fiduciary is required to pay income tax to this State for an estate or a trust, the fiduciary shall be allowed a credit against the tax imposed by this Part for income taxes imposed by and paid to another state or country on income derived from sources within that other state or country in accordance with the formula contained in subsection (b) and the requirements of subsection (c).
The fraction of the gross income for North Carolina income tax purposes that is derived from sources within and subject to income tax in another state or country shall be ascertained and the North Carolina income tax before credit under this section shall be multiplied by that fraction. The credit allowed shall be either the product thus calculated or the income tax actually paid the other state or country, whichever is smaller.
Receipts showing the payment of income taxes to another state or country and a true copy of the return upon the basis of which the taxes are assessed shall be filed with the Secretary at or before the time credit is claimed. If credit is claimed on account of a deficiency assessment, a true copy of the notice assessing or proposing to assess the deficiency, as well as a receipt showing the payment of the deficiency, shall be filed with the Secretary.
If any taxes paid to another state or country for which a fiduciary has been allowed a credit under this section are at any time credited or refunded to the fiduciary, a tax equal to that portion of the credit allowed for the taxes so credited or refunded shall be due and payable from the fiduciary and shall be subject to the penalties and interest on delinquent payments provided in G.S. 105-236 and G.S. 105-241.21.
A resident beneficiary of an estate or trust who is taxed under the provisions of Part 2 of this Article on income from an estate or trust determined to be includable in the resident's gross income is allowed a credit against the tax imposed for income taxes paid by the fiduciary to another state or country on the income in accordance with the formula contained in subsection (b) of this section and the requirements of subsection (c) of this section; provided, that if any taxes paid to another state or country for which a beneficiary has been allowed credit under this section are at any time credited or refunded to the beneficiary, a tax equal to that portion of the credit allowed for the taxes so credited or refunded shall be due and payable from the beneficiary and shall be subject to the penalties and interest on delinquent payments provided in G.S. 105-236 and G.S. 105-241.21.

History

(1989, c. 728, s. 1.38; 1998-98, ss. 69, 71; 2007-491, s. 44(1)b.)

Editor's Note. - Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Effect of Amendments. - Session Laws 2007-491, s. 44(1)b., effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1" in subsections (d) and (e). For applicability, see Editor's note.

§ 105-160.5. Returns.

The fiduciary of an estate or trust described below shall file an income tax return under affirmation, showing specifically the taxable income and the adjustments required by this Part and such other facts as the Secretary may require for the purpose of making any computation required by this Part:

Every estate or trust which has taxable income under this Part during the taxable year and is required to file an income tax return for the taxable year under the Code.
Every estate or trust which the Secretary believes to be liable for a tax under this Part, when so notified by the Secretary and requested to file a return.

History

(1989, c. 728, s. 1.38; 1998-98, s. 69.)

§ 105-160.6. Time and place of filing returns.

An income tax return of an estate or a trust shall be filed as prescribed by the Secretary at the place prescribed by the Secretary. The return of every fiduciary reporting on a calendar year basis shall be filed on or before the 15th day of April in each year, and the return of every fiduciary reporting on a fiscal year basis shall be filed on or before the 15th day of the fourth month following the close of the fiscal year. A fiduciary may ask the Secretary for an extension of time to file a return under G.S. 105-263.

History

(1989, c. 728, s. 1.38; 1989 (Reg. Sess., 1990), c. 984, s. 12; 1991 (Reg. Sess., 1992), c. 930, s. 7.)

§ 105-160.7. When tax must be paid.

The full amount of the tax payable as shown on the return must be paid to the Secretary within the time allowed for filing the return. However, if the amount shown to be due after all credits is less than one dollar ($1.00), no payment need be made.
Repealed by Session Laws 1993, c. 450, s. 5.

History

(1989, c. 728, s. 1.38; 1989 (Reg. Sess., 1990), c. 984, s. 13; 1991 (Reg. Sess., 1992), c. 930, s. 8; 1993, c. 450, s. 5.)

§ 105-160.8. Federal determinations.

For purposes of this Part, the provisions of G.S. 105-159 apply to fiduciaries required to file returns for estates and trusts.

History

(1989, c. 728, s. 1.38; 1993 (Reg. Sess., 1994), c. 582, s. 3; 1998-98, s. 69; 2018-5, s. 38.3(c).)

Editor's Note. - Session Laws 2018-5, s. 38.3(h), made the amendment of this section by Session Laws 2018-5, s. 38.3(c), effective June 12, 2018, and applicable to federal amended returns filed on or after that date.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2018-5, s. 38.3(c), in the section heading, substituted "determinations" for "corrections", and in the text, deleted "requiring an individual to report the correction or determination of taxable income by the federal government" preceding "apply to fiduciaries." For effective date and applicability, see editor's note.

§§ 105-161 through 105-163: Repealed by Session Laws 1989, c. 728, s. 1.37.

PART 4. INCOME TAX CREDITS FOR PROPERTY TAXES.

§§ 105-163.01 through 105-163.06: Repealed by Session Laws 1991, c. 45, s. 14(b).

Editor's Note. - G.S. 105-163.01 was formerly repealed by Session Laws 1985, c. 656, s. 14. G.S. 105-163.03 was formerly repealed by Session Laws 1987, c. 622, s. 3. G.S. 105-163.05 was formerly repealed by Session Laws 1989, c. 37, s. 5. G.S. 105-163.06 was formerly repealed by Session Laws 1987, c. 622, s. 3.

§ 105-163.07: Recodified as G.S. 105-151.21 by Session Laws 1991, c. 45, s. 14.

Editor's Note. - Section 105-151.21 has, also, now been repealed by Session Laws 2013-316, s. 1.1(b), effective January 1, 2014.

§§ 105-163.08, 105-163.09: Repealed by Session Laws 1991, c. 45, s. 14(b).

PART 5. TAX CREDITS FOR QUALIFIED BUSINESS INVESTMENTS.

§§ 105-163.010 through 105-163.015: Repealed pursuant to former G.S. 105-163.015(d), effective for investments made on or after January 1, 2014.

History

(105-163.010: 1987, c. 852, s. 1; 1987 (Reg. Sess., 1988), c. 882, s. 2; 1989 (Reg. Sess., 1990), c. 848, s. 2; 1991, c. 637, s. 1; 1993, c. 443, s. 1; 1996, 2nd Ex. Sess., c. 14, s. 7; 1997-6, s. 5; 1998-98, ss. 46, 69; 1998-212, ss. 29A.15(a), 29A.16(c), (d); 1999-369, s. 5.6; 2002-99, s. 3; 2003-414, s. 2; 2003-416, s. 4(a). 105-163.011: 1987, c. 852, s. 1; 1987 (Reg. Sess., 1988), c. 882, ss. 3, 3.1; 1989 (Reg. Sess., 1990), c. 848, s. 3; 1991, c. 637, s. 2; 1993, c. 443, s. 2; 1995, c. 491, s. 1; 1996, 2nd Ex. Sess., c. 14, s. 7; 1998-98, s. 71; 1998-212, s. 29A.15(a); 1999- 337, s. 27; 2003-414, s. 3; 2007-422, s. 2; 2009-445, s. 9(a). 105-163.012: 1987, c. 852, s. 1; 1987 (Reg. Sess., 1988), c. 882, ss. 4, 4.1; 1989 (Reg. Sess., 1990), c. 848, s. 4; 1991, c. 637, s. 3; 1993, c. 443, s. 3; 1993 (Reg. Sess., 1994), c. 745, s. 8; 1996, 2nd Ex. Sess., c. 14, ss. 6, 7; 1998-98, s. 71; 1998-212, s. 29A.15(a); 2003-414, s. 4; 2004-124, s. 32C.1; 2008-107, s. 28.26(a); 2009-445, s. 9(b). 105-163.013: 1987, c. 852, s. 1; 1991, c. 637, s. 4; 1993, c. 443, ss. 4, 9; c. 485, s. 12; c. 553, s. 80.1; 1994, Ex. Sess., c. 14, s. 50; 1993 (Reg. Sess., 1994), c. 745, ss. 9, 10; 1996, 2nd Ex. Sess., c. 14, s. 7; 1998-98, s. 69; 1998-212, ss. 29A.15(a), 29A.16(e); 1999-369, s. 5.7; 2001-414, s. 12; 2002-99, s. 4; 2003-414, s. 5. 105-163.014: 1987, c. 852, s. 1; 1991, c. 637, s. 5; 1993, c. 443, s. 5; 1996, 2nd Ex. Sess., c. 14, s. 7; 1998-98, s. 69; 1998-212, ss. 29A.15(a), 29A.16(a), (b); 1999-369, s. 5.8; 2003-414, s. 6; 2007-491, s. 44(1)a; 2002-99, s. 5; 2003-414, s. 1; 2004-124, s. 32C.2; 2007-422, s. 1; 2010-31, s. 31.5(b); 2012-36, s. 10. 105-163.015: 2002-99, s. 5; 2003-414, s. 1; 2004-124, s. 32C.2; 2007-422, s. 1; 2010-31, s. 31.5(b); 2012- 36, s. 10.)

