2000 Revenue Law Changes

Tax Administration
October 17, 2000

PREFACE

This document is designed for use by personnel in the North Carolina Department of Revenue. It is available to those outside the Department as a resource document. It gives a brief summary of the following tax law changes:

1. Changes made by the 1998 or 1999 General Assemblies that take effect for tax year 2000. These changes are also discussed in the Department's 1998 and 1999 Tax Law Changes.
2. Changes made by the 1999 General Assembly in the Extra Session held in December of that year. That Extra Session addressed problems arising from the 1999 hurricanes. The changes made in the Extra Session are not included in the Department's 1999 Tax Law Changes because the changes had not been enacted when that publication was prepared.
3. Changes made by the 2000 General Assembly, regardless of when they take effect.

The changes are listed by type of tax. The order of the tax types is their order in the General Statutes. Within a tax type, the changes are listed in numerical order. The document does not include law changes that affect the Department of Revenue but do not affect the tax laws.

For further information on a tax law change, refer to the legislation that made the change. Administrative rules, bulletins, directives, and other instructions issued by the Department, as well as opinions issued by the Attorney General's Office, may provide further information on the application of a tax law change.

Table of Contents

I.	Privilege Tax
II.	Alcoholic Beverage License and Excise Taxes
III.	Unauthorized Substances Taxes
IV.	Corporate Franchise Tax
V.	Tax Incentives for New and Expanding Businesses
VI.	Business and Energy Tax Credits
VII.	Corporate Income Tax
VIII.	Individual Income Tax
IX.	Withholding of Income Tax
X.	Estimated Tax Payments
XI.	Sales and Use Tax
XII.	Highway Use Tax
XIII.	White Goods Disposal Tax
XIV.	Dry-Cleaning Solvent Tax
XV.	Insurance Premiums Tax
XVI.	Excise Tax on Conveyances
XVII.	General Administration
XVIII.	Property Tax
XIX.	Motor Fuels Tax
XX.	Debt Set-Off
XXI.	Video Poker Reports
XXII.	Studies

I. PRIVILEGE TAX

G.S. 105-40 - Technical Change: The catchline of this section was amended to delete the word "license." The word was deleted because it is a remnant of the period before July 1, 2000, when amusements were subject to an annual, fixed license tax as well as a gross receipts privilege tax and it erroneously implies that the amusements may still be subject to the gross receipts privilege tax levied in Article 2. The amusements in this section are exempt from any tax imposed under Article 2.

(Effective July 21, 2000; SB 1335, s. 61, S.L. 00-140.)

G.S. 105-88(d) - Provision Recodified: This subsection previously prohibited a loan agency from bringing a collection action in a court in this State to enforce the payment of a loan if the entity had not paid the license tax imposed on the agency under G.S. 105-88(a). The substance of this subsection was recodified as part of new G.S. 105-269.13 and the subsection was rewritten to refer to the new statute.

(Effective July 14, 2000; HB 1624, s. 3, S.L. 00-120.)

G.S. 105-88(e) - Technical Change: This subsection was amended to make it clear that the changes made to G.S. 105-88 by Chapter 438 of the 1999 Session Laws did not affect the existing authority of cities and counties to levy taxes on pawn brokers. G.S. 153A-152 authorizes counties to levy an annual privilege license tax on pawnbrokers of up to $275. Similarly, G.S. 160A-11 authorizes cities to levy an annual privilege license tax on pawnbrokers of up to $275. This authority is a continuation of the authority previously granted in repealed G.S. 105-50. The privilege license tax imposed on pawn brokers under G.S. 105-50 was repealed effective July 1, 1997, but the authority of local governments to tax pawn brokers to the extent allowed by G.S. 105-50 was preserved under G.S. 153A-152 and G.S. 160A-11.

Effective July 1, 1999, pawn brokers were added to G.S. 105-88, thereby becoming subject to the State privilege license tax imposed by that section. G.S. 105-88 sets a $100 maximum on county and city privilege license taxes imposed on a business taxed under that statute by the State. The county and city limit in G.S. 105-88 conflicts with the authority granted in G.S. 153A-152 and G.S. 160A-11. Subsection (e) was amended to resolve this conflict and make it clear that when pawn brokers were added to G.S. 105-88, there was no intent to reduce the cap on local taxes from $275 to $100.

