GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2013

H                                                                                                                                                    6

HOUSE BILL 998

Committee Substitute Favorable 6/4/13

Committee Substitute #2 Favorable 6/6/13

Senate Finance Committee Substitute Adopted 6/12/13

Senate Finance Committee Substitute Adopted 7/1/13
Sixth Edition Engrossed 7/3/13

 

Short Title:        Tax Reduction Act.

(Public)

Sponsors:

 

Referred to:

 

April 18, 2013

 

A BILL TO BE ENTITLED

AN ACT to simplify the north carolina tax structure and to reduce individual and business tax rates.

The General Assembly of North Carolina enacts:

 

PART I.  INDIVIDUAL INCOME TAX CHANGES

SECTION 1.1.(a)  The following statutes are recodified as indicated:

Current Statute                                           Recodified Statute

G.S. 105-133                                             G.S. 105-153.1

G.S. 105-134                                             G.S. 105-153.2

G.S. 105-134.1                                          G.S. 105-153.3

G.S. 105-134.5                                          G.S. 105-153.4

G.S. 105-151                                             G.S. 105-153.9

G.S. 105-151.24                                        G.S. 105-153.10

G.S. 105-152                                             G.S. 105-153.8

SECTION 1.1.(b)  The following statutes are repealed:

G.S. 105-134.2

G.S. 105-134.3

G.S. 105-134.6

G.S. 105-134.7

G.S. 105-134.8

G.S. 105-151.1 and G.S. 105-130.22

G.S. 105-151.11

G.S. 105-151.12 and G.S. 105-130.34

G.S. 105-151.13 and G.S. 105-130.36

G.S. 105-151.14 and G.S. 105-130.37

G.S. 105-151.18

G.S. 105-151.20

G.S. 105-151.21

G.S. 105-151.25 and G.S. 105-130.44

G.S. 105-151.26

G.S. 105-151.33

SECTION 1.1.(c) G.S. 105-134.1, recodified by this Part as G.S. 105-153.3, reads as rewritten:

" 105-153.3.  Definitions.

The following definitions apply in this Part:

(1)        Adjusted gross income. - Defined in section 62 of the Code.

(1a)(2) Code. - Defined in G.S. 105-228.90.

(2)(3)   Department. - The Department of Revenue.

(3)(4)   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.

(4)(5)   Fiscal year. - Defined in section 441(e) of the Code.

(5)(6)   Gross income. - Defined in section 61 of the Code.

(6)(7)   Head of household. - Defined in section 2(b) of the Code.

(7)(8)   Individual. - A human being.

(7a)(9) Limited liability company. - Either a domestic limited liability company organized under Chapter 57C 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.

(7b)      Repealed by Session Laws 1998-98, s. 9, effective August 14, 1998.

(8)(10) Married individual. - An individual who is married and is considered married as provided in section 7703 of the Code.

(9)(11) Nonresident individual. - An individual who is not a resident of this State.

(10)(12)     North Carolina taxable income. - Defined in G.S. 105-134.5.

(10a)(13)   Partnership. - A domestic partnership, a foreign partnership, or a limited liability company.

(11)(14)     Person. - Defined in G.S. 105-228.90.

(12)(15)     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.

(13)      Retirement benefits. - Amounts paid to a former employee or the beneficiary of a former employee under a written retirement plan established by the employer to provide payments to an employee or the beneficiary of an employee after the end of the employee's employment with the employer where the right to receive the payments is based upon the employment relationship. With respect to a self-employed individual or the beneficiary of a self-employed individual, the term means amounts paid to the individual or beneficiary of the individual under a written retirement plan established by the individual to provide payments to the individual or the beneficiary of the individual after the end of the self-employment. In addition, the term includes amounts received from an individual retirement account described in section 408 of the Code or from an individual retirement annuity described in section 408 of the Code. For the purpose of this subdivision, the term "employee" includes a volunteer worker.

(14)(16)     S Corporation. - Defined in G.S. 105-131(b).

(15)(17)     Secretary. - The Secretary of Revenue.

(16)      Repealed by Session Laws 2011-145, s. 31A.1(a), effective for taxable years beginning on or after January 1, 2012.

(17)(18)     Taxable year. - Defined in section 441(b) of the Code.

(18)(19)     Taxpayer. - An individual subject to the tax imposed by this Part.

(19)(20)     This State. - The State of North Carolina."

SECTION 1.1.(d)  Part 2 of Article 4 of Chapter 105 of the General Statutes is amended by adding the following new sections to read:

" 105-153.5.  Modifications to adjusted gross income.

(a)        Deduction Amount. - In calculating North Carolina taxable income, a taxpayer may deduct from adjusted gross income either the standard deduction amount or the itemized deduction amount. In the case of a married couple filing separate returns, a taxpayer may not deduct the standard deduction amount if the taxpayer or the taxpayer's spouse claims the itemized deductions amount.

(1)        Standard deduction amount. - An amount equal to the amount listed in the table below based on the taxpayer's filing status:

Filing Status                                                     Standard Deduction

Married, filing jointly                                               $15,000

Head of Household                                                  12,000

Single                                                                         7,500

Married, filing separately                                            7,500.

(2)        Itemized deduction amount. - An amount equal to the sum of the following:

a.         The amount claimed by the taxpayer as a deduction for charitable contributions under section 170 of the Code for that taxable year.

b.         The amount claimed by the taxpayer 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 claimed by the taxpayer as a deduction for property taxes paid or accrued on real estate under section 164 of the Code for that taxable year. The amount claimed under this sub-subdivision may not exceed the amount listed in the table below based on the taxpayer's filing status.

Filing Status                                    Maximum Amount

Married, filing jointly                                   $15,000

Head of Household                                      12,000

Single                                                             7,500

Married, filing separately                                 7,500.

(b)        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:

a.         The United States or its possessions.

b.         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.

c.         A nonprofit educational institution organized or chartered under the laws of this State.

(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:

a.         Bailey v. State, 92 CVS 10221, 94 CVS 6904, 95 CVS 6625, 95 CVS 8230.

b.         Emory v. State, 98 CVS 0738.

c.         Patton v. State, 95 CVS 04346.

(6)        Income that meets both of the following requirements:

a.         Is earned or received by an enrolled member of a federally recognized Indian tribe.

b.         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.

(c)        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)        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.

" 105-153.6.  Adjustments when State decouples from federal accelerated depreciation and expensing.

(a)        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.

(b)        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.

(c)        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 as of January 2, 2013. A taxpayer who places section 179 property in service during a taxable year listed in the table below 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 listed in the table below 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.

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. The table below indicates the applicable five-year period.

Taxable Year of                   Dollar Limitation                 Investment Limitation

85% Add-Back

2010                                     $250,000                                 $800,000

2011                                     $250,000                                 $800,000

2012                                     $250,000                                 $800,000

2013                                       $25,000                                 $125,000

(d)        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.

" 105-153.7.  Individual income tax imposed.

(a)        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.

(b)        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."

SECTION 1.1.(e)  This section is effective for taxable years beginning on or after January 1, 2014.

SECTION 1.2.(a)  G.S. 105-134.5, recodified by this Part as G.S. 105-153.4, reads as rewritten:

" 105-153.4.  North Carolina taxable income defined.

(a)        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. 105-134.6.G.S. 105-153.5.

(b)        Nonresidents. - For a nonresident individual, the term "North Carolina taxable income" means the taxpayer's adjusted gross income as modified in G.S. 105-134.6, 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. 105-134.6, 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.

(c)        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 adjusted gross income, as modified under G.S. 105-134.6, G.S. 105-153.5 and G.S. 105-153.6, derived from all sources during the period the individual was a resident.

."

SECTION 1.2.(b)  G.S. 105-152 and G.S. 105-151, recodified by this Part as G.S. 105-153.8 and G.S. 105-153.9, read as rewritten:

" 105-153.8.  Income tax returns.

(a)        Who Must File. - The following individuals shall must file with the Secretary an income tax return under affirmation:

(1)        Every resident required to file an income tax return for the taxable year under the Code and every Code.

(2)        Every nonresident individual who (i) derivedmeets all of the following requirements:

a.         Receives during the taxable year gross income that is derived from North Carolina sources during the taxable yearand is attributable to the ownership of any interest in real or tangible personal property in this State orState, is derived from a business, trade, profession, or occupation carried on in this State and (ii) isState, or is derived from gambling activities in this State.

b.         Is required to file an income tax return for the taxable year under the Code.

(2)        Repealed by Session Laws 1991 (Reg. Sess., 1992), c. 930, s. 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.

(b)        Taxpayer Deceased or Unable to Make Return. - If the a taxpayer is unable to file the an income tax return, the return shall be filed by a duly authorized agent of the taxpayer or by a guardian or other person charged with the care of the person or property of the taxpayer.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 shall must file the return in the decedent's name and behalf, and the tax shall be levied upon and collected fromis payable by the estate.

(c)        Information Required With Return. - The income tax return shall must show the taxable income and adjustmentsadjusted gross income and modifications required by this Part 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.

(d)        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 taxable incomeadjusted gross income or North Carolina taxable income, the Secretary may require any additional information for the proper computation of the taxpayer's taxable incomeadjusted gross income and North Carolina taxable income. In computing the taxpayer's taxable incomeadjusted gross income and North Carolina taxable income, the Secretary shall must consider the fair profit that would normally arise from the conduct of the trade or business.

(e)        Joint Returns. - A husband and wife whose federal taxable incomeadjusted gross income is determined on a joint federal return shall 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.

(f)         Repealed by Session Laws 1991.

" 105-153.9.  Tax credits for income taxes paid to other states by individuals.

(a)        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 that and is taxed under its laws irrespective of the residence or domicile of the recipient, except that whenever a taxpayer who is deemed to be considered a resident of this State under the provisions of this Part is deemed also to be 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 calculated under the Code and adjusted as provided in G.S. 105-134.6 and G.S. 105-134.7, modified as provided in 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.

(b)        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."