Editor's Note. - Former G.S. 105-163.010 contained definitions. Former G.S. 105-163.011 pertained to allowable tax credits. Former G.S. 105-163.012 pertained to limit, carry-over, ceiling, and reduction in basis. Former G.S. 105-163.013 pertained to registration. Former G.S. 105-163.014 pertained to forfeiture of credit. Former G.S. 105-163.015 contained sunset provisions.

ARTICLE 4A. Withholding; Estimated Income Tax for Individuals.

Sec.

§ 105-163.1. Definitions.

The following definitions apply in this Article:

Compensation. - Consideration a payer pays a payee.
Repealed by Session Laws 2009-476, s. 1, effective for taxable years beginning on or after January 1, 2010.
Repealed by Session Laws 2014-3, s. 14.4(a), effective for taxable years beginning on or after January 1, 2014.
Employee. - An individual, whether a resident or a nonresident of this State, who performs services in this State for wages or an individual who is a resident of this State and performs services outside this State for wages. The term includes an ordained or licensed member of the clergy who elects to be considered an employee under G.S. 105-163.1A, an officer of a corporation, and an elected public official.
Employer. - A person for whom an individual performs services for wages. In applying the requirements to withhold income taxes from wages and pay the withheld taxes, the term includes a person who:
1. Controls the payment of wages to an individual for services performed for another.
2. Pays wages on behalf of a person who is not engaged in trade or business in this State.
3. Pays wages on behalf of a unit of government that is not located in this State.
4. Pays wages for any other reason.
Individual. - Defined in G.S. 105-153.3.
Individual Taxpayer Identification Number (ITIN). - A taxpayer identification number issued by the Internal Revenue Service to an individual who is required to have a U.S. taxpayer identification number but who does not have, or is not eligible to obtain, a Social Security number (SSN) from the Social Security Administration.
ITIN contractor. - An ITIN holder who performs services in this State for compensation other than wages.
ITIN holder. - A person whose taxpayer identification number is an Individual Taxpayer Identification Number (ITIN), including applied for and expired numbers.
Miscellaneous payroll period. - A payroll period other than a daily, weekly, biweekly, semimonthly, monthly, quarterly, semiannual, or annual payroll period.
Nonresident contractor. - Either of the following:
1. A nonresident individual who performs in this State for compensation other than wages any personal services in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program.
2. A nonresident entity that provides for the performance in this State for compensation of any personal services in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program.
Nonresident entity. - Any of the following:
1. A foreign limited liability company, defined using the same definition for the term "foreign LLC" in G.S. 57D-1-03, that has not obtained a certificate of authority from the Secretary of State pursuant to Article 7 of Chapter 57D of the General Statutes.
2. A foreign limited partnership as defined in G.S. 59-102 or a general partnership formed under the laws of any jurisdiction other than this State, unless the partnership maintains a permanent place of business in this State.
3. A foreign corporation, as defined in G.S. 55-1-40, that has not obtained a certificate of authority from the Secretary of State pursuant to Article 15 of Chapter 55 of the General Statutes.
Pass-through entity. - Defined in G.S. 105-228.90.
Payee. - Any of the following:
1. A nonresident contractor.
2. An ITIN contractor.
3. A person who performs services in this State for compensation that fails to provide the payer a taxpayer identification number.
4. A person who performs services in this State for compensation that fails to provide the payer a valid taxpayer identification number. The Secretary must notify a payer that a taxpayer identification number is not valid.
Payer. - A person who, in the course of a trade or business, pays compensation.
Payroll period. - A period for which an employer ordinarily pays wages to an employee of the employer.
Pension payer. - A payor or a plan administrator with respect to a pension payment under section 3405 of the Code.
Pension payment. - A periodic payment or a nonperiodic distribution as those terms are defined in section 3405 of the Code.
Taxable year. - Defined in section 441(b) of the Code.
Taxpayer Identification Number (TIN). - Defined in G.S. 105-228.90(b)(31).
Wages. - The term has the same meaning as in section 3401 of the Code, except the term does not include amounts paid to a nonresident employee for a business, trade, profession, or occupation carried on in this State to perform disaster-related work during a disaster response period at the request of a critical infrastructure company. The definitions and provisions of G.S. 166A-19.70A apply to this subdivision.
Withholding agent. - An employer, a pension payer, or a payer.

History

(1959, c. 1259, s. 1; 1967, c. 716, s. 3; 1973, c. 476, s. 193; 1977, c. 657, s. 5; 1979, c. 801, s. 70; 1983, c. 713, ss. 79, 82; 1985, c. 394, s. 1; c. 656, s. 7; 1985 (Reg. Sess., 1986), c. 853, s. 1; 1987, c. 778, s. 1; 1987 (Reg. Sess., 1988), c. 1015, s. 5; 1989, c. 36, s. 5; c. 728, s. 1.40; 1989 (Reg. Sess., 1990), c. 945, s. 5; c. 981, s. 6; 1991, c. 689, s. 255; 1991 (Reg. Sess., 1992), c. 922, s. 7; 1993, c. 12, s. 9; c. 354, s. 15; 1997-6, s. 6; 1997-109, ss. 1, 2, 4; 1998-162, ss. 1, 2; 1999-414, ss. 1, 2; 2000-126, s. 2; 2003-416, s. 4(b); 2009-476, s. 1; 2013-157, s. 29; 2014-3, s. 14.4(a); 2016-5, s. 2.3; 2018-5, s. 38.1(d); 2019-169, s. 6.4(a); 2019-187, s. 1( l ); 2020-58, s. 4.4(c).)

Editor's Note. - Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-187, s. 3, made the amendment of subdivision (13) by Session Laws 2019-187, s. 1( l ), effective August 1, 2019, and applicable to disaster declarations on or after that date.

G.S. 105-228.90(b)(31) was substituted for G.S. 105-228.90(b)(9) in subdivision (12a) at the direction of the Revisor of Statutes.

Effect of Amendments. - Session Laws 1999-414, ss. 1 and 2, effective January 1, 2001, added subdivisions (11a) and (11b); and inserted "a pension payer" and made a minor punctuation change in subdivision (14).

Session Laws 2000-126, s. 2, effective January 1, 2001, in subdivision (11b) deleted "that is not an eligible rollover distribution" following "nonperiodic distribution" and inserted "those terms are" preceding "defined."

Session Laws 2003-416, s. 4.(b), effective August 14, 2003, substituted "G.S. 105-228.90" for "G.S. 105-163.010" in subdivision (9).

Session Laws 2009-476, s. 1, effective for taxable years beginning on or after January 1, 2010, rewrote subdivision (1); deleted subdivision (2), which defined "Contractor"; added subdivisions (6a), (6b), and (7a); and rewrote subdivision (10).

Session Laws 2013-157, s. 29, effective January 1, 2014, in subdivision (8)a., substituted "defined using the same definition for the term 'foreign LLC' in G.S. 57D-1-03" for "as defined in G.S. 57C-1-03" near the beginning, and substituted "Chapter 57D" for "Chapter 57C" near the end.

Session Laws 2014-3, s. 14.4(a), effective for taxable years beginning on or after January 1, 2014, repealed subdivision (3).

Session Laws 2016-5, s. 2.3, effective May 11, 2016, substituted "G.S. 105-153.3" for "G.S. 105-134.1" in subdivision (6); and rewrote subdivision (13).

Session Laws 2018-5, s. 38.1(d), effective June 12, 2018, deleted "except it does not include the amount an employer pays an employee as reimbursement for ordinary and necessary expenses incurred by the employee on behalf of the employer and in the furtherance of the business of the employer" following "Code" at the end of subdivision (13).

Session Laws 2019-169, s. 6.4(a), effective January 1, 2020, rewrote subdivisions (1) and (10); added subdivisions (6a), (9a), and (12a); redesignated former subdivisions (6a) and (6b) as subdivisions (6b) and (6c), respectively; and added "including applied for and expired numbers" at the end of subdivision (6c).

Session Laws 2019-187, s. 1( l ), rewrote subdivision (13), which formerly read: "The term had the same meaning as in section 3401 of the Code." For effective date and applicability, see editor's note.

Session Laws 2020-58, s. 4.4(c), effective June 30, 2020, rewrote subdivision (12a).

Legal Periodicals. - For 1997 legislative survey, see 20 Campbell L. Rev. 481.

CASE NOTES

Cited in Allen v. Currie, 254 N.C. 636, 119 S.E.2d 917 (1961).

§ 105-163.1A. Ordained or licensed clergyman may elect to be considered an employee.

An ordained or licensed clergyman who performs services for a church of any religious denomination may file an election with the Secretary and the church he serves to be considered an employee of the church instead of self-employed. Until a clergyman files an election, amounts paid by a church to a clergyman are not subject to withholding. A church shall withhold taxes from a clergyman's wages after the clergyman files an election with it under this section.

History

(1985, c. 394, s. 2; 1985 (Reg. Sess., 1986), c. 826, s. 9; 1989 (Reg. Sess., 1990), c. 945, s. 6.)

§ 105-163.2. Employers must withhold taxes.

