Change of Income Year (G.S. 105-122(e)) (17 NCAC 05B.1501)
A change in income year automatically establishes a new franchise year. A North Carolina tax return is required for the short income period. Credit is permitted on such return against the franchise tax to the extent that the new franchise year overlaps the old year.
Example: A corporation changes its income year from a calendar year to one ending July 31. A tax return is required for the short period January 1, 2017 through July 31, 2017 (seven (7) months). Franchise tax paid on the 2016 tax return applicable to the calendar year 2017 was $240. Franchise tax on the short period would be applicable to the year August 1, 2017 through July 31, 2018, and would be computed as follows:
| Total tax due per return | $268 |
| Less credit for portion of prior year’s tax: | |
| Total tax paid on 2016 return | $240 |
| Less amount applicable to short period (7/12 of $240) | $140 |
| Amount applicable beyond short period | $100 |
| Net franchise tax due on short period return | $168 |
The statutorily computed tax is reduced by available tax credits, before calculating the amount applicable to the short period and the amount applicable beyond the short period.