SECTION 1.2.(c)  This section is effective for taxable years beginning on or after January 1, 2014.

SECTION 1.3.(a)  G.S. 105-160.3(b) reads as rewritten:

"(b)      The following credits are not allowed to an estate or trust:The tax credits allowed under G.S. 105-153.9 and G.S. 105-153.10 may not be claimed by an estate or trust.

(1)        G.S. 105-151. Tax credits for income taxes paid to other states by individuals.

(2)        G.S. 105-151.11. Credit for child care and certain employment-related expenses.

(3)        G.S. 105-151.18. Credit for the disabled.

(4)        G.S. 105-151.24. Credit for children.

(5)        G.S. 105-151.26. Credit for charitable contributions by nonitemizers.

(7)        G.S. 105-151.28. Credit for long-term care insurance.

(8)        G.S. 105-151.30. Credit for recycling oyster shells.

(9)        G.S. 105-151.31. Earned income tax credit.

(10)      G.S. 105-151.32. Credit for adoption expenses.

(11)      G.S. 105-151.33. Education expenses credit."

SECTION 1.3.(b)  G.S. 105-163.2B reads as rewritten:

" 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 seven percent (7%) 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 as if the winnings were wages. The taxes the Commission withholds are held in trust for the Secretary."

SECTION 1.3.(c)  This section is effective for taxable years beginning on or after January 1, 2014.

 

PART II.  BUSINESS PRIVILEGE TAX ON CORPORATIONS, llcS, AND OTHER LIMITED LIABILITY ENTITIES

SECTION 2.1.(a)  Chapter 105 of the General Statutes is amended by adding a new Article to read:

"Article 3L.

"Business Privilege Tax.

" 105-129.100.  Business privilege tax.

(a)        Nature of Tax. - This Article imposes a privilege tax on a business entity for the privilege of doing business in this State in an organizational form that confers limited liability on one or more owners of the entity. Payment of the tax imposed by this Article is a condition precedent to the right to do business in this State and, for a business entity that is organized or formed in this State, to the right to continue in the entity's organizational form. When a noncorporate business entity is doing business in this State, each owner of the noncorporate business entity is doing business in this State.

(b)        Tax Imposed. - An annual privilege tax is imposed on a business entity doing business in this State in the amount of four hundred dollars ($400.00). The tax is due when a return is due. A return is due on or before the 15th day of the fourth month of the business entity's income year. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105-263. A business entity 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 an officer, a member, the chief financial officer, or an individual authorized to bind the business entity.

(c)        Income Year. - The tax imposed by this Article is for the income year of the corporation in which the tax becomes due. For purposes of this Article, the income year of a business entity is the calendar year or the fiscal year upon the basis of which the net income is computed for federal income tax purposes under the Code. After the end of the income year in which a business entity is dissolved, the business entity is no longer subject to the tax levied in this Article unless the Secretary finds that the business entity has engaged in business activities in this State not appropriate to winding up and liquidating its business and affairs. A business entity that ceases its operations in this State before the end of its income year is not entitled to a refund of tax for any full calendar months remaining in the entity's income year.

" 105-129.101.  Definitions.

The following definitions apply in this Article:

(1)        Business entity. - A business whose statutory form of organization provides that one or more of its owners or members may not be held individually liable for the debts and obligations of the business. The term includes each of the following:

a.         An S Corporation.

b.         A domestic limited liability or a foreign limited liability company.

c.         A domestic limited partnership or a foreign limited partnership.

d.         A domestic limited liability partnership or a foreign limited liability partnership.

e.         A domestic or foreign limited liability limited partnership.

(2)        C Corporation. - Defined in G.S. 105-131.

(3)        Code. - Defined in G.S. 105-228.90.

(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)        Reserved.

(6)        Person. - Defined in G.S. 105-228.90.

(7)        S Corporation. - Defined in G.S. 105-131.

(8)        Secretary. - Defined in G.S. 105-228.90.

" 105-129.102.  Exempt business entities.

A business entity listed in this section is exempt from the business privilege tax imposed by this Article. Upon request of the Secretary, an exempt business entity must establish its claim for exemption in writing. The exempt entities are:

(1)        A business entity exempt from federal income tax under section 501 of the Code.

(2)        An insurance company subject to tax under Article 8B of this Chapter.

(3)        A C Corporation."

SECTION 2.1.(b)  This section is effective for taxable years beginning on or after January 1, 2015, and applies to taxes due for income years beginning in that year or a subsequent year.

SECTION 2.2.(a)  G.S. 105-129.100(b), as enacted by this Part, reads as rewritten:

"(b)      Tax Imposed. - An annual privilege tax is imposed on a business entity doing business in this State in the amount of four hundred dollars ($400). five hundred dollars ($500.00). The tax is due when a return is due. A return is due on or before the 15th day of the fourth month following the end of the business entity's income year. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105-263. A business entity 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 business entity."

 SECTION 2.2.(b)  This section is effective for taxable years beginning on or after January 1, 2016, and applies to taxes due for income years beginning in that year or a subsequent year.

 

PART III.  LOWER FRANCHISE TAX RATE

SECTION 3.1.(a)  G.S. 105-114(a) and G.S. 105-122.1 are repealed.

SECTION 3.1.(b)  G.S. 105-125(a) is amended by adding a new subdivision to read:

"(a)       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:

(2a)      An S Corporation subject to the privilege license tax under Article 3L of this Chapter. For purposes of this subdivision, an S Corporation is defined in G.S. 105-131.

."

SECTION 3.1.(c)  This section is effective for taxable years beginning on or after January 1, 2015, and applies to taxes due in that year or a subsequent year.

SECTION 3.2.(a)  G.S. 105-122 reads as rewritten:

" 105-122.  Franchise or privilege tax on domestic and foreign corporations.

(d)        After determining the proportion of its total capital stock, surplus and undivided profits as set out in subsection (c) 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 report and statement are 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 shall be provided in subsection (d2) of this section. The tax is imposed 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" there shall also be deducted 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 Environment and Natural Resources 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 shall apply only with respect to pollution abatement plants or equipment constructed or installed on or after January 1, 1955.

(d2)      Tax Rate. - The rate is the amount set in the table below for each one thousand dollars ($1,000) of the total amount of capital stock, surplus, and undivided profits as provided in subsection (d) of this section. The tax imposed in this section may not be less than the amount set in the table below.

Income Year                         Tax Rate                        Minimum Tax Due

2015                                          $1.25                                     $   500

2016                                          $1.00                                     $1,000

2017                                          $0.75                                     $1,000."

SECTION 3.2.(b)  G.S. 105-120.2(b) reads as rewritten:

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

(b)        (1)        Every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the report and statement are due, a franchise or privilege tax, which is hereby levied, 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, tax at the rate established in G.S. 105-120(d2), but in no case shall the tax be more than seventy-five thousand dollars ($75,000) nor less than thirty-five dollars ($35.00).the minimum tax due under G.S. 101-120(d2).

(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 shall be levied at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) on the greater of the amounts of

a.         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); or

b.         The total actual investment in tangible property in this State of such corporation as computed under G.S. 105-122(d)."

SECTION 3.2.(c)  This section is effective for taxable years beginning on or after January 1, 2015, and applies to taxes due in that year or a subsequent year.

 

PART IV.  PHASED ELIMINATION OF THE CORPORATE INCOME TAX

SECTION 4.1.(a)  G.S. 105-130.3 reads as rewritten:

" 105-130.3.  Corporations.

A tax is imposed on the State net income of every C Corporation doing business in this State. An S Corporation is not subject to the tax levied in this section. The tax is a percentage of the taxpayer's State net income computed as follows:

Income Years Beginning                 Tax

In 1997                                           7.5%

In 1998                                           7.25%

In 1999                                           7%

After 1999                                      6.9%.

In 2014                                           6.4%

In 2015                                           5%

In 2016                                           4%

In 2017                                           2%."

SECTION 4.1.(b)  This section is effective for taxable years beginning on or after January 1, 2014.

SECTION 4.2.(a)  The title of Article 3E of Chapter 105 of the General Statutes reads as rewritten:

"Article 3E.

Low-Income Housing Tax Credits.Workforce Housing Construction Loan Program."

SECTION 4.2.(b)  G.S. 105-129.42(a) reads as rewritten:

"(a)       Definitions. - The following definitions apply in this section:

(1)        Development tier. - The classification assigned to an area pursuant to G.S. 143B-437.08.

(1)(2)   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)(3)   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)(4)   Qualified residential unit. - A housing unit that meets the requirements of section 42 of the Code."

SECTION 4.2.(c)  G.S. 105-129.42(b) reads as rewritten:

"(b)      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 that is located in a development tier area one or two is allowed a credit under this section. The amount of the credit is equal to a percentage of the development's qualified basis, as determined pursuant to section 42 of the Code. Code, limited as provided in this subsection. 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. The amount of the credit allowed for a taxable year is the percentage provided in the table below of the credit amount determined above:

              Taxable Year Beginning In                        Percentage of Credit Amount Allowed

                            2014                                                                     100%

                            2015                                                                       75%

                            2016                                                                       50%

                            2017                                                                       25%."

SECTION 4.2.(d)  G.S. 105-129.45 reads as rewritten:

" 105-129.45.  Sunset.

This Article is repealed effective January 1, 2015. January 1, 2018. The repeal applies to developments to which federal credits are allocated on or after January 1, 2015.January 1, 2018."

SECTION 4.2.(e)  This section is effective for taxable years beginning on or after January 1, 2014.

SECTION 4.3.(a) Part 1 of Article 4 of Chapter 105 of the General Statutes is repealed.

SECTION 4.3.(b)  G.S. 105-129.27(b) reads as rewritten:

"(b)      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."

SECTION 4.3.(c)  G.S. 105-129.96(b) reads as rewritten:

"(b)      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."