(Effective July 1, 2001; HB 1290, s. 2, S.L. 00-173.)

II. ALCOHOLIC BEVERAGE LICENSE AND EXCISE TAXES

G.S. 105-113.82 - Clarifying and Technical Changes: Three subsections of this section were amended to make clarifying or technical changes. Subsection (a) was amended to clarify that a city or a county is eligible to receive a distribution of the State beer and wine excise taxes only if it is legal to sell those beverages in the entire city or county. The alcoholic beverage laws allow some places, such as "sports clubs," located in dry cities and counties to sell these beverages. The change makes it clear that a dry city or county with a "sports club" or another place authorized by a special exception in the law to sell alcoholic beverages is not to receive a share of the State beer and wine excise taxes.

Subsection (b) was repealed because it is obsolete; there are no "defined areas." Subsection (h) was amended to add the word "Disqualification" at the beginning of the subsection. This change simply puts an identifying header at the beginning of the subsection and makes the format of this subsection the same as the rest of the subsections in the statute.

(Effective August 2, 2000; HB 1290, s. 3, S.L. 00-173.)

G.S. 105-113.84 - Monthly Report Changes: This section was rewritten to make three changes designed to improve the administration of the beer and wine excise taxes. The Department recommended the changes.

The first change establishes a single rule as to which beverages resident breweries, resident wineries, and nonresident vendors must include on a monthly report. Before this change, these entities could report either the beverages they sold during the month or the beverages they delivered during the month. The rewritten statute requires a report of beverages delivered during the month.

The second change deletes the statutory requirements concerning the number of invoices given by a resident brewery, resident winery, or nonresident vendor to a wholesaler or importer and the information that must be on the invoice. With this change, the business needs of these entities will determine the exchange of sales information among these entities.

The third change deletes the statutory requirement that a resident brewery, resident winery, or nonresident vendor send the Department a copy of the detailed invoice that was required to be given to a wholesaler or importer. The statute deletes this requirement and replaces it with a broad grant of authority to the Department to require a resident brewery, a resident winery, or a nonresident vendor to provide any information the Secretary needs to determine the amount of beer and wine delivered to wholesalers and importers. With this flexibility, the Department plans to initiate a more streamlined reporting method. Until a better method is established, however, the Department will continue to require a copy of a paper invoice.

(Effective August 2, 2000; HB 1290, s. 4, S.L. 00-173.)

G.S. 105-113.85 - Discount Modified: This section was amended to allow a wholesaler or an importer to take the 4% discount on taxpaid beverages given as free goods for advertising. This change was recommended by the Department to make the calculation and administration of the discount simple. The Department made this recommendation after it could not determine the rationale for excluding taxpaid beverages from the discount.

(Effective August 2, 2000; HB 1290, s. 5, S.L. 00-173.)

G.S. 105-113.88 - Conforming Change: This section was rewritten to simplify the language and to remove the reference to invoices. The change accompanies the changes made to G.S. 105-113.84.

(Effective August 2, 2000; HB 1290, s. 6, S.L. 00-173.)

III. UNAUTHORIZED SUBSTANCES TAXES

G.S. 105-113.106 - Conforming Change: This section was amended to change the designation of the definition of "Low-street-value-drug" from (4c) to (4d), to add a definition of "Local law enforcement agency" and designate it as (4c), and to add a definition of "State law enforcement agency" and designate it as (8a). The new definitions were incorporated from repealed G.S. 114-18.1. The changes to this statute accompany the changes made to G.S. 105-113.84.

(Effective for arrests and seizures occurring on or after December 1, 2000; HB 1551, ss. 3 and 4, S.L. 00-119.)

G.S. 105-113.108 - Reporting Changes: This section was amended to designate the existing language of the statute as subsection (a) with the heading "Revenue Stamps," and to add a new subsection (b) concerning reports by law enforcement agencies. New subsection (b) incorporates and modifies the reporting requirements previously set out in repealed G.S. 114-18.1 and repealed G.S. 114-19(b).

Under subsection (b), State and local law enforcement agencies that either seize certain unauthorized substances that do not bear the required tax stamp or arrest an individual for possessing certain unauthorized substances that do not bear the required tax stamp must report the seizure or arrest to the Department within 48 hours after it occurs. The report must contain identifying information about the unauthorized substances and individuals involved.