Withholding Required. - An employer shall deduct and withhold from the wages of each employee the State income taxes payable by the employee on the wages. For each payroll period, the employer shall withhold from the employee's wages an amount that would approximate the employee's income tax liability under Article 4 of this Chapter if the employer withheld the same amount from the employee's wages for each similar payroll period in a calendar year. In calculating an employee's anticipated income tax liability, the employer shall allow for the additions that employee is required to make under Article 4 of this Chapter and the deductions, and credits to which the employee is entitled under Article 4 of this Chapter. The amount of State income taxes withheld by an employer is held in trust for the Secretary.
Withholding Tables. - The manner of withholding and the amount to be withheld shall be determined in accordance with tables and rules adopted by the Secretary. The withholding of wages pursuant to and in accordance with these tables shall be deemed as a matter of law to constitute compliance with the provisions of subsection (a) of this section, notwithstanding any other provisions of this Article. The Secretary shall promulgate tables for computing amounts to be withheld with respect to different rates of wages for different payroll periods applicable to the various combinations of allowances to which an employee may be entitled and taking into account the appropriate standard deduction. The tables may provide for the same amount to be withheld within reasonable salary brackets or ranges so designed as to result in the withholding during a year of approximately the amount of an employee's indicated income tax liability for that year.
1. An income tax rate equal to the rate set in G.S. 105-153.7 plus one-tenth of one percent (0.1%).
2. The additions the employee is required to make under Article 4 of this Chapter.
3. The deductions and credits to which an employee is entitled under Article 4 of this Chapter.
Withholding if No Payroll Period. - If wages are paid with respect to a period that is not a payroll period, the amount to be deducted and withheld shall be that applicable in the case of a miscellaneous payroll period containing a number of days, excluding Sundays and holidays, equal to the number of days in the period with respect to which such wages are paid. In any case in which wages are paid by an employer without regard to any payroll period or other period, the amount to be deducted and withheld shall be that applicable in the case of a miscellaneous payroll period containing a number of days equal to the number of days, excluding Sundays and holidays, which have elapsed since the date of the last payment of such wages by such employer during the calendar year, or the date of commencement of employment with such employer during such year, or January 1 of such year, whichever is the later.
Estimated Withholding. - The Secretary may, by rule, authorize employers to estimate the wages to be paid to an employee during a calendar quarter, calculate the amount to be withheld for each period based on the estimated wages, and, upon payment of wages to the employee, adjust the withholding so that the amount actually withheld is the amount that would be required to be withheld if the employee's payroll period were quarterly.
Alternatives to Tables. - If the Secretary determines that use of the withholding tables would be impractical, would impose an unreasonable burden on an employer, or would produce substantially incorrect results, the Secretary may authorize or require an employer to use some other method of determining the amounts to be withheld under this Article. The alternative method authorized by the Secretary must reasonably approximate the predicted income tax liability of the affected employees based upon the factors provided in subsection (b) of this section. In addition, with the agreement of the employer and employee, the Secretary may authorize an employer to use an alternative method that results in withholding of a greater amount than otherwise required under this section.

The withholding allowances provided by these tables and rules shall, as nearly as possible, approximate the amount of the employee's indicated income tax liability for that year based upon all of the following factors:

The Secretary's authorization of an alternative method is discretionary and may be cancelled at any time without advance notice if the Secretary finds that the method is being abused or is not resulting in the withholding of an amount reasonably approximating the predicted income tax liability of the affected employees. The Secretary shall give an employer written notice of any cancellation and the findings upon which the cancellation is based. The cancellation becomes effective upon the employer's receipt of this notice or on the third day after the notice was mailed to the employer, whichever occurs first. If the employer requests a hearing on the cancellation within 30 days after the cancellation, the Secretary shall grant a hearing. After a hearing, the Secretary's findings are conclusive.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1981, c. 13; 1989, c. 728, s. 1.41; 1989 (Reg. Sess., 1990), c. 945, s. 7; 1997-109, s. 2; 2014-3, s. 14.5(a); 2015-241, s. 32.16A(a).)

Editor's Note. - Session Laws 2016-94, s. 38.1(c), provides: "Notwithstanding G.S. 105-163.2, the Department of Revenue is not required to adjust the withholding tables applicable for the 2016 taxable year."

Session Laws 2016-94, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2016.'"

Session Laws 2016-94, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2014-3, s. 14.5(a), effective for taxable years beginning on or after January 1, 2014, in the first sentence of subsection (a), substituted "additions that employee is required to make under Article 4 of this Chapter and the deductions" for "exemptions, deductions"; and, in subsection (b), in the second sentence, substituted "allowances provided" for "exemption allowed" near the beginning, substituted "additions the employee is required to make under Article 4 of this Chapter and the deductions" for "exemptions, deductions" near the middle, and substituted "is entitled" for "would be entitled" near the end, and, in the third sentence, substituted "combinations of allowances" for "combinations of exemptions" in the third sentence.

Session Laws 2015-241, s. 32.16A(a), effective for taxable years beginning on or after January 1, 2016, rewrote subsection (b); and inserted "based upon the factors provided in subsection (b) of this section" at the end of the second sentence in the first paragraph of subsection (e).

CASE NOTES

Cited in Coley v. State, 360 N.C. 493, 631 S.E.2d 121 (2006).

§ 105-163.2A. Pension payers must withhold taxes.

Definitions. - The definitions provided in section 3405 of the Code apply in this section.
Withholding Required. - A pension payer required to withhold federal taxes under section 3405 of the Code on a pension payment to a resident of this State must deduct and withhold from the payment the State income taxes payable on the payment. Liability for withholding and paying taxes under this section on a pension payment falls on the person who would be liable under section 3405 of the Code for withholding federal taxes on the payment.
Amount. - In the case of a periodic payment, the pension payer must withhold the amount that would be required to be withheld under this Article if the payment were a payment of wages by an employer to an employee for the appropriate payroll period.
Election of No Withholding. - The recipient may elect not to have taxes withheld under this section to the extent permitted by section 3405 of the Code. The election must be in the form required by the Secretary. In the case of periodic payments, the election remains in effect until revoked by the recipient. In the case of a nonperiodic distribution, the election applies on a distribution-by-distribution basis unless it meets conditions prescribed by the Secretary for it to apply to subsequent nonperiodic distributions by the pension payer.
Exemptions. - This section does not apply to the following pension payments:
1. A pension payment that is wages under this Article.
2. Any portion of a pension payment that meets both of the following conditions:
  1. It is not a distribution or payment from an individual retirement plan as defined in section 7701 of the Code.
  2. The pension payer reasonably believes it is not taxable to the recipient under Article 4 of this Chapter.
3. A distribution described in section 404(k)(2) of the Code, relating to dividends on corporate securities.
4. A pension payment that consists only of securities of the recipient's employer corporation plus cash not in excess of two hundred dollars ($200.00) in lieu of securities of the employer corporation.

Except as otherwise provided in this section, the provisions of this Article apply to a pension payer's pension payment to a resident of this State as if it were an employer's payment of wages to an employee. The pension payer must file a return, pay the withheld taxes, and report the amount withheld in the time and manner required under G.S. 105-163.6 and G.S. 105-163.7 as if the pension payment were wages. If a pension payer has more than one arrangement under which it may make pension payments to a resident of this State, each arrangement must be treated separately under this section.

In the case of a nonperiodic distribution, the pension payer must withhold taxes equal to four percent (4%) of the nonperiodic distribution.

A pension payer must notify each recipient of the right to elect not to have taxes withheld under this section. The notice must comply with the requirements of section 3405 of the Code and any additional requirements prescribed by the Secretary.

A recipient's election not to have taxes withheld under this section is void if the recipient fails to furnish the recipient's tax identification number to the pension payer, or the Secretary has notified the pension payer that the tax identification number furnished by the recipient is incorrect.

History

(1999-414, s. 3; 2000-126, s. 3; 2014-3, s. 14.6(a); 2015-259, s. 7.1(c).)

Editor's Note. - Session Laws 2014-3, s. 14.6(b), made the amendment to this section by Session Laws 2014-3, s. 14.6(a), applicable to payments made on or after January 1, 2015.

Session Laws 2015-259, s. 7.1(f), made the amendment to subsection (b) by Session Laws 2015-259, s. 7.1(c), applicable to information returns required to be filed with the Secretary in 2016 for the 2015 taxable year."

Effect of Amendments. - Session Laws 2014-3, s. 14.6(a), effective January 1, 2015, deleted the former second sentence in the first paragraph of subsection (c), which read: "If the recipient of periodic payments fails to file an exemption certificate under G.S. 105-163.5, the pension payer must compute the amount to be withheld as if the recipient were a married individual claiming three withholding exemptions." See Editor's note for applicability.

Session Laws 2015-259, s. 7.1(c), effective for taxable years beginning on or after January 1, 2015, added the second sentence in the second paragraph of subsection (b). For applicability, see Editor's note.

§ 105-163.2B. North Carolina State Lottery Commission must withhold taxes.

The North Carolina State Lottery Commission, established by Chapter 18C of the General Statutes, must deduct and withhold State income taxes from the payment of winnings in an amount of six hundred dollars ($600.00) or more. The amount of taxes to be withheld is a percentage of the winnings. The percentage is the individual income tax rate in G.S. 105-153.7. The Commission must file a return, pay the withheld taxes, and report the amount withheld in the time and manner required under G.S. 105-163.6 and G.S. 105-163.7 as if the winnings were wages. The taxes the Commission withholds are held in trust for the Secretary.