SECTION 4.3.(d)  G.S. 105-131.7(a) reads as rewritten:

"(a)       An S Corporation incorporated or doing business in the State shall must file with the Department an annual return, 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.Secretary. The return must be filed on or before the 15th 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 is considered to end on the last day of the calendar month ending nearest to the last day of a taxpayer's actual income year. 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(4) and (5), and such other information as the Secretary may require."

SECTION 4.3.(e)  G.S. 105-164.3 reads as rewritten:

" 105-164.3.  Definitions.

The following definitions apply in this Article:

(19)      Major recycling facility. - Defined in G.S. 105-129.25.A recycling facility that meets all of the following conditions:

a.         The facility is located in an area that, at the time the owner began construction of the facility, was an enterprise tier one area pursuant to G.S. 105-129.3.

b.         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.

c.         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.

(33a)    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.

."

SECTION 4.3.(f)  G.S. 105-275(8)d. reads as rewritten:

" 105-275.  Property classified and excluded from the tax base.

The following classes of property are designated special classes under Article V, Sec. 2(2), of the North Carolina Constitution and are excluded from tax:

d.         Real or personal property that is used or, if under construction, is to be used by a major recycling facility as defined in G.S. 105-129.25G.S. 105-164.3 predominantly for recycling or resource recovering of or from solid waste, if the Department of Environment and Natural Resources furnishes a certificate to the tax supervisor of the county in which the property is situated stating the Department of Environment and Natural Resources has found that the described property has been or will be constructed or installed for use by a major recycling facility, complies or will comply with the rules of the Department of Environment and Natural Resources, and has, or will have as a purpose recycling or resource recovering of or from solid waste."

SECTION 4.3.(g)  Subsections (e) and (f) of this section become effective January 1, 2018. The remainder of this section is effective for taxable years beginning on or after January 1, 2018.

SECTION 4.4.(a)  G.S. 115C-546.1 reads as rewritten:

" 115C-546.1.  Creation of Fund; administration.

(a)        There is created the Public School Building Capital Fund. The Fund shall be used to assist county governments in meeting their public school building capital needs and their equipment needs under their local school technology plans.

(b)        Each calendar quarter, the Secretary of Revenue shall remit to the State Treasurer for credit to the Public School Building Capital Fund an amount equal to the applicable fraction provided in the table below of the net collections received during the previous quarter by the Department of Revenue under G.S. 105-130.3. All funds deposited in the Public School Building Capital Fund shall be invested as provided in G.S. 147-69.2 and G.S. 147-69.3.

Period                                      Fraction

10/1/97 to 9/30/98                   One-fifteenth (1/15)

10/1/98 to 9/30/99                   Two twenty-ninths (2/29)

10/1/99 to 9/30/00                   One-fourteenth (1/14)

After 9/30/00                            Five sixty-ninths (5/69)

(c)        The Fund shall be administered by the Department of Public Instruction."

SECTION 4.4.(b)  G.S. 115C-546.2(a) is repealed.

SECTION 4.4.(c)  This section is effective when it becomes law.

 

PART V.  ELIMINATE ANNUAL REPORT FILING FEES

SECTION 5.(a)  G.S. 55-1-22 reads as rewritten:

" 55-1-22.  Filing, service, and copying fees.

(a)        The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary for filing:

                        Document                                                                                                            Fee

(23)     Annual report (paper)                                                                        25.00No fee

(23a)    Annual report (electronic)                                                                             18.00

(d)        The fee for the annual report in subdivision (23) of this section is nonrefundable."

SECTION 5.(b)  G.S. 55-16-22 reads as rewritten:

" 55-16-22.  Annual report.

(a)        Except as provided in subsections (a1) and (a2) of this section, each domestic corporation and each foreign corporation authorized to transact business in this State shall deliver an annual report to the Secretary of Revenue in paper form or, in the alternative, directly to the Secretary of State in electronic form as prescribed by the Secretary of State under this section.Requirement. - The following businesses shall file an annual report with the Secretary of State on a form prescribed by the Secretary and in the manner required by the Secretary:

(1)        A corporation that is incorporated under this Chapter.

(2)        A corporation that has received a certificate of authority under this Chapter authorizing the corporation to transact business in this State.

(3)        A company that is an insurance company regulated under Chapter 58 of the General Statutes.

(a1)      Each insurance company subject to the provisions of Chapter 58 of the General Statutes shall deliver an annual report to the Secretary of State.

(a2)      A domestic corporation governed by Chapter 55B of the General Statutes is exempt from this section.

(a3)      The annual report required by this section shall be in a form jointly prescribed by the Secretary of Revenue and the Secretary of State. The Secretary of Revenue shall provide the form needed to file an annual report. The Secretary of State shall prescribe the form needed to file an annual report electronically and shall provide this form by electronic means. The annual report shall set forth all of the following:

(1)        The name of the corporation and the state or country under whose law it is incorporated.

(2)        The street address, and the mailing address if different from the street address, of the registered office, the county in which its registered office is located, and the name of its registered agent at that office in this State, and a statement of any change of such registered office or registered agent, or both.

(3)        The address and telephone number of its principal office.

(4)        The names, titles, and business addresses of its principal officers.

(4a)      Repealed by Session Laws 1997-475, s. 6.1, effective January 1, 1998.

(5)        A brief description of the nature of its business.

If the information contained in the most recently filed annual report has not changed, a certification to that effect may be made instead of setting forth the information required by subdivisions (2) through (5) of this subsection.

(b)        Content. - An annual report must set out the information listed in this subsection. The information must be current as of the date the business completes the report.Information in the annual report must be current as of the date the annual report is executed on behalf of the corporation. If the information set out in the business' most recent annual report has not changed, the business may certify on its annual report that the information has not changed in lieu of restating the information. A business may amend an annual report at any time to correct, update, or augment information included in a prior report.

The following information must be included on the annual report of a business:

(1)        Its name.

(2)        The state or country under whose law it is incorporated or, if it is an insurance company and is not a corporation, the state or country under whose law it is organized.

(3)        The street address of its registered office in this State, the county in which the registered office is located, and the name of the registered agent at the registered office. If the registered office or registered agent differs from the registered office or registered agent listed on the preceding annual report, the report must indicate that the registered office or registered agent has changed. A change in registered office or registered agent that is indicated on an annual report is effective when the report is filed.

(4)        The mailing address of its registered office, if the street address of the office is not the mailing address.

(5)        The address and telephone number of its principal office.

(6)        The name, title, and business address of each of its principal officers.

(7)        A brief description of the nature of its business.

(c)        Due Date. - An annual report is due by the 15th day of the fourth month following the close of the fiscal year of the business filing the report. An annual report is delinquent if it is not filed within 120 days after it is due.eligible to be delivered to the Secretary of Revenue is due by the due date for filing the corporation's income and franchise tax returns. An extension of time to file a return is an extension of time to file an annual report. At the option of the filer, an annual report may be filed directly with the Secretary of State in electronic form. An annual report required to be delivered to the Secretary of State is due by the fifteenth day of the fourth month following the close of the corporation's fiscal year.

(d)        Incomplete Report. - If the Secretary of State determines that an annual report filed with the Secretary does not contain the information required by this section, the Secretary must send a written notice to the business that the report is incomplete. An annual report that is corrected to contain the information and filed with the Secretary within 30 days of the date of the notice is considered timely filed.If an annual report does not contain the information required by this section, the Secretary of State shall promptly notify the reporting domestic or foreign corporation in writing and return the report to it for correction. If the report is corrected to contain the information required by this section and delivered to the Secretary of State within 30 days after the effective date of notice, it is deemed to be timely filed.

(e)        Amendments to any previously filed annual report may be filed with the Secretary of State at any time for the purpose of correcting, updating, or augmenting the information contained in the annual report.

(f)         Expired.

(g)        When a statement of change of registered office or registered agent is filed in the annual report, the change shall become effective when the statement is received by the Secretary of State.

(h)        If the Secretary of State does not receive an annual report within 120 days of the date the return is due, the Secretary of State may presume that the annual report is delinquent. This presumption may be rebutted by receipt of the annual report from the Secretary of Revenue or by evidence of delivery presented by the filing corporation."

SECTION 5.(c)  G.S. 57D-1-22(a)(28), as enacted by S.L. 2013-157, reads as rewritten:

"(a)       The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary of State for filing:

(28)      Annual report                                                                     200.00No fee

."

SECTION 5.(d)  G.S. 59-35.2(a)(18) reads as rewritten:

"(a)       The Secretary of State shall collect the following fees when the documents described in this subsection are submitted by a partnership to the Secretary of State for filing:

                        Document                                                                                                             Fee

(18)     Annual report................................................................................... 200.00No fee

."

SECTION 5.(e)  G.S. 59-1106(a)(22) reads as rewritten:

"(a)       The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary of State for filing:

                        Document                                                                                                             Fee

(22)     Annual report for a limited liability limited partnership........................ 200.00No fee

."

SECTION 5.(f)  G.S. 105-122.1 is repealed.

SECTION 5.(g)  G.S. 105-228.90(a) reads as rewritten:

"(a)       Scope. - This Article applies to Subchapters I, V, and VIII of this Chapter, to the annual report filing requirements of G.S. 55-16-22, to the primary forest product assessment levied under Article 12 of Chapter 113A of the General Statutes, and to inspection taxes levied under Article 3 of Chapter 119 of the General Statutes."

SECTION 5.(h)  G.S. 105-256.1 is repealed.

SECTION 5.(i)  G.S. 105-259(a) reads as rewritten:

"(a)       Definitions. - The following definitions apply in this section:

(2)        Tax information. - Any information from any source concerning the liability of a taxpayer for a tax, as defined in G.S. 105-228.90. The term includes the following:

a.         Information contained on a tax return, a tax report, or an application for a license for which a tax is imposed.

b.         Information obtained through an audit of a taxpayer or by correspondence with a taxpayer.

c.         Information on whether a taxpayer has filed a tax return or a tax report.

d.         A list or other compilation of the names, addresses, social security numbers, or similar information concerning taxpayers.