New subsection (b) lists the unauthorized substances for which a report is required. Subdivisions (1) through (3) of that subsection list the same items that were covered under repealed G.S. 114-18.1. Subdivisions (4) through (6) list items that were not covered under repealed G.S. 114-18.1. The items in subdivisions (4) through (6) are illicit mixed beverages, illicit spirituous liquor, and mash.

The reporting requirement in new subsection (b) differs in two respects from the reporting requirement previously contained in repealed G.S. 114-18.1 and 114-19(b). First, the agency to which the report is sent differs. Prior law required State and local law enforcement agencies to send the reports to the State Bureau of Investigation, which in turn sent them to the Department. New subsection (b) removes the State Bureau of Investigation from this chain so that the law enforcement agencies send the reports directly to the Department. This change was made at the request of the State Bureau of Investigation.

Second, the reporting requirement applies to more items. The additional items are those set out in new subdivisions (4) through (6).

(Effective for arrests and seizures occurring on or after December 1, 2000; HB 1551, s. 5, S.L. 00-119.)

IV. CORPORATE FRANCHISE TAX

G.S. 105-114 - Conforming and Technical Changes: This section was amended to delete a cross-reference to repealed G.S. 105-120.1, to reorganize subsection (a) into various subsections, and to make various stylistic changes. The same act that made these changes also repealed G.S. 105-120.1.

(Effective August 2, 2000; HB 1290, s. 8, S.L. 00-173.)

G.S. 105-116(d) - Technical Change: This subsection was amended to delete an obsolete reference to natural gas companies and regional natural gas districts. Until July 1, 1999, G.S. 105-116 imposed a gross receipts tax on natural gas. Effective July 1, 1999, the gross receipts tax was repealed and replaced by an excise tax. The new excise tax was codified in Article 5E. The reference to natural gas in this subsection should have been deleted when the gross receipts tax was repealed.

(Effective July 21, 2000; SB 1335, s. 62, S.L. 00-140.)

G.S. 105-116.1 - Denton Distribution Increased: This statute was amended to add a second "hold harmless" test for the benefit of the Town of Denton and to make an unrelated technical change. The technical change adds the word "Disqualification" at the beginning of subsection (e) to make the format of that subsection the same as the other subsections in the statute.

The new "hold harmless" test was designed to apply only to the Town of Denton and it accomplishes its purpose. Under the new test, the annual holdback amount for a city that meets the designated formula is zero. Thus, the formula eliminates the "freeze deduction" for the Town of Denton.

The formula applies to a city that received from gross receipts taxes in the fiscal year 1995-96 less than 60% of what it received in the 1990-91 year and whose gross 1999-2000 distribution amount before the freeze deduction was less than or equal to the amount it received in 1990-91. If the gross 1999-2000 amount was more than the 1990-91 amount, then the city's original holdback is adjusted downward by the difference between the 1999-2000 distribution amount and the 1990-91 amount.

(Effective October 1, 2000 and applies to distributions made on or after that date; HB 1473, s. 2, S.L. 00-128.)

G.S. 105-119 - Repeal: This statute was repealed because it is obsolete. No taxpayers file under this section. The section imposed a separate franchise tax on telegraph companies.

(Effective August 2, 2000; HB 1290, s. 7, S.L. 00-173.)

G.S. 105-120(c1) - Technical Change: This subsection was amended to incorporate the franchise tax exclusion for 911 charges previously set out in G.S. 62A-5. The exclusion was moved from G.S. 62A-5 to this subsection so that all the exclusions from the tax would be set out in the tax statutes. Under the exclusion, gross receipts from local telecommunications service do not include service charges imposed under G.S. 62A-5 and paid to a local government under G.S. 62A-6. Subsection (c1) already contained the similar exclusion for Enhanced 911 service charges imposed under G.S. 62A-23.

(Effective August 2, 2000; HB 1290, s. 19(b), S.L. 00-173.)

G.S. 105-120.1 - Repeal: This statute was repealed because it is obsolete. No taxpayers file under this section. The section imposed a separate franchise tax on street bus or similar street transportation systems for the transportation of passengers for hire.

(Effective August 2, 2000; HB 1290, s. 7, S.L. 00-173.)