History

(2005-276, s. 31.1(bb); 2005-344, s. 10.2(a); 2006-259, s. 8(f); 2006-264, s. 91(b); 2013-316, s. 1.3(g); 2015-259, s. 7.1(d).)

Editor's Note. - Session Laws 2006-264, s. 91(b), which substituted "in an amount of six hundred dollars ($600.00) or more" for "that are reportable to the Internal Revenue Service under section 3406 of the Code" in the first sentence and added "and report the amount withheld" at the end of the third sentence, was repealed by Session Laws 2006-264, s. 91(e). Session Laws 2006-264, s. 91(e) provided that if Senate Bill 1523, 2005 Regular Session (S.L. 2006-259) becomes law, subsections (b) and (c) of this section are repealed.

Session Laws 2015-259, s. 7.1(f), made the amendment to this section by Session Laws 2015-259, s. 7.1(d), applicable to information returns required to be filed with the Secretary in 2016 for the 2015 taxable year."

Effect of Amendments. - Session Laws 2006-259, s. 8(f), effective August 23, 2006, substituted "in an amount of six hundred dollars ($600.00) or more" for "that are reportable to the Internal Revenue Service under section 3406 of the Code" at the end of the first sentence and substituted "return, pay the withheld taxes, and report the amount withheld" for "return and pay the withheld taxes" in the middle of the second sentence.

Session Laws 2013-316, s. 1.3(g), effective for taxable years beginning on or after January 1, 2014, substituted "a percentage" for "seven percent (7%)" in the second sentence, and added the third sentence.

Session Laws 2015-259, s. 7.1(d), effective for taxable years beginning on or after January 1, 2015, inserted "and G.S. 105-163.7" near the end of the fourth sentence. For applicability, see Editor's note.

§ 105-163.3. Certain payers must withhold taxes.

Requirement. - Every payer who pays more than one thousand five hundred dollars ($1,500) during a calendar year to a payee must deduct and withhold from compensation paid to the payee the State income taxes payable by the payee on the compensation as provided in this section. The amount of taxes to be withheld is four percent (4%) of the compensation paid to the payee. The taxes a payer withholds are held in trust for the Secretary.
Exemptions. - The withholding requirement does not apply to the following:
1. Compensation that is subject to the withholding requirement of G.S. 105-163.2.
2. Compensation paid to an ordained or licensed member of the clergy.
3. Compensation paid to an entity exempt from tax under G.S. 105-130.11.
4. Compensation paid to an alien, as described by 8 U.S.C. § 1101(a)(15)(H)(ii)(a), that is not subject to federal income tax withholding under section 1441 of the Code.
5. Compensation paid by a nonresident business or a critical infrastructure company to an ITIN contractor who is a nonresident individual for a business, trade, profession, or occupation carried on in this State to perform disaster-related work during a disaster response period at the request of a critical infrastructure company. The definitions and provisions of G.S. 166A-19.70A apply to this subdivision.
Repealed by Session Laws 2015-259, s. 7.1(e), effective for taxable years beginning on or after January 1, 2015.
Returns, Annual Statement, and Report. - A payer required to deduct and withhold from a payee's compensation under this section must file a return, pay the withheld taxes, and report the amount withheld in the time and manner required under G.S. 105-163.6 and G.S. 105-163.7 as if the compensation were wages.
Records. - This subsection applies to a payer who pays compensation for personal services performed in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program. If a payer does not withhold from payments to a nonresident entity because the entity is exempt from tax under G.S. 105-130.11, the payer must obtain from the entity documentation proving its exemption from tax. If a payer does not withhold from payments to a nonresident corporation or a nonresident limited liability company because the entity has obtained a certificate of authority from the Secretary of State, the payer must obtain from the entity its corporate identification number issued by the Secretary of State. If a payer does not withhold from payments to an individual because the individual is a resident, the payer must obtain the individual's address and social security number. If a payer does not withhold from a partnership because the partnership has a permanent place of business in this State, the payer must obtain the partnership's address and taxpayer identification number. The payer must retain this information with its records.
Payer May Repay Amounts Withheld Improperly. - A payer may refund to a person any amount the payer withheld improperly from the person under this section, if the refund is made before the end of the calendar year and before the payer furnishes the person the annual statement required by subsection (d) of this section. An amount is withheld improperly if it is withheld from a payment to a person who is not a payee, if it is withheld from a payment that is not compensation, or if it is in excess of the amount required to be withheld under this section. A payer who makes a refund under this section must take the following actions:
1. Not report the amount refunded on the annual statement required by subsection (d) of this section.
2. Either not pay to the Secretary the amount refunded or, if the amount refunded has already been paid to the Secretary, reduce by the amount refunded the next payments to the Secretary of taxes withheld from the person.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1989, c. 728, s. 1.42; 1989 (Reg. Sess., 1990), c. 945, s. 8; 1997-109, s. 2; 1998-98, ss. 11-13; 1998-162, s. 3; 2009-476, s. 2; 2013-414, s. 39(a); 2015-259, s. 7.1(e); 2015-263, s. 2(a); 2019-169, s. 6.4(b); 2019-187, s. 1(m).)

Editor's Note. - Session Laws 2015-259, s. 7.1(f), made the amendment to this section by Session Laws 2015-259, s. 7.1(e), applicable to information returns required to be filed with the Secretary in 2016 for the 2015 taxable year.

Session Laws 2019-187, s. 3, made subdivision (b)(5), as added by Session Laws 2019-187, s. 1(m), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2009-476, s. 1, effective for taxable years beginning on or after January 1, 2010, in subsection (a), deleted "a contractor" following "payer who pays" and substituted "to either a nonresident contractor or an ITIN contractor must" for "shall"; rewrote subsections (c) and (d); in subsection (e), added the present first sentence and substituted "must" for "shall" five times; and in subsection (f), in the introductory paragraph, inserted "nonresident contractor or an ITIN" and added "take the following action," and, in subdivision (f)(1), substituted "subsection (d) of this section" for "subsection (d), and."

Session Laws 2013-414, s. 39(a), effective August 1, 2013, added "in the manner required by the Secretary" at the end of first sentence in the last paragraph of subsection (d).

Session Laws 2015-259, s. 7.1(e), effective for taxable years beginning on or after January 1, 2015, deleted former subsection (c); and rewrote subsection (d). For applicability, see Editor's note.

Session Laws 2015-263, s. 2(a), effective for taxable years beginning on or after January 1, 2015, added subdivision (b)(4).

Session Laws 2019-169, s. 6.4(b), effective January 1, 2020, in subsection (a), in the first sentence, substituted "a payee" for "either a nonresident contractor or an ITIN contractor" near the middle and, in the first and second sentences, substituted "payee" for "contractor" wherever appearing; substituted "payee's" for "contractor's" in subsection (d); and substituted "payee" for "contractor" in the second sentence of the introductory paragraph of subsection (f).

Session Laws 2019-187, s. 1(m), added subdivision (b)(5). For effective date and applicability, see editor's note.

§ 105-163.4. Withholding does not create nexus.

A nonresident withholding agent's act in compliance with this Article does not in itself constitute evidence that the nonresident is doing business in this State.

History

(1959, c. 1259, s. 1; 1989 (Reg. Sess., 1990), c. 945, s. 9; 1997-109, s. 2.)

§ 105-163.5. Employee withholding allowances; certificates.

An employee receiving wages is entitled to the withholding allowances that would result in the employer withholding approximately the employee's income tax liability under Article 4 of this Chapter.
Every employee shall, at the time of commencing employment, furnish his or her employer with a signed withholding allowance certificate informing the employer of the allowances the employee claims. If the employee fails to file the allowance certificate, the employer must compute the amount to be withheld from the employee's wages as if the employee were a single individual with no allowances.
Withholding allowance certificates shall take effect as of the beginning of the first payroll period that ends on or after the date on which the certificate is furnished, or if payment of wages is made without regard to a payroll period, then the certificate shall take effect as of the beginning of the miscellaneous payroll period for which the first payment of wages is made on or after the date on which the certificate is furnished.
If, on any day during the calendar year, the amount of withholding allowances to which the employee is entitled is less than the amount of withholding allowances claimed by the employee on the withholding allowance certificate then in effect with respect to the employee, the employee shall, within 10 days thereafter, furnish the employer with a new withholding allowance certificate stating the amount of withholding allowances which the employee then claims, which shall in no event exceed the amount to which the employee is entitled on that day. If, on any day during the calendar year, the amount of withholding allowances to which the employee is entitled is greater than the amount of withholding allowances claimed, the employee may furnish the employer with a new withholding allowance certificate stating the amount of withholding allowances that the employee then claims, which shall not exceed the amount to which the employee is entitled on that day.
Withholding allowance certificates must be in the form and contain the information required by the Secretary.
In addition to any criminal penalty provided by law, if an individual furnishes his or her employer an allowance certificate that contains information that has no reasonable basis and that results in a lesser amount of tax being withheld under this Article than would have been withheld if the individual had furnished reasonable information, the individual is subject to a penalty of fifty percent (50%) of the amount not properly withheld.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1981 (Reg. Sess., 1982), c. 1277; 1989, c. 728, s. 1.43; 1997-109, s. 2; 2014-3, s. 14.5(b).)