The term does not include (i) statistics classified so that information about specific taxpayers cannot be identified, (ii) an annual report required to be filed under G.S. 55-16-22 or (iii) identified or the amount of tax refunds paid to a governmental entity listed in G.S. 105-164.14(c) or to a State agency."

SECTION 5.(j)  This section becomes effective January 1, 2015. Subsection (f) of this section applies to returns due on or after April 15, 2015, for taxable years beginning on or after January 1, 2015. The remaining sections apply to annual reports due on or after January 1, 2015.

 

PART VI.  SALES TAX CHANGES

SECTION 6.1.(a)  G.S. 105-164.13(13c), (28), and (30) are repealed.

SECTION 6.1.(b)  G.S. 105-164.13(50) reads as rewritten:

" 105-164.13.  Retail sales and use tax.

The sale at retail and the use, storage, or consumption in this State of the following tangible personal property, digital property, and services are specifically exempted from the tax imposed by this Article:

(50)      Fifty percent (50%) The percentage set in the table below of the sales price of tangible personal property sold through a coin-operated vending machine, machine on or after the date set in the table below, other than tobacco.

                              Percentage of Sales Price Exempt                      Sold on or After

                                                    40%                                                 October 1, 2013

                                                    30%                                                 July 1, 2014

                                                    20%                                                 July 1, 2015

                                                    10%                                                 July 1, 2016.

."

SECTION 6.1.(c)  G.S. 105-164.13(50) is repealed.

SECTION 6.1.(d)  Subsection (c) of this section becomes effective July 1, 2017, and applies to items sold on or after that date. The remainder of this section becomes effective October 1, 2013, and applies to sales made and items sold on or after that date.

SECTION 6.2.(a)  G.S. 105-164.13(27) and (27a), 105-164.13C, and 105-164.13D are repealed.

SECTION 6.2.(b)  This section becomes effective July 1, 2014, and applies to sales made on or after that date.

SECTION 6.3.(a)  Part 3 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

" 105-164.13E.  Exemption for farmers.

The following tangible personal property, digital property, and services are exempt from sales and use tax if purchased by a qualifying farmer and for use by the farmer in the planting, cultivating, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals. A qualifying farmer is a farmer who has an annual gross income of ten thousand dollars ($10,000) or more from farming operations for the preceding calendar year and includes a dairy operator, a poultry farmer, an egg producer, a livestock farmer, a farmer of crops, and a farmer of an aquatic species, as defined in G.S. 106-758.

(1)        Fuel and electricity used for a purpose other than preparing food, heating dwellings, and other household purposes.

(2)        Commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, potting soil, baler twine, and seeds.

(3)        Farm machinery, attachment and repair parts for farm machinery, and lubricants applied to farm machinery. The term "machinery" includes implements that have moving parts or are operated or drawn by an animal. The term does not include implements operated wholly by hand or motor vehicles required to be registered under Chapter 20 of the General Statutes.

(4)        A container used in the planting, cultivating, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals or used in packaging and transporting the farmer's product for sale.

(5)        Any of the following substances when purchased for use on animals or plants, as appropriate, held or produced for commercial purposes. This exemption does not apply to any equipment or devices used to administer, release, apply, or otherwise dispense these substances:

a.         Remedies, vaccines, medications, litter materials, and feeds for animals.

b.         Rodenticides, insecticides, herbicides, fungicides, and pesticides.

c.         Defoliants for use on cotton or other crops.

d.         Plant growth inhibitors, regulators, or stimulators, including systemic and contact or other sucker control agents for tobacco and other crops.

e.         Semen.

(6)        Baby chicks and poults sold for commercial poultry or egg production."

SECTION 6.3.(b)  G.S. 105-164.13(1), (1a), (1b), (2a), (4a), and (4d) are repealed.

SECTION 6.3.(c)  This section becomes effective July 1, 2014, and applies to sales made on or after that date.

SECTION 6.4.(a)  G.S. 105-164.4(a) reads as rewritten:

"(a)       A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and three-quarters percent (4.75%).

(1a)      The general rate of two percent (2%) applies to the sales price of each manufactured home sold at retail, including all accessories attached to the manufactured home when it is delivered to the purchaser.The maximum tax is three hundred dollars ($300.00) per article. Each section of a manufactured home that is transported separately to the site where it is to be erected is a separate article.

(8)        The general rate of two and one-half percent (2.5%) applies to the sales price of each modular home sold at retail, including all accessories attached to the modular home when it is delivered to the purchaser. The sale of a modular home to a modular homebuilder is considered a retail sale. A person who sells a modular home at retail is allowed a credit against the tax imposed by this subdivision for sales or use tax paid to another state on tangible personal property incorporated in the modular home. The retail sale of a modular home occurs when a modular home manufacturer sells a modular home to a modular homebuilder or directly to the end user of the modular home."

SECTION 6.4.(b)  G.S. 105-164.44G is repealed.

SECTION 6.4.(c)  G.S. 105-467(a) reads as rewritten:

"(a)       Sales Tax. - The sales tax that may be imposed under this Article is limited to a tax at the rate of one percent (1%) of the following:

(1)        A retailer's net taxable sales and gross receipts that are subject to the general rate of sales tax imposed by the State under G.S. 105-164.4.G.S. 105-164.4 except the tax does not apply to the sales price of a manufactured home or a modular home.

(2)        through (4) Repealed by Session Laws 2011-330, s. 45, effective June 27, 2011.

(5)        The sales price of food that is not otherwise exempt from tax pursuant to G.S. 105-164.13 but is exempt from the State sales and use tax pursuant to G.S. 105-164.13B.

(5a)      The sales price of a bundled transaction that includes food subject to tax under subdivision (5) of this subsection, if the price of the food exceeds ten percent (10%) of the price of the bundle. A retailer must determine the price of food in a bundled transaction in accordance with G.S. 105-164.4D.

(5b)      The sales price of bread, rolls, and buns that are sold at a bakery thrift store and are exempt from State tax under G.S. 105-164.13(27a).

(6),       (7) Repealed by Session Laws 2011-330, s. 45, effective June 27, 2011."

SECTION 6.4.(d)  This section becomes effective July 1, 2014, and applies to sales made on or after that date.

 

PART VII.  SALES TAX REFUNDS

SECTION 7.1.(a)  G.S. 105-164.3(43) reads as rewritten:

" 105-164.3.  Definitions.

The following definitions apply in this Article:

(43)      State agency. - A unit of the executive, legislative, or judicial branch of State government, such as a department, a commission, a board, a council, or The University of North Carolina. The term includes The University of North Carolina Health Care System. The term does not include a local board of education.education or an affiliate of the University of North Carolina Health Care System that is a separately incorporated entity."

SECTION 7.1.(b)  G.S. 105-164.14(c) is repealed.

SECTION 7.1.(c)  This section becomes effective January 1, 2016, and applies to purchases made on or after that date.

SECTION 7.2.(a)  G.S. 105-164.14(b) reads as rewritten:

"(b)      Nonprofit Entities and Hospital Drugs. - A nonprofit entity is allowed a semiannual refund of sales and use taxes paid by it under this Article on direct purchases of tangible personal property and services, other than electricity, telecommunications service, and ancillary service, for use in carrying on the work of the nonprofit entity. Sales and use tax liability indirectly incurred by a nonprofit entity on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure that is owned or leased by the nonprofit entity and is being erected, altered, or repaired for use by the nonprofit entity for carrying on its nonprofit activities is considered a sales or use tax liability incurred on direct purchases by the nonprofit entity. A request for a refund must be in writing and must include any information and documentation required by the Secretary. A request for a refund for the first six months of a calendar year is due the following October 15; a request for a refund for the second six months of a calendar year is due the following April 15. The aggregate annual refund amount allowed for a nonprofit entity under this subsection for a fiscal year may not exceed the amount set in the table below:

                           Fiscal Year                                                     Amount

Beginning July 1, 2014                                            $7,500,000

Beginning July 1, 2015                                            $5,000,000

Beginning July 1, 2016                                            $3,500,000

Beginning on or after July 1, 2017                           $2,000,000.

The refunds allowed under this subsection do not apply to an entity that is owned and controlled by the United States or to an entity that is owned or controlled by the State and is not listed in this subsection. A hospital that is not listed in this subsection is allowed a semiannual refund of sales and use taxes paid by it on medicines and drugs purchased for use in carrying out its work. The following nonprofit entities are allowed a refund under this subsection:

(1)        Hospitals not operated for profit, including hospitals and medical accommodations operated by an authority or other public hospital described in Article 2 of Chapter 131E of the General Statutes.

(2)        An organization that is exempt from income tax under section 501(c)(3) of the Code, other than an organization that is properly classified in any of the following major group areas of the National Taxonomy of Exempt Entities:

a.         Community Improvement and Capacity Building.

b.         Public and Societal Benefit.

c.         Mutual and Membership Benefit.

(2a)      An organization that is exempt from income tax under the Code and is one of the following:

a.         A volunteer fire department.

b.         A volunteer emergency medical services squad.

(3)        Repealed by Session Laws 2008-107, s. 28.22(a), effective July 1, 2008, and applicable to purchases made on or after that date.

(4)        Qualified retirement facilities whose property is excluded from property tax under G.S. 105-278.6A.

(5)        A university affiliated nonprofit organization that procures, designs, constructs, or provides facilities to, or for use by, a constituent institution of The University of North Carolina. For purposes of this subdivision, a nonprofit organization includes an entity exempt from taxation as a disregarded entity of the nonprofit organization."

SECTION 7.2.(b)  G.S. 105-164.14(d) reads as rewritten:

"(d)      Late Applications. - Refunds applied for more than three years one year after the due date are barred."