V. TAX INCENTIVES FOR NEW AND EXPANDING BUSINESSES

Article 3A

G.S. 105-129.2 - Definitions: Three definitions in this section and two cross-references in this section to definitions set out in the sales tax laws are affected either by legislation enacted in 1999 effective for tax years beginning on or after January 1, 2000, or by legislation enacted in the 2000 session. The definition of "customer service center" in subdivision (3a) and the definition of "electronic mail order house" in subdivision (5a) were enacted in 1999 and take effect for tax years 2000 and later. The definition of "central administrative office" was amended by legislation in the 2000 Session, effective for tax years beginning on or after January 1, 2001. The location of the cross-references for the definitions of "interstate passenger air carrier" and "hub" were moved from subpart (3)b. to new subdivisions (8) and (8a), effective for tax years beginning on or after January 1, 2001.

The changes to each definition are described below in more detail. The effective date of a change is noted after each definition.

Central office or aircraft facility - (2): The defined term in subdivision (2) was changed from "central administrative office" to "central office or aircraft facility." This change was made so that Midway Airlines' aircraft maintenance facility would qualify for Article 3A tax credits. As part of this change, a new subpart c. was added to subdivision (2) that describes an aircraft facility as an auxiliary subdivision of an interstate passenger air carrier engaged primarily in aircraft maintenance and repair services or aircraft rebuilding as defined by NAICS.
In addition, a technical change was made to subpart b. of subdivision (2) to delete cross-references to the definitions of "interstate passenger air carrier" and "hub." These cross-references are moved to new subdivisions (8) and (8a).
(Effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5 and 10, S.L. 00-56.)

Customer service center - (3a): Legislation in 1999 added subdivision (3a) to define "customer service center." The term is defined as an auxiliary subdivision of a telecommunications or financial services company, as defined by NAICS, that primarily provides support services to the company's customers by telephone to support products or services of the company. To qualify, at least 60% of all phone calls must be incoming. "Telecommunications or financial services company" is a broad reference that encompasses several NAICS headings. The definition was added so that this type of business can receive tax credits under Article 3A.
(Effective for taxable years beginning on or after January 1, 2000; SB 1115, s. 2, S.L. 99-360.)

Electronic mail order house- (5a): Legislation in 1999 added subdivision (5a) to define "electronic mail order house." The term has the same meaning as the term "electronic shopping and mail order house" under NAICS. This type of business falls under classification code 454110 of NAICS. This definition was added so that QVC and any other similar business that meets the same qualifications could receive tax credits under Article 3A.
(Effective for taxable years beginning on or after January 1, 2000; SB 1115, s. 2, S.L. 99-360.)

Hub- (8): New subdivision (8) sets out a cross-reference to the definition of "hub" contained in the sales and use tax laws. The cross-reference was previously set out in the definition of central administrative office in subpart b of subdivision (2) of this section.
(Effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5 and 10, S.L. 00-56.)

Interstate passenger air carrier- (8a): New subdivision (8a) sets out a cross-reference to the definition of "interstate passenger air carrier" contained in the sales and use tax laws. The cross-reference was previously set out in the definition of central administrative office in subpart b of subdivision (2) of this section.
(Effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5 and 10, S.L. 00-56.)

G.S. 105-129.2A - Sunset and Studies: This new section codifies the existing sunset and study provisions concerning the tax credits in Article 3A, Tax Incentives for New and Expanding Businesses. The Article is repealed effective for applications for credits filed under G.S. 105-129.6 on or after January 1, 2006. This sunset was previously set out in uncodified Section 10.2(3) of Chapter 13 of the Session Laws of the 1996 Second Extra Session, as amended by Section 1 of Chapter 360 of the 1999 Session Laws.

The Department of Commerce is required to conduct an equity study and an impact study on the Article 3A tax credits and to report its findings and recommendations to the 2001 General Assembly by April 1, 2001. The section lists various topics that are to be included in the studies. These study provisions were previously set out in uncodified Section 4 of Chapter 277 of the 1997 Session Laws, as amended by Section 18.1 Chapter 360 of the 1999 Session Laws.

(Effective August 2, 2000; HB 1290, s. 1(b) and (c), S.L. 00-173.)