Effect of Amendments. - Session Laws 2014-3, s. 14.5(b), effective for taxable years beginning on or after January 1, 2014, rewrote the section.

§ 105-163.6. When employer must file returns and pay withheld taxes.

General. - A return is due quarterly or monthly as specified in this section. A return shall be filed with the Secretary in the manner required by the Secretary, shall report any payments of withheld taxes made during the period covered by the return, and shall contain any other information required by the Secretary.
Quarterly. - An employer who withholds an average of less than two hundred fifty dollars ($250.00) of State income taxes from wages each month must file a return and pay the withheld taxes on a quarterly basis. A quarterly return covers a calendar quarter and is due by the last day of the month following the end of the quarter.
Monthly. - An employer who withholds an average of at least two hundred fifty dollars ($250.00) but less than two thousand dollars ($2,000) from wages each month must file a return and pay the withheld taxes on a monthly basis. A return for the months of January through November is due by the 15th day of the month following the end of the month covered by the return. A return for the month of December is due the following January 31.
Semiweekly. - An employer who withholds an average of at least two thousand dollars ($2,000) of State income taxes from wages each month shall file a return by the date set under the Code for filing a return for federal employment taxes attributable to the same wages and shall pay the withheld State taxes by the date set under the Code for depositing or paying federal employment taxes attributable to the same wages. The date set by the Code for depositing or paying federal employment taxes shall be determined without regard to § 6302(g) of the Code.
Category. - The Secretary shall monitor the amount of taxes withheld by an employer or estimate the amount of taxes to be withheld by a new employer and shall direct each employer to pay withheld taxes in accordance with the appropriate schedule. An employer shall file a return and pay withheld taxes in accordance with the Secretary's direction until notified in writing to file and pay under a different schedule.

Withheld taxes are payable quarterly, monthly, or semiweekly, as specified in this section. If the Secretary finds that collection of the amount of taxes this Article requires an employer to withhold is in jeopardy, the Secretary may require the employer to file a return or pay withheld taxes at a time other than that specified in this section.

An extension of time granted to file a return for federal employment taxes attributable to wages is an automatic extension of time for filing a return for State income taxes withheld from the same wages, and an extension of time granted to pay federal employment taxes attributable to wages is an automatic extension of time for paying State income taxes withheld from the same wages. An employer who pays withheld State income taxes under this subsection is not subject to interest on or penalties for a shortfall in the amount due if the employer would not be subject to a failure-to-deposit penalty had the shortfall occurred in a deposit of federal employment taxes attributable to the same wages and the employer pays the shortfall by the date the employer would have to deposit a shortfall in the federal employment taxes.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; c. 1287, s. 7; 1975, 2nd Sess., c. 979, s. 1; 1977, c. 488; 1987, c. 622, s. 9; c. 813, s. 24; 1989 (Reg. Sess., 1990), c. 945, s. 10; 1993, c. 450, s. 6; 1993 (Reg. Sess., 1994), c. 661, s. 1; 1997-109, s. 2; 2001-427, s. 5(a), (b); 2013-414, s. 39(b).)

Effect of Amendments. - Session Laws 2013-414, s. 39(b), effective August 1, 2013, substituted "in the manner required" for "on a form prepared" in the second sentence of the first paragraph of subsection (a).

§ 105-163.6A. Federal determinations.

If the amount of taxes an employer is required to withhold and pay under the Code is changed or corrected, the provisions of G.S. 105-159 apply to employers, pension payers, and every other payer required to withhold taxes under this Article. Failure of an employer to comply with this section does not, however, affect an individual's right to a credit under G.S. 105-163.10.

History

(1993 (Reg. Sess., 1994), c. 582, s. 4; 2007-491, s. 17; 2018-5, s. 38.3(d).)

Session Laws 2018-5, s. 38.3(h), made the rewriting of this section by Session Laws 2018-5, s. 38.3(d), effective June 12, 2018, and applicable to federal amended returns filed on or after that date.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Effect of Amendments. - Session Laws 2007-491, s. 17, effective for taxable years beginning on or after January 1, 2007, substituted "six months" for "two years" in the first sentence, rewrote the second and third sentences of the former first paragraph and the first sentence of the former second paragraph as the present second sentence; and substituted "the Secretary must either refund" for "the Secretary shall either refund" near the beginning of the present third sentence. For applicability, see Editor's note.

Session Laws 2018-5, s. 38.3(d), rewrote the section. For effective date and applicability, see editor's note.

§ 105-163.7. Statement to employees; information to Secretary.

Report to Employee. - Every employer required to deduct and withhold from an employee's wages under G.S. 105-163.2 shall furnish to the employee in respect to the remuneration paid by the employer to such employee during the calendar year, on or before January 31 of the succeeding year, or, if the employment is terminated before the close of the calendar year, within 30 days after the date on which the last payment of remuneration is made, duplicate copies of a written statement showing the following:
1. The employer's name, address, and taxpayer identification number.
2. The employee's name, address, and social security number.
3. The total amount of wages or remuneration made.
4. The total amount deducted and withheld under G.S. 105-163.2.
Informational Return to Secretary. - Every employer shall annually file an informational return with the Secretary that contains the information given on each of the employer's written statements to an employee. The Secretary may require additional information to be included on the informational return, provided the Secretary has given a minimum of 90 days' notice of the additional information required. The informational return is due on or before January 31 of the succeeding year and must be filed in an electronic format as prescribed by the Secretary. If the employer terminates its business or permanently ceases paying wages during the calendar year, the informational return must be filed within 30 days of the last payment of remuneration. The informational return required by this subsection is in lieu of the report required by G.S. 105-154.
Repealed by Session Laws 2002-72, s. 16, effective August 12, 2002.
Deduction Disallowance. - The Secretary may request a person who fails to timely file statements of payment to another person with respect to wages, dividends, rents, or interest paid to that person to file the statements by a certain date. If the payer fails to file the statements by that date, and, in addition to any applicable penalty under G.S. 105-236, the amounts claimed on the payer's income tax return as deductions for salaries and wages or rents or interest shall be disallowed to the extent that the payer failed to comply with the Secretary's request with respect to the statements.

An employer that is not doing business in this State because it is a nonresident business performing disaster-related work during a disaster response period at the request of a critical infrastructure company is not required to file an information return with the Secretary. However, the employer must furnish to an employee, upon request, any information necessary for that person to properly file a State income tax return. The definitions and provisions in G.S. 166A-19.70A apply to this paragraph.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1989 (Reg. Sess., 1990), c. 945, s. 11; 1993 (Reg. Sess., 1994), c. 679, s. 8.3; 1997-109, s. 2; 2002-72, s. 16; 2015-259, s. 7.1(a); 2018-5, s. 38.10(n); 2019-187, s. 1(n).)

Editor's Note. - Session Laws 2015-259, s. 7.1(f), made the amendment to this section by Session Laws 2015-259, s. 7.1(a), applicable to information returns required to be filed with the Secretary in 2016 for the 2015 taxable year.

Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'"

Session Laws 2018-5, s. 39.7, is a severability clause.

Session Laws 2019-187, s. 3, made the last paragraph in subsection (b), as added by Session Laws 2019-187, s. 1(m), effective August 1, 2019, and applicable to disaster declarations on or after that date.

Effect of Amendments. - Session Laws 2015-259, s. 7.1(a), effective for taxable years beginning on or after January 1, 2015, rewrote subsections (a) and (b). For applicability, see Editor's note.

Session Laws 2018-5, s. 38.10(n), effective June 12, 2018, in subsection (b), in the heading, substituted "Informational Return" for "Report", in the first sentence, substituted "annually file an information return" for "file an annual report", in the second and third sentences, substituted "informational return" for "report", deleted the former fourth sentence, which read: "The Secretary may, upon a showing of good cause, waive the electronic submission requirement.", added the present fourth sentence, and, in the last sentence, substituted "The informational return" for "The report"; and added subsection (d).

Session Laws 2019-187, s. 1(m), added the last paragraph in subsection (b). For effective date and applicability, see editor's note.

§ 105-163.8. Liability of withholding agents.

A withholding agent who withholds the proper amount of income taxes under this Article and pays the withheld amount to the Secretary is not liable to any person for the amount paid. A withholding agent who fails to withhold the proper amount of income taxes or pay the amount withheld to the Secretary is liable for the amount of tax not withheld or not paid. A withholding agent who fails to withhold the amount of income taxes required by this Article or who fails to pay withheld taxes by the due date for paying the taxes is subject to the penalties provided in Article 9 of this Chapter.
Repealed by Session Laws 1998-212, s. 29A.14(g), effective January 1, 1999.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1989 (Reg. Sess., 1990), c. 945, s. 12; 1997-109, s. 2; 1998-212, s. 29A.14(g).)

Editor's Note. - Session Laws 2015-6, s. 2.9(a), (b), provides: "Notwithstanding G.S. 105-163.15, the Secretary of Revenue may not impose interest with respect to an underpayment of income tax to the extent the underpayment was created or increased by the changes made in Section 2.2 of S.L. 2014-3 [which amended the deduction amounts in subsection (a)]. Notwithstanding G.S. 105-163.8, a withholding agent is not liable for the amount of tax the agent fails to withhold to the extent the amount of tax not withheld was created or increased by the changes made in Section 2.2 of S.L. 2014-3.