SECTION 7.2.(c)  G.S. 105-467(b) reads as rewritten:

"(b)      Exemptions and Refunds. - The State exemptions and exclusions contained in G.S. 105-164.13, the State sales and use tax holidays contained in G.S. 105-164.13C and G.S. 105-164.13D, and the State refund provisions contained in G.S. 105-164.14 through G.S. 105-164.14B G.S. 105-164.13 apply to the local sales and use tax authorized to be levied and imposed under this Article. The State refund provisions contained in G.S. 105-164.14 through G.S. 105-164.14B apply to the local sales and use tax authorized to be levied and imposed under this Article. Except The aggregate local refund amount allowed to a nonprofit entity under G.S. 105-164.14(b) for a fiscal year may not exceed the amount set in the table below:

                           Fiscal Year                                                     Amount

Beginning July 1, 2014                                            $3,000,000

Beginning July 1, 2015                                            $2,000,000

Beginning July 1, 2016                                            $1,500,000

Beginning on or after July 1, 2017                           $   850,000.

(b1)      Additional Refunds. - Except as provided in this subsection, a taxing county may not allow an exemption, exclusion, or refund that is not allowed under the State sales and use tax. A local school administrative unit and a joint agency created by interlocal agreement among local school administrative units pursuant to G.S. 160A-462 to jointly purchase food service-related materials, supplies, and equipment on their behalf is allowed an annual refund of sales and use taxes paid by it under this Article on direct purchases of tangible personal property and services, other than electricity, telecommunications service, and ancillary service. Sales and use tax liability indirectly incurred by the entity on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure that is owned or leased by the entity and is being erected, altered, or repaired for use by the entity is considered a sales or use tax liability incurred on direct purchases by the entity for the purpose of this subsection. A request for a refund shall be in writing and shall include any information and documentation required by the Secretary. A request for a refund is due within six months after the end of the entity's fiscal year. Refunds applied for more than three years one year after the due date are barred."

SECTION 7.2.(d)  This section becomes effective July 1, 2014, and applies to purchases made on or after that date.

SECTION 7.3.(a)  Part 3 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

" 105-164.14C.  Phaseout of sales tax preferences.

(a)        Refund Amount. - The refund amount allowed under this section for a fiscal year is the percentage amount of sales and use taxes paid during the fiscal year as provided in the table below:

                           Fiscal Year                                           Percentage Allowed

Beginning July 1, 2014                                                 80%

Beginning July 1, 2015                                                 60%

Beginning July 1, 2016                                                 40%

Beginning July 1, 2017                                                 20%.

(b)        Administration. - A request for a refund must be in writing and must include any information and documentation required by the Secretary. A request for a refund is due within six months after the end of the State's fiscal year. Refunds applied for after the due date are barred.

(c)        Not an Overpayment. - A tax for which a refund is allowed under this section is not an overpayment of tax and does not accrue interest as provided in G.S. 105-241.21.

(d)        Refund Allowed. - The following taxpayers are allowed an annual refund of sales and use taxes paid under this Article in the amount provided in subsection (a) of this section.

(1)        Farmer. - A farmer that qualifies for a sales tax exemption under G.S. 105-164.13E is allowed a refund of the sales and use tax paid by the farmer on the following items purchased for use in farming operations:

a.         A grain, feed, or soybean storage facility and parts and accessories attached to the facility.

b.         A commercially manufactured facility to be used for commercial purposes for housing, raising, or feeding animals or for housing equipment necessary for these commercial activities. The refund also applies to commercially manufactured equipment, and parts and accessories for the equipment, used in the facility.

c.         Building materials, supplies, fixtures, and equipment that become a part of and are used in the construction, repair, or improvement of an enclosure or a structure specifically designed, constructed, and used for housing, raising, or feeding animals or for housing equipment necessary for one of these commercial activities. The refund also applies to commercially manufactured equipment, and parts and accessories for the equipment, used in the enclosure or a structure.

d.         A bulk tobacco barn or rack, parts and accessories attached to the tobacco barn or rack, and any similar apparatus, part, or accessory used to cure or dry tobacco or another crop.

(2)        Commercial logging. - A person engaged in the commercial logging business is allowed a refund of the sales and use tax by it on the following:

a.         Logging machinery. - Logging machinery is machinery used to harvest raw forest products for transport to first market.

b.         Attachments and repair parts for logging machinery.

c.         Lubricants applied to logging machinery.

d.         Fuel used to operate logging machinery.

(3)        Wood chippers. - A person is allowed a refund of the sales and use tax paid by it on a wood chipper that meets all of the following requirements:

a.         It is designed to be towed by a motor vehicle.

b.         It is assigned a 17-digit vehicle identification number by the National Highway Transportation Safety Association.

c.         It is sold to a person who purchases a motor vehicle in this State that is to be registered in another state and who uses the purchased motor vehicle to tow the wood chipper to the state in which the purchased motor vehicle is to be registered.

(4)        Telephone company. - A telephone company regularly engaged in providing telecommunications service to subscribers on a commercial basis is allowed a refund of the sales and use tax paid by it on central office equipment, switchboard equipment, private branch exchange equipment, terminal equipment other than public pay telephone terminal equipment, and parts and accessories attached to the equipment.

(5)        Radio or television company. - A radio or television company licensed by the Federal Communications Commission is allowed a refund of the sales and use tax paid by it on towers, broadcasting equipment, and parts and accessories attached to the equipment.

(6)        Cable service provider. - A cable service provider is allowed a refund of the sales and use tax paid by it on broadcasting equipment and parts and accessories attached to the equipment. A refund is not allowed on cable.

(7)        Commercial fishing. - A person listed in this subdivision is allowed a refund of the sales and use tax paid by it on boats, fuel oil, lubricating oils, machinery, equipment, nets, rigging, paints, parts, accessories, and supplies.

a.         The holder of a standard commercial fishing license issued under G.S. 113-168.2 for principal use in commercial fishing operations.

b.         The holder of a shellfish license issued under G.S. 113-169.2 for principal use in commercial shellfishing operations.

c.         The operator of a for-hire boat, as defined in G.S. 113-174, for principal use in the commercial use of the boat.

(8)        Commercial laundries and dry cleaners. - A commercial laundry or dry cleaning establishment is allowed a refund of the sales and use tax paid by it on the following:

a.         Articles or materials used for the identification of garments being laundered or dry cleaned, wrapping paper, bags, hangers, starch, soaps, detergents, cleaning fluids and other compounds or chemicals applied directly to the garments in the direct performance of the laundering or the pressing and cleaning service.

b.         Laundry and dry-cleaning machinery, parts and accessories attached to the machinery, and lubricants applied to the machinery.

c.         Fuel used in the direct performance of the laundering or the pressing and cleaning service.

(9)        Commercial printer and publisher. - A commercial printer or a commercial publisher is allowed a refund of the sales and use tax paid by it on paper, ink, and other tangible personal property for use as ingredients or component parts of free distribution periodicals and sales by printers of free distribution periodicals to the publishers of these periodicals. As used in this subdivision, the term "free distribution periodical" means a publication that is continuously published on a periodic basis monthly or more frequently, is provided without charge to the recipient, and is distributed in any manner other than by mail.

(10)      Railroad company. - A railroad company is allowed a refund of the sales and use tax paid by it on diesel fuel for use in rolling stock other than motor vehicles. The definitions in G.S. 105-333 apply in this subdivision.

(11)      Passenger air carrier. - An interstate passenger air carrier is allowed a refund of the sales and use tax paid by it on fuel in excess of two million five hundred thousand dollars ($2,500,000). The amount of sales and use tax paid does not include a refund allowed to the interstate passenger air carrier under G.S. 105-164.14(a)."

SECTION 7.3.(b)  G.S. 105-164.13(4c), (4f), (4g), (5b), (5c), (5d), (9), (10), (11a), and (39) are repealed.

SECTION 7.3.(c)  G.S. 105-467(b), as amended in this act, reads as rewritten:

"(b)      Exemptions and Refunds. - The State exemptions and exclusions contained in G.S. 105-164.13 apply to the local sales and use tax authorized to be levied and imposed under this Article. The State refund provisions contained in G.S. 105-164.14 through G.S. 105-164.14B G.S. 105-164.14C apply to the local sales and use tax authorized to be levied and imposed under this Article. The amount of a refund allowed under G.S. 105-164.14C is the same percentage refund amount allowed for a State refund under that section. The aggregate local refund amount allowed to a nonprofit entity under G.S. 105-164.14(b) for a fiscal year may not exceed the amount set in the table below:

                           Fiscal Year                                                     Amount

Beginning July 1, 2014                                            $3,000,000

Beginning July 1, 2015                                            $2,000,000

Beginning July 1, 2016                                            $1,500,000

Beginning on or after July 1, 2017                           $   850,000."

SECTION 7.3.(d)  This section becomes effective July 1, 2014, and applies to purchases made on or after that date.

SECTION 7.4.(a)  G.S. 105-164.14C, as enacted by this Part, is repealed.

SECTION 7.4.(b)  G.S. 105-467(b), as amended by this Part, reads as rewritten:

"(b)      Exemptions and Refunds. - The State exemptions and exclusions contained in G.S. 105-164.13 apply to the local sales and use tax authorized to be levied and imposed under this Article. The State refund provisions contained in G.S. 105-164.14 through 105-164.14CG.S. 105-164.14B apply to the local sales and use tax authorized to be levied and imposed under this Article. The amount of a refund allowed under G.S. 105-164.14C is the same percentage refund amount allowed for a State refund under that section. The aggregate local refund amount allowed to a nonprofit entity under G.S. 105-164.14(b) for a fiscal year may not exceed the amount set in the table below:

                           Fiscal Year                                                     Amount

Beginning July 1, 2014                                            $3,000,000

Beginning July 1, 2015                                            $2,000,000

Beginning July 1, 2016                                            $1,500,000

Beginning on or after July 1, 2017                           $   850,000."

SECTION 7.4.(c)  This section becomes effective July 1, 2018, and applies to purchases made on or after that date.

SECTION 7.5.(a)  G.S. 105-164.14A(a)(4) and (5) read as rewritten:

" 105-164.14A.  Economic incentive refunds.