G.S. 105-129.3 - Exceptions to Normal Tier Designations: Four exceptions to the normal tier designation provisions are effective for tax years beginning on or after January 1, 2000. Three of these were added by the 1999 General Assembly, effective for tax year 2000 and later tax years. The fourth was added by the 2000 General Assembly, effective for designations for calendar year 2000 and later years.

The 2000 General Assembly amended subsection (c) to provide that a Tier 2 area cannot be redesignated as a higher-numbered tier area until it has been a Tier 2 area for at least two consecutive years. Before this amendment, subsection (c) prohibited a Tier 1 area from being redesignated as a higher-numbered tier area until it had been a Tier 1 area for at least two years. The amendment therefore extended the two-year redesignation prohibition that was in place for tier one areas to tier two areas.

The three exceptions enacted by the 1999 General Assembly were for small counties and are set out in subsection (e). They are:

1. A county will be classified as Tier 1 if its population is less than 10,000 and more than 16% of its population is below the federal poverty level. Camden, Clay, and Jones Counties will become Tier 1 counties under this provision.
2. A county will be designated one tier below the level it would otherwise have if its population is less than 50,000 and more than 18% of its population is below the federal poverty level. Alleghany, Ashe, Beaufort, Cherokee, Perquimans, Scotland, Vance, and Yancey Counties will move from Tier 2 to Tier 1 under this provision. Bladen, Hoke, Jones, Madison, Pamlico, and Pasquotank Counties will move from Tier 3 to Tier 2 under this provision. Duplin, Greene, and Watauga Counties will move from Tier 4 to Tier 3 under this provision.
3. A county will be designated as Tier 3 if its population is less than 25,000 and it would otherwise have a Tier 4 or Tier 5 designation. Polk and Currituck Counties will move from Tier 5 to Tier 3 under this provision.

(Subsection (c) change effective June 30, 2000, and applies retroactively to designations for calendar year 2000; SB 1318, S.L. 00-73; exceptions in subsection (e) effective for taxable years beginning on or after January 1, 2000; SB 1115, s. 2, S.L. 99-360.)

G.S. 105-129.4 - Eligibility and Forfeiture Changes: This section is affected by changes made by the 1999 General Assembly, effective for tax year 2000 and later tax years, and by the 2000 General Assembly. The expansion, eligibility, and forfeiture changes made by the 1999 General Assembly are effective for the 2000 tax year. The 2000 General Assembly further expanded the types of businesses eligible for Article 3A credits, made technical and conforming changes, and revised the test for determining what qualifies as an employee buy-out. The changes made by the 2000 General Assembly have varying effective dates. The changes are described below in more detail. The effective date of a change is noted after the explanation of the change.

Expansion: Two new types of businesses are eligible for Article 3A credits effective for tax years beginning on or after January 1, 2000, and one is eligible for Article 3A credits effective for tax years beginning on or after January 1, 2001. The two that are eligible starting in tax year 2000 are customer service centers located in a Tier 1 or 2 area and electronic mail order houses that create at least 250 new jobs and are located in a Tier 1 or 2 area. An electronic mail order house creates at least 250 new jobs if it hires at least 250 additional full-time employees to fill new positions at the house in the two-year period ending on the last day of the taxable year the taxpayer first claims an Article 3A credit. The 1999 General Assembly added these two businesses.
The 2000 General Assembly further expanded the types of businesses eligible for Article 3A credits. It added aircraft facilities, effective with tax year 2001. The aircraft facility addition was made specifically for Midway Airlines.
(Customer service center addition and electronic mail order house addition effective for taxable years beginning on or after January 1, 2000; SB 1110, s. 3, S.L. 99-305 and SB 1115, s. 2, S.L. 99-360; aircraft facility addition effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5 and 10, S.L. 00-56; SB 1335, s. 92.A(a), S.L. 00-140.)

Expiration Clarifying Change: Subsection (a2) was added to clarify that an Article 3A credit expires if a business that is taking installments of the credit no longer engages in the business that qualified it to receive the credit. When the credit expires, the taxpayer cannot take any remaining installments of the credit but can take any unused carryforward amounts from previous years.
(Effective for taxable years beginning on or after January 1, 2000; HB 1560, ss. 8 and 10, S.L. 00-56; SB 1335, s. 92.A, S.L. 00-140.)