CASE NOTES

Allocation of Penalty Monies Collected. - Monetary payments for a taxpayer's noncompliance with a mandate of Chapter 105 are penalties and, therefore, subject to N.C. Const., Art. IX, § 7; thus, monies collected by the North Carolina Department of Revenue for late filings, underpayments, and for failing to comply with statutory or regulatory tax provisions are payable to public schools. N.C. Sch. Bds. Ass'n v. Moore, 359 N.C. 474, 614 S.E.2d 504 (2005).

§ 105-163.9. Refund of overpayment to withholding agent.

A withholding agent who pays the Secretary more under this Article than the Article requires the agent to pay may obtain a refund of the overpayment by filing a request for a refund with the Secretary. No refund is allowed, however, if the withholding agent withheld the amount of the overpayment from the wages or compensation of the agent's employees or contractors. A withholding agent must file a request for a refund within the time period set in G.S. 105-241.6. Interest accrues on a refund as provided in G.S. 105-241.21.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1975, c. 74, s. 1; 1981 (Reg. Sess., 1982), c. 1223, s. 3; 1989 (Reg. Sess., 1990), c. 945, s. 13; 1997-109, s. 2; 2007-491, s. 18; 2008-187, s. 15.)

Editor's Note. - Session Laws 2007-491, s. 18, amended this section in the coded bill drafting format provided by G.S. 120-20.1. In the third sentence, the act struck through "105-266" but failed to strike through the "G.S." that immediately preceded it. Session Laws 2008-187, s. 15, corrected the oversight.

Effect of Amendments. - Session Laws 2007-491, s. 18, effective January 1, 2008, substituted "a request" for "an application" in the first and third sentences, and substituted "G.S. 105-241.6" for "105-266" and "G.S. 105-241.21" for "G.S. 105-266" in the third and last sentences, respectively. For applicability, see Editor's note.

Session Laws 2008-187, s. 15, effective August 7, 2008, deleted "G.S." preceding "G.S. 105-241.6" in the third sentence.

§ 105-163.10. Withheld amounts credited to taxpayer for calendar year.

The amount deducted and withheld under this Article during any calendar year from the wages or compensation of an individual shall be allowed as a credit to that individual against the tax imposed by Article 4 of this Chapter for taxable years beginning in that calendar year. The amount deducted and withheld under this Article during any calendar year from the compensation of a nonresident entity shall be allowed as a credit to that entity against the tax imposed by Article 4 of this Chapter for taxable years beginning in that calendar year. If the nonresident entity is a pass-through entity, the entity shall pass through and allocate to each owner the owner's share of the credit.

If more than one taxable year begins in the calendar year during which the withholding occurred, the amount shall be allowed as a credit against the tax for the last taxable year so beginning. To obtain the credit allowed in this section, the individual or nonresident entity must file with the Secretary one copy of the withholding statement required by G.S. 105-163.3 or G.S. 105-163.7 and any other information the Secretary requires.

History

(1959, c. 1259, s. 1; 1967, c. 1110, s. 4; 1973, c. 476, s. 193; 1989, c. 728, s. 1.44; 1991 (Reg. Sess., 1992), c. 930, s. 9; 1997-109, s. 2.)

§§ 105-163.11 through 105-163.14: Repealed by Session Laws 1985, c. 443, s. 1.

§ 105-163.15. Failure by individual to pay estimated income tax; interest.

In the case of any underpayment of the estimated tax by an individual, the Secretary shall assess interest in an amount determined by applying the applicable annual rate established under G.S. 105-241.21 to the amount of the underpayment for the period of the underpayment.
For purposes of subsection (a), the amount of the underpayment shall be the excess of the required installment, over the amount, if any, of the installment paid on or before the due date for the installment. The period of the underpayment shall run from the due date for the installment to whichever of the following dates is the earlier: (i) the fifteenth day of the fourth month following the close of the taxable year, or (ii) with respect to any portion of the underpayment, the date on which such portion is paid. A payment of estimated tax shall be credited against unpaid required installments in the order in which such installments are required to be paid.
For purposes of this section there shall be four required installments for each taxable year with the time for payment of the installments as follows:
1. First installment - April 15 of taxable year;
2. Second installment - June 15 of taxable year;
3. Third installment - September 15 of taxable year; and
4. Fourth installment - January 15 of following taxable year.
Except as provided in subsection (e), the amount of any required installment shall be twenty-five percent (25%) of the required annual payment. The term "required annual payment" means the lesser of:
1. Ninety percent (90%) of the tax shown on the return for the taxable year, or, if no return is filed, ninety percent (90%) of the tax for that year; or
2. One hundred percent (100%) of the tax shown on the return of the individual for the preceding taxable year, if the preceding taxable year was a taxable year of 12 months and the individual filed a return for that year.
In the case of any required installment, if the individual establishes that the annualized income installment is less than the amount determined under subsection (d), the amount of the required installment shall be the annualized income installment, and any reduction in a required installment resulting from the application of this subsection shall be recaptured by increasing the amount of the next required installment determined under subsection (d) by the amount of the reduction and by increasing subsequent required installments to the extent that the reduction has not previously been recaptured.
1. First installment - twenty-two and one-half percent (22.5%);
2. Second installment - forty-five percent (45%);
3. Third installment - sixty-seven and one-half percent (67.5%); and
4. Fourth installment - ninety percent (90%).
No interest shall be imposed under subsection (a) if the tax shown on the return for the taxable year reduced by the tax withheld under this Article is less than the amount set in section 6654(e) of the Code or if the individual did not have any liability for tax under Part 2 of Article 4 for the preceding taxable year.
For purposes of this section, the term "tax" means the tax imposed by Part 2 of Article 4 minus the credits against the tax allowed by this Chapter other than the credit allowed by this Article. The amount of the credit allowed under this Article for withheld income tax for the taxable year is considered a payment of estimated tax, and an equal part of that amount is considered to have been paid on each due date of the taxable year, unless the taxpayer establishes the dates on which all amounts were actually withheld, in which case the amounts so withheld are considered payments of estimated tax on the dates on which the amounts were actually withheld.
If, on or before January 31 of the following taxable year, the taxpayer files a return for the taxable year and pays in full the amount computed on the return as payable, no interest shall be imposed under subsection (a) with respect to any underpayment of the fourth required installment for the taxable year.
Notwithstanding subsections (c), (d), (e), and (h) of this section, an individual who is a farmer or fisherman for a taxable year is subject to the provisions of this subsection.
1. One installment. - The individual is required to make only one installment payment of tax for that taxable year. This installment is due on or before January 15 of the following taxable year. The amount of the installment payment must be the lesser of:
  1. Sixty-six and two-thirds percent (66 2/3%) of the tax shown on the return for the taxable year, or, if no return is filed, sixty-six and two-thirds percent (66 2/3%) of the tax for that year; or
  2. One hundred percent (100%) of the tax shown on the return of the individual for the preceding taxable year, if the preceding taxable year was a taxable year of 12 months and the individual filed a return for that year.
2. Exception. - If, on or before March 1 of the following taxable year, the taxpayer files a return for the taxable year and pays in full the amount computed on the return as payable, no interest is imposed under subsection (a) of this section with respect to any underpayment of the required installment for the taxable year.
3. Eligibility. - An individual is a farmer or fisherman for any taxable year if the individual's gross income from farming or fishing, including oyster farming, for the taxable year is at least sixty-six and two-thirds percent (66 2/3%) of the total gross income from all sources for the taxable year, or the individual's gross income from farming or fishing, including oyster farming, shown on the return of the individual for the preceding taxable year is at least sixty-six and two-thirds percent (66 2/3%) of the total gross income from all sources shown on the return.
In applying this section to a taxable year beginning on any date other than January 1, there shall be substituted, for the months specified in this section, the months that correspond thereto. This section shall be applied to taxable years of less than 12 months in accordance with rules prescribed by the Secretary.
This section shall not apply to any estate or trust.

In the case of any required installment, the annualized income installment is the excess, if any, of (i) an amount equal to the applicable percentage of the tax for the taxable year computed by placing on an annualized basis the taxable income for months in the taxable year ending before the due date for the installment, over (ii) the aggregate amount of any prior required installments for the taxable year. The taxable income shall be placed on an annualized basis under rules prescribed by the Secretary. The applicable percentages for the required installments are as follows:

History

(1959, c. 1259, s. 1; 1963, c. 785, ss. 3, 4; 1973, c. 476, s. 193; c. 1287, s. 7; 1977, c. 657, s. 5; c. 1114, s. 8; 1985, c. 443, s. 2; 1989, c. 692, s. 7.1; 1991 (Reg. Sess., 1992), c. 950, s. 1; 1997-109, s. 2; 1998-98, s. 71; 1998-212, s. 29A.14(h); 2000-126, s. 4; 2005-276, s. 6.37( l ); 2007-491, s. 44(1)a.)

Editor's Note. - Session Laws 2005-276, s. 6.37(w), provides: "The Office of State Budget and Management shall develop a methodology for computing the actual costs of collection of civil penalties by State departments and agencies. This methodology shall apply to all State departments and agencies, effective July 1, 2006."

Session Laws 2005-276, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2005'."

Session Laws 2005-276, s. 46.3, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2005-2007 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2005-2007 fiscal biennium."