(a)        Refund. - The following taxpayers are allowed an annual refund of sales and use taxes paid under this Article:

(4)        Motorsports team or sanctioning body. - A professional motorsports racing team, a motorsports sanctioning body, or a related member of such a team or body is allowed a refund of the sales and use tax paid by it in this State on aviation fuel that is used to travel to or from a motorsports event in this State, to travel to a motorsports event in another state from a location in this State, or to travel to this State from a motorsports event in another state. For purposes of this subdivision, a "motorsports event" includes a motorsports race, a motorsports sponsor event, and motorsports testing. This subdivision is repealed for purchases made on or after January 1, 2014.July 1, 2014.

(5)        Professional motorsports team. -  A professional motorsports racing team or a related member of a team is allowed a refund of fifty percent (50%) of the sales and use tax paid by it in this State on tangible personal property, other than tires or accessories, that comprises any part of a professional motorsports vehicle. For purposes of this subdivision, "motorsports accessories" includes instrumentation, telemetry, consumables, and paint. This subdivision is repealed for purchases made on or after January 1, 2014.July 1, 2014."

SECTION 7.5.(b)  This section is effective when it becomes law.

 

PART VIII.  ELECTRICITY AND PIPED NATURAL GAS TAX CHANGES

SECTION 8.1.(a)  G.S. 105-116, 105-116.1, 105-164.21A, and 159B-27(b), (c), (d), and (e) are repealed.

SECTION 8.1.(b)  G.S. 105-130.6A(a)(4) reads as rewritten:

"(a)       Definitions. - The provisions of G.S. 105-130.6 govern the determination of whether a corporation is a subsidiary or an affiliate of another corporation. In addition, the following definitions apply in this section:

(4)        Electric power holding company. - A holding company with an affiliate or a subsidiary that is engaged in the business of producing electric power.subject to the franchise tax on electric power companies levied in G.S. 105-116.

."

SECTION 8.1.(c)  G.S. 105-164.4(a)(1f) and (a)(4a) are repealed.

SECTION 8.1.(d)  G.S. 105-164.13(44) and Article 5E of Chapter 105 of the General Statutes are repealed.

SECTION 8.1.(e)  G.S. 105-164.4(a) is amended by adding a new subdivision to read:

"(10)    The combined general rate applies to the gross receipts derived from sales of electricity and piped natural gas."

SECTION 8.1.(f)  G.S. 105-164.15A reads as rewritten:

" 105-164.15A.  Effective date of tax changes on services and items taxed at combined general rate.

(a)        Services. - The effective date of a tax change for a service taxable under this Article is administered as follows:

(1)        For a service that is provided and billed on a monthly or other periodic basis:

a.         A new tax or a tax rate increase applies to the first billing period that is at least 30 days after enactment and that starts on or after the effective date.

b.         A tax repeal or a tax rate decrease applies to bills rendered on or after the effective date.

(2)        For a service that is not billed on a monthly or other periodic basis, a tax change applies to amounts received for services provided on or after the effective date, except amounts received for services provided under a lump-sum or unit-price contract entered into or awarded before the effective date or entered into or awarded pursuant to a bid made before the effective date.

(b)        Combined Rate Items. - The effective date of a rate change for an item that is taxable under this Article at the combined general rate is the effective date of any of the following:

(1)        The effective date of a change in the State general rate of tax set in G.S. 105-164.4.

(2)        For an increase in the authorization for local sales and use taxes, the date on which local sales and use taxes authorized by Subchapter VIII of this Chapter for every county become effective in the first county or group of counties to levy the authorized taxes.

(3)        For a repeal in the authorization for local sales and use taxes, the effective date of the repeal.

(4)        For an item billed on a monthly or other periodic basis, the change applies to the first billing period that is at least 30 days after enactment and that starts on or after the effective date."

SECTION 8.1.(g)  This section becomes effective July 1, 2014, and applies to gross receipts billed on or after that date.

SECTION 8.2.(a)  Pursuant to G.S. 62-31 and G.S. 62-32, 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 and for the increase in the rate of tax imposed on sales of electricity under G.S. 105-164.4.

(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), and the resulting liability of companies for the tax imposed on sales of piped natural gas under G.S. 105-164.4.

SECTION 8.2.(b)  This section is effective when it becomes law.

SECTION 8.3.(a)  Part 8 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

" 105-164.44K.  Distribution of part of tax on electricity to cities.

(a)        Distribution. - The Secretary must distribute to cities forty-four percent (44%) of the net proceeds of the tax collected under G.S. 105-164.4 on electricity. Each city's share of the amount to be distributed is its franchise tax share calculated under subsection (b) of this section plus its ad valorem share calculated under subsection (c) of this section. The Secretary must make the distribution within 75 days after the end of each quarter.

(b)        Franchise Tax Share. - The quarterly franchise tax share of a city is the amount of electricity gross receipts franchise tax distributed to the city under repealed G.S. 105-116.1 for the same related quarter that was the last quarter in which taxes were imposed on electric power companies under repealed G.S. 105-116.

The franchise tax share of a city that has dissolved, merged with another city, or divided into two or more cities since it received a distribution under repealed G.S. 105-116.1 is adjusted as follows:

(1)        If a city dissolves and is no longer incorporated, the franchise tax share of the city is added to the amount distributed under subsection (c) of this section.

(2)        If two or more cities merge or otherwise consolidate, their franchise tax shares are combined.

(3)        If a city divides into two or more cities, the franchise tax share of the city that divides is allocated among the new cities in proportion to the total amount of ad valorem taxes levied by each on property having a tax situs in the city.

(c)        Ad Valorem Share. - The ad valorem share of a city is its proportionate share of the amount that remains for distribution after determining each city's franchise tax share under subsection (b) of this section. A city's proportionate share is the amount of ad valorem taxes it levies on property having a tax situs in the city compared to the ad valorem taxes levied by all cities on property having a tax situs in the cities.

(d)        Methodology. - The ad valorem method set out in G.S. 105-472(b)(2) applies in determining the share of a city under this section based on ad valorem taxes, except that the amount of ad valorem taxes levied by a city does not include ad valorem taxes levied on behalf of a taxing district and collected by the city.

(e)        Determination Final. - The determination made by the Department with respect to a city's franchise tax share is final and is not subject to administrative or judicial review.

(f)         Nature. - 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. The Governor may not reduce or withhold the distribution."

SECTION 8.3.(b)  Part 8 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

" 105-164.44L.  Distribution of part of tax on piped natural gas to cities.

(a)        Distribution. - The Secretary must distribute to cities twenty percent (20%) of the net proceeds of the tax collected under G.S. 105-164.4 on piped natural gas. Each city's share of the amount to be distributed is its excise tax share calculated under subsection (b) of this section plus its ad valorem share calculated under subsection (c) of this section. The Secretary must make the distribution within 75 days after the end of each quarter.

(b)        Excise Tax Share. - The quarterly excise tax share of a city that is not a gas city is the amount of piped natural gas excise tax distributed to the city under repealed G.S. 105-187.44 for the same related quarter that was the last quarter in which taxes were imposed on piped natural gas under repealed Article 5E of this Chapter. The Secretary must determine the excise tax share of a gas city and divide that amount by four to calculate the quarterly distribution amount for a gas city. The excise tax share of a gas city is the amount the gas city would have received under repealed G.S. 105-187.44 for the last year in which taxes were imposed under repealed Article 5E of this Chapter if piped natural gas consumed by the city or delivered by the city to a customer had not been exempt from tax under repealed G.S. 105-187.41(c)(1) and (c)(2). A gas city must report the information required by the Secretary to make the distribution under this section in the form, manner, and time required by the Secretary. For purposes of this subsection, the term "gas city" has the same meaning as defined in repealed G.S. 105-187.40.

The excise tax share of a city that has dissolved, merged with another city, or divided into two or more cities since it received a distribution under repealed G.S. 105-187.44 is adjusted as follows:

(1)        If a city dissolves and is no longer incorporated, the excise tax share of the city is added to the amount distributed under subsection (c) of this section.

(2)        If two or more cities merge or otherwise consolidate, their excise tax shares are combined.

(3)        If a city divides into two or more cities, the excise tax share of the city that divides is allocated among the new cities in proportion to the total amount of ad valorem taxes levied by each on property having a tax situs in the city.

(c)        Ad Valorem Share. - The ad valorem share of a city is its proportionate share of the amount that remains for distribution after determining each city's excise tax share under subsection (b) of this section. A city's proportionate share is the amount of ad valorem taxes it levies on property having a tax situs in the city compared to the ad valorem taxes levied by all cities on property having a tax situs in the cities.

(d)        Methodology. - The ad valorem method set out in G.S. 105-472(b)(2) applies in determining the share of a city under this section based on ad valorem taxes, except that the amount of ad valorem taxes levied by a city does not include ad valorem taxes levied on behalf of a taxing district and collected by the city.

(e)        Determination Final. - The determination made by the Department with respect to a city's excise tax share is final and is not subject to administrative or judicial review.

(f)         Nature. - 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. The Governor may not reduce or withhold the distribution."

SECTION 8.3.(c)  This section is effective for quarters beginning on or after July 1, 2014.

SECTION 8.4.(a)  G.S. 160A-211 reads as rewritten:

"(c)       Prohibition. - A city may not impose a license, franchise, or privilege tax on a person engaged in any of the businesses listed in this subsection. These businesses are subject to a State tax sales tax at the combined general rate for which the city receives a share of the tax revenue.revenue or they are subject to the local sales tax.

(1)        Supplying piped natural gas taxed under Article 5E of Chapter 105 of the General Statutes.gas.

(2)        Providing telecommunications service taxed under G.S. 105-164.4(a)(4c).

(3)        Providing video programming taxed under G.S. 105-164.4(a)(6).

(4)        Providing electricity. A city may continue to impose and collect the license, franchise, or privilege taxes on an electric power company that it imposed and collected on or before January 1, 1947, but it may not impose or collect any greater franchise, privilege, or license taxes, in the aggregate, on an electric power company that was imposed and collected on or before January 1, 1947."

SECTION 8.4.(b)  This section becomes effective July 1, 2014.

 

PART IX.  CONVERT GROSS RECEIPTS TAX ON AMUSEMENTS TO SALES TAX

SECTION 9.1.(a)  G.S. 105-37.1, 105-38.1, and 105-40 are repealed.

SECTION 9.1.(b)  G.S. 105-164.4(a) is amended by adding the following new subdivision to read:

" 105-164.4.  Tax imposed on retailers.

(a)        A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and three-quarters percent (4.75%).

(9)        The general rate of tax applies to admission charges to an entertainment activity listed in this subdivision. Offering any of these listed activities is a service. An admission charge includes a charge for a single ticket, a multioccasion ticket, a seasonal pass, an annual pass, and a cover charge.

                  An admission charge does not include a charge for amenities. If charges for amenities are not separately stated on the face of an admission ticket, then the charge for admission is considered to be equal to the admission charge for a ticket to the same event that does not include amenities and is for a seat located directly in front of or closest to a seat that includes amenities.

                  When an admission ticket is resold and the price of the admission ticket is printed on the face of the ticket, the tax does not apply to the face price. When an admission ticket is resold and the price of the admission ticket is not printed on the face of the ticket, the tax applies to the difference between the amount the reseller paid for the ticket and the amount the reseller charges for the ticket.

                  Admission charges to the following entertainment activities are subject to tax:

a.         A live performance or other live event of any kind.

b.         A motion picture or film."

SECTION 9.1.(c)  G.S. 105-164.13 is amended by adding the following new subdivision to read:

" 105-164.13.  Retail sales and use tax.

The sale at retail and the use, storage, or consumption in this State of the following tangible personal property, digital property, and services are specifically exempted from the tax imposed by this Article:

(60)      Admission charges to any of the following recreational or entertainment activities:

a.         An event that is held at an elementary or secondary school and is sponsored by the school.

b.         A commercial agricultural fair that meets the requirements of G.S. 106-520.1, as determined by the Commissioner of Agriculture.

c.         A festival or other recreational or entertainment activity that lasts no more than seven consecutive days and is sponsored by a nonprofit entity that is exempt from tax under Article 4 of this Chapter and uses the entire proceeds of the activity exclusively for the entity's nonprofit purposes. This exemption applies to the first two activities sponsored by the entity during a calendar year.

d.         A youth athletic contest sponsored by a nonprofit entity that is exempt from tax under Article 4 of this Chapter. For the purpose of this subdivision, a youth athletic contest is a contest in which each participating athlete is less than 20 years of age.

e.         A State attraction."

SECTION 9.1.(d)  The following statutes are repealed:

G.S. 106-507

G.S. 106-516

G.S. 106-517

G.S. 106-518

G.S. 106-519

G.S. 106-520

G.S. 140-10.1

SECTION 9.1.(e)  G.S. 105-164.9 is repealed.

SECTION 9.1.(f)  G.S. 105-164.10 reads as rewritten:

" 105-164.10.  Retail bracket system.

For the convenience of the retailer in collecting the tax due under this Article, the Secretary shall must prescribe tables that compute the tax due on sales by rounding off the amount of tax due to the nearest whole cent. The Secretary shall must issue a separate table for each rate of tax that may apply to a sale, including the general rate established in G.S. 105-164.4, preferential rates, and combined State and local rates. Use of the tables prescribed by the Secretary does not relieve a retailer of liability for the applicable rate of tax due on the gross receipts or net taxable sales of the retailer.sale."

SECTION 9.1.(g)  This section becomes effective October 1, 2013, and applies to admissions purchased 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 October 1, 2013, for admission to a live event, for which the initial sale of tickets occurred before that date, other than gross receipts received by a ticket reseller, are taxable under G.S. 105-37.1.

SECTION 9.2.(a)  G.S. 105-164.4(a)(9), as enacted by this Part, reads as rewritten:

"(9)      The general rate of tax applies to admission charges to an entertainment activity listed in this subdivision. Offering any of these listed activities is a service. An admission charge includes a charge for a single ticket, a multioccasion ticket, a seasonal pass, an annual pass, and a cover charge.

                  An admission charge does not include a charge for amenities. If charges for amenities are not separately stated on the face of an admission ticket, then the charge for admission is considered to be equal to the admission charge for a ticket to the same event that does not include amenities and is for a seat located directly in front of or closest to a seat that includes amenities.

                  When an admission ticket is resold and the price of the admission ticket is printed on the face of the ticket, the tax does not apply to the face price. When an admission ticket is resold and the price of the admission ticket is not printed on the face of the ticket, the tax applies to the difference between the amount the reseller paid for the ticket and the amount the reseller charges for the ticket.

                  Admission charges to the following entertainment activities are subject to tax:

a.         A live performance or other live event of any kind.

b.         A motion picture or film.

c.         A museum, a cultural site, a garden, an exhibit, a show, or a similar attraction or a guided tour at any of these attractions."

SECTION 9.2.(b)  This section becomes effective July 1, 2014, and applies to admissions purchased on or after that date.

 

PART X.  SERVICE CONTRACTS

SECTION 10.(a)  G.S. 105-164.3 is amended by adding a new subdivision to read:

" 105-164.3.  Definitions.

The following definitions apply in this Article:

(38b)    Service contract. - A warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the provider agrees to maintain or repair tangible personal property.

."

SECTION 10.(b)  G.S. 105-164.4(a) is amended by adding the following new subdivision to read:

" 105-164.4.  Tax imposed on retailers.

(a)        A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and three-quarters percent (4.75%).

(11)      The general rate of tax applies to a service contract."

SECTION 10.(c)  G.S. 105-164.13 is amended by adding a new subdivision to read:

"(61)    A service contract on tangible personal property described in G.S. 105-164.4(a)(11) that is provided for any of the following:

a.         An item exempt from tax under this Article, other than an item exempt from tax under G.S. 105-164.13(32).

b.         A newly constructed building or structure.

c.         A transmission, distribution, or other network cable or asset of an entity providing electric, gas, telecommunications, cable, broadband, or other utility services contained on utility-owned land or other rights-of-way or easements authorized for utility and related purposes."

SECTION 10.(d)  This section becomes effective July 1, 2014, and applies to sales made on or after that date.

 

PART XI.  ELIMINATE ESTATE TAX

SECTION 11.(a)  Article 1A of Chapter 105 of the General Statutes is repealed.

SECTION 11.(b)  G.S. 105-241.10 reads as rewritten:

" 105-241.10.  Limit on refunds and assessments after a federal determination.

The limitations in this section apply when a taxpayer files a timely return reflecting a federal determination that affects the amount of State tax payable and the general statute of limitations for requesting a refund or proposing an assessment of the State tax has expired. A federal determination is a correction or final determination by the federal government of the amount of a federal tax due. A return reflecting a federal determination is timely if it is filed within the time required by G.S. 105-32.8, 105-130.20G.S. 105-130.20, 105-159, 105-160.8, or 105-163.6A, as appropriate. The limitations are:

(1)        Refund. - A taxpayer is allowed a refund only if the refund is the result of adjustments related to the federal determination.

(2)        Assessment. - A taxpayer is liable for additional tax only if the additional tax is the result of adjustments related to the federal determination. A proposed assessment may not include an amount that is outside the scope of this liability."

SECTION 11.(c)  G.S. 105-236(a)(5) reads as rewritten:

"(a)       Penalties. - The following civil penalties and criminal offenses apply:

(5)        Negligence. -

e.         Estate tax deficiencies. - This subdivision does not apply to estate tax deficiencies that are the result of valuation understatements.

."

SECTION 11.(d)  This section becomes effective January 1, 2013, and applies to the estates of decedents dying on or after that date.

 

PART XII.  eliminate earmarks and credit to GENERAL FUND

SECTION 12.1.(a)  G.S. 105-228.30(b) reads as rewritten:

"(b)      The register of deeds of each county must remit the proceeds of the tax levied by this section to the county finance officer. The finance officer of each county must credit one-half of the proceeds to the county's general fund and remit the remaining one-half of the proceeds, less taxes refunded and the county's allowance for administrative expenses, to the Department of Revenue on a monthly basis. A county may retain two percent (2%) of the amount of tax proceeds allocated for remittance to the Department of Revenue as compensation for the county's cost in collecting and remitting the State's share of the tax. Of the funds remitted to it pursuant to this section, the Department of Revenue must credit seventy-five percent (75%) to the Parks and Recreation Trust Fund established under G.S. 113-44.15 and twenty-five percent (25%) to the Natural Heritage Trust Fund established under G.S. 113-77.7.The Department of Revenue must credit the funds remitted to it under this subsection to the General Fund."

SECTION 12.1.(b)  G.S. 113-44.15(a) reads as rewritten:

"(a)       Fund Created. - There is established a Parks and Recreation Trust Fund in the State Treasurer's Office. The Trust Fund shall be a nonreverting special revenue fund consisting of gifts and grants to the Trust Fund, monies credited to the Trust Fund pursuant to G.S. 105-228.30(b),Fund and other monies appropriated to the Trust Fund by the General Assembly. Investment earnings credited to the assets of the Fund shall become part of the Fund."

SECTION 12.1.(c)  G.S. 113-77.9 reads as rewritten:

" 113-77.9.  Acquisition of lands with funds from the Natural Heritage Trust Fund.

(b)        Land Acquisition and Debt Service. - The Trustees may authorize expenditures from the Fund for the following purposes:

(1)        To acquire land that represents the ecological diversity of North Carolina, including natural features such as riverine, montane, coastal, and geologic systems and other natural areas to ensure their preservation and conservation for recreational, scientific, educational, cultural, and aesthetic purposes, and to retire debt incurred for this purpose under Article 9 of Chapter 142 of the General Statutes.

(2)        To acquire land as additions to the system of parks, State trails, aesthetic forests, fish and wildlife management areas, wild and scenic rivers, and natural areas for the beneficial use and enjoyment of the public, and to retire debt incurred for this purpose under Article 9 of Chapter 142 of the General Statutes.