Session Laws 2005-276, s. 46.5 is a severability clause.

Session Laws 2020-3, s. 1.1(a)-(d), provides: "(a) Interest Waiver. - As a result of the COVID-19 outbreak, the Secretary of Revenue has extended the franchise, corporate income, and individual income tax payment deadline from April 15, 2020, to July 15, 2020, and pursuant to G.S. 105-249.2, the Secretary will not assess a penalty for failure to file a return or pay a tax due as long as the return is filed and the tax due is paid by July 15, 2020. Notwithstanding G.S. 105-241.21(b), the Secretary of Revenue shall also waive the accrual of interest from April 15, 2020, through July 15, 2020, on an underpayment of tax imposed on a franchise, corporate income, or individual income tax return, including a partnership and estate and trust tax return, due from April 15, 2020, through July 15, 2020. The relief from accrual of interest from April 15, 2020, through July 15, 2020, also includes interest imposed pursuant to G.S. 105-163.15 and G.S. 105-163.41 for payments due on or before July 15, 2020.

"(b) Refund Request. - For franchise, corporate income, and individual income tax, the statute of limitations for obtaining a refund is extended to July 15, 2020, for refund claims for which the statute of limitations to seek a refund expires on or after April 15, 2020, and before July 15, 2020.

"(c) Time-Sensitive Actions. - Certain actions required to be taken by a taxpayer on or after April 1, 2020, and before July 15, 2020, will be considered timely if the request or petition is filed on or before July 15, 2020. This subsection applies to requests for Departmental review under G.S. 105-241.11, petitions for a contested case hearing at the Office of Administrative Hearings under Article 3 of Chapter 150B of the General Statutes and G.S. 105-241.15, and petitions for judicial review under Article 4 of Chapter 150B of the General Statutes and G.S. 105-241.16.

"(d) This section is effective when it becomes law."

Session Laws 2020-3, s. 5, is a severability clause.

Effect of Amendments. - Session Laws 2005-276, s. 6.37(l), effective July 1, 2005, in subsection (a), substituted "interest" for "a penalty"; in subsection (f), substituted "interest" for "addition to the tax"; and in subsection (h) and subdivision (i)(2), substituted "interest" for "addition to tax."

Session Laws 2007-491, s. 44(1)a., effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in subsection (a). For applicability, see Editor's note.

CASE NOTES

§ 105-163.16. Overpayment refunded.

If the amount of wages or compensation withheld at the source under this Article exceeds the tax imposed by Article 4 of this Chapter against which the withheld tax is credited under G.S. 105-163.10, the excess is considered an overpayment by the employee or contractor. If the amount of estimated tax paid under G.S. 105-163.15 exceeds the taxes imposed by Article 4 of this Chapter against which the estimated tax is credited under the provisions of this Article, the excess is considered an overpayment by the taxpayer. An overpayment shall be refunded as provided in Article 9 of this Chapter.

History

(1959, c. 1259, s. 1; 1967, c. 702, s. 2; 1973, c. 476, s. 193; c. 903, s. 3; 1975, c. 74, s. 2; 1979, c. 801, s. 71; 1981 (Reg. Sess., 1982), c. 1223, s. 1; 1983, c. 663, s. 2; c. 865, s. 1; 1985, c. 443, s. 3; 1987 (Reg. Sess., 1988), c. 1063, s. 2; 1989, c. 728, s. 1.45; 1989 (Reg. Sess., 1990), c. 814, s. 23; 1991, c. 45, s. 22; 1993, c. 315, s. 2; 1997-109, s. 2.)

§§ 105-163.17, 105-163.18: Repealed by Session Laws 1997, c. 109, s. 2, effective January 1, 1998.

§§ 105-163.19 through 105-163.21: Repealed by Session Laws 1967, c. 1110, s. 4.

§ 105-163.22. Reciprocity.

The Secretary may, with the approval of the Attorney General, enter into agreements with the taxing authorities of states having income tax withholding statutes that govern the amounts to be withheld from the wages and salaries of residents of the other state or states under the provisions of this Article when the other state or states grant similar treatment to the residents of this State. The agreements may provide for recognition of the anticipated tax credits allowed under the provisions of G.S. 105-153.9 in determining the amounts to be withheld.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1997-109, s. 2; 2014-3, s. 14.28.)

Effect of Amendments. - Session Laws 2014-3, s. 14.28, effective May 29, 2014, in the first sentence, substituted "that govern" for "with such agreements to govern," in the second sentence, substituted "G.S. 105-153.9" for "G.S. 105-151," and made minor stylistic changes.

§ 105-163.23. Withholding from federal employees.

The Secretary is designated as the proper official to make request for and enter into agreements with the Secretary of the Treasury of the United States to provide for the compliance with this Article by the head of each department or agency of the United States in withholding of State income taxes from wages of federal employees and paying the same to this State. The Secretary is authorized, empowered, and directed to request and enter into these agreements.

History

(1959, c. 1259, s. 1; 1973, c. 476, s. 193; 1997-109, s. 2.)

§ 105-163.24. Construction of Article.

This Article shall be liberally construed in pari materia with Article 4 of this Chapter to the end that taxes levied by Article 4 shall be collected with respect to wages and compensation by withholding agents' withholding of the appropriate amounts and by individuals' payments in installments of income tax with respect to income not subject to withholding.

History

(1959, c. 1259, s. 1; 1997-109, s. 2.)

CASE NOTES

Cited in Coley v. State, 360 N.C. 493, 631 S.E.2d 121 (2006).

ARTICLE 4B. Filing of Declarations of Estimated Income Tax and Installment Payments of Estimated Income Tax by Corporations.

§§ 105-163.25 through 105-163.37: Recodified as G.S. 105-163.38 through 105-163.44.

Editor's Note. - This Article was rewritten by Session Laws 1983, c. 713, s. 86, and has been recodified as Article 4C of Chapter 105.

ARTICLE 4C. Filing of Declarations of Estimated Income Tax and Installment Payments of Estimated Income Tax by Corporations.

Sec.

§ 105-163.38. Definitions.

The following definitions apply in this Article, unless the context requires otherwise:

Code. - Defined in G.S. 105-228.90.
Corporation. - Defined in section 7701 of the Code.
Estimated tax. - The amount of income tax the corporation estimates as the amount imposed by Article 4 for the taxable year.
Fiscal year. - An accounting period of 12 months ending on the last day of any month other than December.
Secretary. - The Secretary of Revenue.
Taxable year. - The calendar year or fiscal year used as a basis to determine net income under Article 4. If no fiscal year has been established, "fiscal year" means the calendar year. In the case of a return made for a fractional part of the year under Article 4, or under rules prescribed by the Secretary, "taxable year" means the period for which the return is made.

History

(1959, c. 1259, s. 1A; 1973, c. 476, s. 193; 1983, c. 713, s. 86; 1989 (Reg. Sess., 1990), c. 984, s. 15; 1991 (Reg. Sess., 1992), c. 922, s. 8; 1993, c. 12, s. 10.)

Editor's Note. - This Article is Article 4B, as rewritten by Session Laws 1983, c. 713, s. 86, and recodified. Where appropriate, the historical citations to the sections in the former Article have been added to corresponding sections in the Article as rewritten and recodified.

§ 105-163.39. Declarations of estimated income tax required.

Declaration Required. - Every corporation subject to taxation under Article 4 shall submit a declaration of estimated tax to the Secretary. This declaration is due at the time established in G.S. 105-163.40, and payment of the estimated tax is due at the time and in the manner prescribed in that section.
Content. - In the declaration of estimated tax, the corporation shall state its estimated total net income from all sources for the taxable year, the proportion of its total net income allocable to this State, its estimated tax, and any other information required by the Secretary.
Amendments to Declaration. - Under rules prescribed by the Secretary, a corporation may amend a declaration of estimated tax.

History

(1959, c. 1259, s. 1A; 1973, c. 476, s. 193; 1983, c. 713, s. 86.)

§ 105-163.40. Time for submitting declaration; time and method for paying estimated tax; form of payment.

Due Dates of Declarations. - Declarations of estimated tax are due at the same time as the corporation's first installment payment. Installment payments are due as follows:
1. If, before the 1st day of the 4th month of the taxable year, the corporation's estimated tax equals or exceeds five hundred dollars ($500.00), the corporation shall pay the estimated tax in four equal installments on or before the 15th day of the 4th, 6th, 9th and 12th months of the taxable year.
2. If, after the last day of the 3rd month and before the 1st day of the 6th month of the taxable year, the corporation's estimated tax equals or exceeds five hundred dollars ($500.00), the corporation shall pay the estimated tax in three equal installments on or before the 15th day of the 6th, 9th and 12th months of the taxable year.
3. If, after the last day of the 5th month and before the 1st day of the 9th month of the taxable year, the corporation's estimated tax equals or exceeds five hundred dollars ($500.00), the corporation shall pay the estimated tax in two equal installments on or before the 15th day of the 9th and 12th months.
4. If, after the last day of the 8th month and before the 1st day of the 12th month of the taxable year, the corporation's estimated tax equals or exceeds five hundred dollars ($500.00), the corporation shall pay the estimated tax on or before the 15th day of the 12th month of the taxable year.
Payment of Estimated Tax When Declaration Amended. - When a corporation submits an amended declaration after making one or more installment payments on its estimated tax, the amount of each remaining installment shall be the amount that would have been payable if the estimate in the amended declaration was the original estimate, increased or decreased as appropriate by the amount computed by dividing:
1. The absolute value of the difference between:
  1. The amount paid and
  2. The amount that would have been paid if the estimate in the amended declaration was the original estimate by
2. The number of remaining installments.
Short Taxable Year. - Payment of estimated tax for taxable years of less than 12 months shall be made in accordance with rules promulgated by the Secretary.
Form of Payment. - A corporation that is required under the Code to pay its federal-estimated corporate income tax by electronic funds transfer must pay its State-estimated tax by electronic funds transfer.

History

(1959, c. 1259, s. 1A; 1973, c. 476, s. 193; 1983, c. 713, s. 86; 1989 (Reg. Sess., 1990), c. 984, s. 16; 1999-389, s. 7.)

§ 105-163.41. Underpayment.

Except as provided in subsection (d), if the amount of estimated tax paid by a corporation during the taxable year is less than the amount of tax imposed upon the corporation under Article 4 of this Chapter for the taxable year, the corporation must be assessed interest in an amount determined by multiplying the amount of the underpayment as determined under subsection (b), for the period of the underpayment as determined under subsection (c), by the percentage established as the rate of interest on assessments under G.S. 105-241.21 that is in effect for the period of the underpayment. For the purpose of this section, the amount of tax imposed under Article 4 of this Chapter is the net amount after subtracting the credits against the tax allowed by this Chapter other than the credit allowed by this Article.
The amount of the underpayment shall be the difference between:
1. The amount of the installment the corporation would have been required to pay if the corporation's estimated tax equalled ninety percent (90%) of the tax imposed under Article 4 for the taxable year, assuming the same schedule of installments, or ninety percent (90%) of the tax imposed for the taxable year if the corporation made no installment payments; and
2. The amount, if any, of the corresponding installment timely paid by the corporation.
The period of the underpayment runs from the date the installment was required to be paid to the earlier of:
1. The 15th day of the fourth month following the close of the taxable year, or
2. With respect to any portion of the underpayment, the date on which the portion is paid. An installment payment of estimated tax is considered a payment of any previous underpayment only to the extent the payment exceeds the amount of the installment determined under subdivision (1) of subsection (b) for that installment date.
Except as provided in subdivision (5) of this subsection, the interest for underpayment imposed by this section shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of the installments equals or exceeds the amount that would have been required to be paid on or before that date if the estimated tax was equal to the least of:
1. The tax shown on the return of the corporation for the preceding taxable year, if the corporation filed a return for the preceding taxable year and the preceding year was a taxable year of 12 months;
2. An amount equal to the tax computed at the rates applicable to the taxable year but otherwise on the basis of the facts shown on the return of the corporation for, and the law applicable to, the preceding taxable year; or
3. An amount equal to ninety percent (90%) of the tax for the taxable year computed by placing on an annualized basis the taxable income:
  1. For the first three months of the taxable year, in the case of the installment required to be paid in the 4th month;
  2. For the first three months or for the first five months of the taxable year, in the case of the installment required to be paid in the 6th month;
  3. For the first six months or for the first eight months of the taxable year, in the case of the installment required to be paid in the 9th month; and
  4. For the first nine months or for the first 11 months of the taxable year, in the case of the installment required to be paid in the 12th month of the taxable year.
4. For purposes of this subdivision, the taxable income shall be placed on an annualized basis by multiplying by 12 the taxable income referred to in the preceding sentence, and dividing the resulting amount by the number of months in the taxable year (3, 5, 6, 8, 9, or 11 as the case may be) referred to in that sentence.
5. In the case of a large corporation, as defined in section 6655 of the Code, subdivisions (1) and (2) of this subsection shall not apply.

History

(1959, c. 1259, s. 1A; 1973, c. 476, s. 193; 1977, c. 1114, s. 9; 1983, c. 713, s. 86; 1987 (Reg. Sess., 1988), c. 994, ss. 2, 3; 2001-414, s. 13; 2005-276, s. 6.37(m); 2007-491, s. 44(1)a; 2013-414, s. 3.)

Session Laws 2005-276, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2005'."

Session Laws 2005-276, s. 46.5 is a severability clause.

Session Laws 2007-491, s. 47, provides: "G.S. 105-241.10, as enacted by Section 1 of this act, and Sections 6, 15, 16, 17, and 22 are effective for taxable years beginning on or after January 1, 2007. Section 14 is effective for taxable years beginning on or after January 1, 2008. Sections 45, 46, and 47 are effective when they become law. The remainder of this act becomes effective January 1, 2008. The procedures for review of disputed tax matters enacted by this act apply to assessments of tax that are not final as of the effective date of this act and to claims for refund pending on or filed on or after the effective date of this act. This act does not affect matters for which a petition for review was filed with the Tax Review Board under G.S. 105-241.2 before the effective date of this act. The repeal of G.S. 105-122(c) and G.S. 105-130.4(t) and Sections 11 and 12 apply to requests for alternative apportionment formulas filed on or after the effective date of this act. A petition filed with the Tax Review Board for an apportionment formula before the effective date of this act is considered a request under G.S. 105-122(c1) or G.S. 105-130.4(t1), as appropriate."

Session Laws 2009-451, s. 27A.1(c), provides in part: "Notwithstanding the provisions of G.S. 105-163.15 and G.S. 105-163.41, no addition to tax may be made under those statutes for a taxable year beginning on or after January 1, 2009, and before January 1, 2011, with respect to any underpayment of income tax to the extent the underpayment was created or increased by this section."

Session Laws 2009-451, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2009'."

Session Laws 2009-451, s. 28.5 is a severability clause.

"(d) This section is effective when it becomes law."

Session Laws 2020-3, s. 5, is a severability clause.

Effect of Amendments. - Session Laws 2005-276, s. 6.37(m), effective July 1, 2005, deleted "Penalty for" from the section heading; in subsection (a), substituted "interest" for "an additional tax as a penalty"; and in subsection (d), in the introductory paragraph, substituted "interest" for "penalty" and added "imposed by this section."

Session Laws 2007-491, s. 44(1)a., effective January 1, 2008, substituted "G.S. 105-241.21" for "G.S. 105-241.1(i)" in subsection (a). For applicability, see Editor's note.

Session Laws 2013-414, s. 3, effective August 23, 2013, in subsection (c), substituted "runs from" for "shall run from" in the introductory language; substituted "fourth month" for "3rd month" in subdivision (c)(1); and substituted "is considered" for "shall be considered" in the second sentence of subdivision (c)(2).

CASE NOTES

§ 105-163.42: Repealed by Session Laws 1985 (Regular Session, 1986), c. 820.

§ 105-163.43. Overpayment refunded.

If the amount of estimated tax paid under this Article exceeds the taxes against which the estimated tax is credited pursuant to this Article, the excess is considered an overpayment by the taxpayer and shall be refunded as provided in Article 9 of this Chapter.

History

(1959, c. 1259, s. 1A; 1967, c. 1110, s. 5; 1973, c. 476, s. 193; 1983, c. 713, s. 86; 1993, c. 315, s. 1.)

§ 105-163.44: Repealed by Session Laws 2000-140, s. 66, effective July 21, 2000.

ARTICLE 5. Sales and Use Tax.

Sec.

Part 1. Title, Purpose and Definitions.

Sec.

Part 2. Taxes Levied.

Part 3. Exemptions and Exclusions.

Part 4. Reporting and Payment.

Part 5. Records Required to Be Kept.

Part 6. Examination of Records.

Part 7. Failure to Make Returns; Overpayments.

Part 7A. Uniform Sales and Use Tax Administration Act.

Part 8. Administration and Enforcement.

Division IX. Local Option Sales and Use Taxes.

§ 105-164: Repealed by Session Laws 1957, c. 1340, s. 5.

PART 1. TITLE, PURPOSE AND DEFINITIONS.

§ 105-164.1. Short title.

This Article shall be known as the "North Carolina Sales and Use Tax Act."

History

(1957, c. 1340, s. 5; 1998-98, s. 47.)

Editor's Note. - Session Laws 1998-98, s. 47, effective August 14, 1998, redesignated Division I as Part 1.

Session Laws 2012-74, s. 7, provides: "For purchases made on or after July 1, 2012, but before July 1, 2013, a company located at a ports facility for waterborne commerce that purchases specialized equipment to be used at the facility to unload or process bulk cargo to make it suitable for delivery to and use by manufacturing facilities is allowed a refund of all local sales and use taxes paid and a portion of State sales and use taxes paid on the purchases as provided in this section. The portion of the State sales and use taxes that may be refunded is equal to the excess of the State sales and use taxes paid over the amount that would have been due had the taxpayer been subject to tax on the eligible property as if it were mill machinery under Article 5F of Chapter 105 of the General Statutes. A request for a refund under this section must be in writing and must include any information and documentation required by the Secretary. A request for a refund under this section must be made on or after July 1, 2013, and is due before January 1, 2014. Refunds applied for after the due date are barred. Taxes for which a refund is allowed under this section are not an overpayment of tax and do not accrue interest as provided in G.S. 105-241.21."