(3)        Subject to the limitations of subsection (b2) of this section, to acquire land that contributes to the development of a balanced State program of historic properties.

(b2)      Historic Properties. - The Trustees may authorize expenditure of up to twenty-five percent (25%) of the funds credited to the Fund pursuant to G.S. 105-228.30 during the preceding fiscal year to acquire land under subdivision (3) of subsection (b) of this section. No other funds in the Fund may be used for expenditures to acquire land under subdivision (3) of subsection (b) of this section.

(b3)      Debt. - Of the funds credited annually to the Fund pursuant to G.S. 105-228.30, the Trustees may authorize expenditure of up to sixty percent (60%) to reimburse the General Fund for debt service on special indebtedness to be issued or incurred under Article 9 of Chapter 142 of the General Statutes for the purposes provided in subdivisions (b)(1) and (2) of this section. In order to authorize expenditure of funds for debt service reimbursement, the Trustees must identify to the State Treasurer and the Department of Administration the specific natural heritage projects for which they would like special indebtedness to be issued or incurred and the annual amount they intend to make available, and request the State Treasurer to issue or incur the indebtedness. After special indebtedness has been issued or incurred for a natural heritage project requested by the Trustees, the Trustees must direct the State Treasurer to credit to the General Fund each year the actual aggregate principal and interest payments to be made in that year on the special indebtedness, as identified by the State Treasurer.

."

SECTION 12.1(d)  This section becomes effective July 1, 2013, and applies to transfers made on or after that date.

SECTION 12.2.(a)  G.S. 105-187.19(b) reads as rewritten:

"(b)      Each quarter, the Secretary shall credit eight percent (8%) of the net tax proceeds to the Solid Waste Management Trust Fund, seventeen percent (17%) of the net tax proceeds to the Scrap Tire Disposal Account, two and one-half percent (2.5%) of the net tax proceeds to the Inactive Hazardous Sites Cleanup Fund, and two and one-half percent (2.5%) of the net tax proceeds to the Bernard Allen Memorial Emergency Drinking Water Fund.thirty percent (30%) of the net tax proceeds to the General Fund. The Secretary shall distribute the remaining seventy percent (70%) of the net tax proceeds among the counties on a per capita basis according to the most recent annual population estimates certified to the Secretary by the State Budget Officer."

SECTION 12.2.(b)  G.S. 130A-309.63 is repealed.

SECTION 12.2.(c)  Part 2B of Article 9 of Chapter 130A of the General Statutes is amended by adding a new section to read:

" 130A-309.64.  Scrap Tire Disposal Program; other Department activities related to scrap tires.

(a)        The Department may make grants to units of local government to assist them in disposing of scrap tires. To administer the grants, the Department shall establish procedures for applying for a grant and the criteria for selecting among grant applicants. The criteria shall include the financial ability of a unit of local government to provide for scrap tire disposal, the severity of a unit of local government's scrap tire disposal problem, the effort made by a unit of local government to ensure that only tires generated in the normal course of business in this State are provided free disposal, and the effort made by a unit of local government to provide for scrap tire disposal within the resources available to it.

(b)        A unit of local government is not eligible for a grant under subsection (a) of this section unless its costs for disposing of scrap tires for the six-month period preceding the date the unit of local government files an application for a grant exceeded the amount the unit of local government received during that period from the proceeds of the scrap tire tax under G.S. 105-187.19. A grant to a unit of local government for scrap tire disposal may not exceed the unit of local government's unreimbursed cost for the six-month period.

(c)        The Department may support a position to provide local governments with assistance in developing and implementing scrap tire management programs designed to complete the cleanup of nuisance tire collection sites and prevent scrap tires generated from outside of the State from being presented for free disposal in the State.

(d)        The Department may clean up scrap tire collection sites that the Department has determined are a nuisance. The Department may use funds to clean up a nuisance tire collection site only if no other funds are available for that purpose.

(e)        The Department shall include in the report to be delivered to the Environmental Review Commission on or before January 15 of each year pursuant to G.S. 130A-309.06(c) a description of the implementation of the North Carolina Scrap Tire Disposal Act under this Part for the fiscal year ending the preceding June 30. The description of the implementation of the North Carolina Scrap Tire Disposal Act shall include a list of the recipients of grants under subsection (a) of this section and the amount of each grant for the previous 12-month period. The report also shall include the amount of funds used to clean up nuisance sites under subsection (d) of this section.

(f)         The Department may adopt any rules necessary to implement this section."

SECTION 12.2.(d)  G.S. 130A-309.06(c) reads as rewritten:

"(c)       The Department shall report to the Environmental Review Commission on or before 15 January of each year on the status of solid waste management efforts in the State. The report shall include:

(10)      A description of the implementation of the North Carolina Scrap Tire Disposal Act that includes the beginning and ending balances in the Scrap Tire Disposal Account for the reporting period, the amount credited to the Scrap Tire Disposal Account during the reporting period, andthe amount of revenue used for grants and to clean up nuisance tire collection sites, as required by G.S. 130A-309.63(e).under the provisions of G.S. 130A-309.64.

."

SECTION 12.2.(e)  G.S. 130A-309.09C(g) reads as rewritten:

"(g)       In addition to any other penalties provided by law, a unit of local government that does not comply with the requirements of G.S. 130A-309.09A(b) and G.S. 130A-309.09B(a) shall not be eligible for grants from the Solid Waste Management Trust Fund, the Scrap Tire Disposal Account,Fund or the White Goods Management Account and shall not receive the proceeds of the scrap tire disposal tax imposed by Article 5B of Chapter 105 of the General Statutes or the proceeds of the white goods disposal tax imposed by Article 5C of Chapter 105 of the General Statutes to which the unit of local government would otherwise be entitled. The Secretary shall notify the Secretary of Revenue to withhold payment of these funds to any unit of local government that fails to comply with the requirements of G.S. 130A-309.09A(b) and G.S. 130A-309.09B(a). Proceeds of the scrap tire disposal tax that are withheld pursuant to this subsection shall be credited to the Scrap Tire Disposal AccountGeneral Fund and may be used as provided in G.S. 130A-309.63.G.S. 130A-309.64. Proceeds of the white goods disposal tax that are withheld pursuant to this subsection shall be credited to the White Goods Management Account and may be used as provided in G.S. 130A-309.83."

SECTION 12.2.(f)  Any tax proceeds remaining in the Scrap Tire Disposal Account, repealed under subsection (b) of this section, as of the effective date of this section shall continue to be used for the same purposes and in the same manner as the Scrap Tire Disposal Account, except the funds in the Scrap Tire Disposal Account shall not be used for grants to encourage the use of processed scrap tire materials.

SECTION 12.2.(g)  This section becomes effective July 1, 2013.

 

PART XIIi.  REPEAL TOBACCO DISCOUNT

SECTION 13.(a)  G.S. 105-113.21 reads as rewritten:

" 105-113.21.  Discount; refund.Refund.

(a1)      Discount. - A 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.

(b)        Refund. - A 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 must be in the form prescribed by the Secretary and shall must be accompanied by an affidavit from the manufacturer stating the number of cigarettes returned to the manufacturer by the applicant. The Secretary shall must refund the tax paid, less the discount allowed,paid on the unsalable cigarettes. The 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."

SECTION 13.(b)  G.S. 105-113.39 reads as rewritten:

" 105-113.39.  Discount; refund.Refund.

(a)        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, 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.

(b)        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 must be in the form prescribed by the Secretary and shall must be accompanied by an affidavit from the manufacturer listing the tobacco products returned to the manufacturer by the applicant. The Secretary shall must refund the tax paid, less the discount allowed, paid on the listed products."

SECTION 13.(c)  This section becomes effective July 1, 2014, and applies to returns filed for periods beginning on or after that date.

 

PART XIV.  CAP EXCISE TAX ON MOTOR FUEL

SECTION 14.(a)  Notwithstanding G.S. 105-449.80(a), for the period September 1, 2013, through June 30, 2015, the motor fuel excise tax rate may not exceed thirty-seven and one-half cents (37 1/2) a gallon.

SECTION 14.(b)  This section is effective when it becomes law.

 

PART XV.  Study and EFFECTIVE DATE

SECTION 15.(a)  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.

SECTION 15.(b)  G.S. 105-237.1(a) reads as rewritten:

"(a)       Authority. - The Secretary may compromise a taxpayer's liability for a tax that is collectible under G.S. 105-241.22 when the Secretary determines that the compromise is in the best interest of the State and makes one or more of the following findings:

(6)        The taxpayer is a retailer or a person under Article 5 of this Chapter; the assessment is for sales or use tax the retailer failed to collect or the person failed to pay on an item taxable under G.S. 105-164.4(a)(9), and the retailer or person made a good-faith effort to comply with the sales and use tax laws. This subdivision expires for assessments issued after July 1, 2020."

SECTION 15.(c)  The Revenue Laws Study Committee is directed to study the tax issues listed in this subsection. The Committee may report its findings, together with any recommended legislation, to the 2014 Regular Session of the 2013 General Assembly upon its convening.

(1)        The scope and application of the privilege tax at the rate of one percent (1%) with a cap of eighty dollars ($80.00) that applies to mill machinery and on other machinery and equipment purchased by certain industries and companies.

(2)        The feasibility of a preferential tax rate on diesel fuel sold to railroads, fuel sold to passenger air carriers, and fuel sold to motorsports.

(3)        The authority of cities and counties to impose a privilege tax on businesses and the various State privilege license taxes.

(4)        The impact of the elimination of the State and local sales and use tax refund on nonprofit entities and their ability to fulfill their stated mission.

(5)        The benefits and fiscal impact of allowing corporations to deduct net operating losses as opposed to net economic losses.

(6)        The simplification of the franchise tax base calculation and the elimination of the franchise tax.

(7)        The feasibility of expanding the sales tax base to include additional services.

SECTION 15.(d)  Except as otherwise provided, this act is effective when it becomes law.