Eligibility Conditions: The three eligibility conditions set out in subsections (b2), (b3), and (b4) were enacted by the 1999 General Assembly, effective for credits for which applications were first filed on or after January 1, 2000. The three conditions are health insurance for employees, a good environmental record, and a good occupational safety and health (OSHA) record.

Health Insurance: Under subsection (b2), each taxpayer claiming a credit for creating jobs or a credit for worker training must provide health insurance for each position for which a credit is claimed. In addition, a taxpayer eligible for one of the other Article 3A credits, such as investing in machinery and equipment, must provide health insurance for all full-time employees at the location with respect to which the credit is claimed. Any installment of a credit expires if the taxpayer ceases to provide health insurance.
Good Environmental Record: Under subsection (b3), a taxpayer who applies for an Article 3A credit is eligible for the credit only if the taxpayer has a good environmental record. Having a good environmental record means that, when the taxpayer applies for a credit, there is no pending administrative, civil, or criminal enforcement action against the taxpayer based on alleged significant violations of an environmental program administered by the Department of Environment and Natural Resources and there has been no final determination of the taxpayer's responsibility for one of these violations within the last five years.
Good OSHA Record: Under subsection (b4), a taxpayer who applies for an Article 3A credit is eligible for the credit only if the taxpayer has a good OSHA record. Having a good OSHA record means that, when the taxpayer applies for a credit, there are no outstanding citations against the taxpayer for a serious violation of the Occupational Safety and Health Act at the business location for which the credit is claimed and the taxpayer has not had a serious violation of the Act at that location within the last three years.

(Effective for taxable years beginning on or after January 1, 2000; SB 1110, s. 3, S.L. 99-305 and SB 1115, s. 2, S.L. 99-360.)

Technology Credit Forfeiture: The 1999 General Assembly revised subsection (d) to specify when the technology commercialization credit, set out in G.S. 105-129.9A, is forfeited. A taxpayer forfeits that credit if it fails to meet the level of investment required for the 15% credit or it fails to meet the terms of its licensing agreement with the research university. A taxpayer that meets the investment requirement for the 15% credit, but not the 20% credit, forfeits the difference between the 20% credit and the 15% credit. A taxpayer that forfeits the technology commercialization credit also forfeits any job credits or worker training credits claimed with respect to that credit. The technology commercialization credit was enacted in 1999, effective for tax years beginning on or after January 1, 2000.
(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

Employee Buy-out Revision: The 2000 General Assembly rewrote subdivision (e)(3) to change the test for determining what qualifies as an employee buy-out. The change was made so that the employee buy-out of Champion International Corporation, which was renamed Blue Ridge Paper Products would qualify as a new investment and thereby render Blue Ridge eligible for Article 3A credits after the buy-out. The change was made effective retroactively back to May 1, 1999, the date of the buy-out. Under the rewritten subdivision, a business is considered to have been acquired by its employees if, through an employee stock option transaction or another similar mechanism, the employees either own at least 50% of the business or, for a business that has tangible assets with a net book value of more than $100 million and a majority of its operations in a Tier 1, 2, or 3 area, will own at least 40% of the business within 7 years.
(Effective May 1, 1999, and applies to acquisitions made on or after that date; HB 1560, ss. 6 and 10, S.L. 00-56.)

G.S. 105-129.5 - Tax Election and Cap Changes: This statute is affected by changes made by the 1999 General Assembly, effective for tax year 2000 and later years, and by the 2000 General Assembly. The 1999 General Assembly amended the statute to establish special allocation and carryforward provisions for the technology commercialization credit, which is set out in G.S. 105-129.9A. The 2000 General Assembly amended the statute to establish a special carryforward provision for investments of at least $50 million. The changes are described below in more detail. The effective date of a change is noted after the explanation of the change.

Technology Credit Allocation: A taxpayer that claims the technology commercialization credit can divide the credit between the taxes against which it is allowed. Thus, the typical corporate taxpayer could divide the credit against its franchise and income tax liability. A taxpayer that divides this credit among tax types must designate on the return on which the credit is first claimed the percentage of the credit to be taken against each tax type. This election is binding. Allowing a taxpayer to divide a credit among tax types is contrary to the restrictions that apply to all other credits under Article 3A. Under those restrictions, a taxpayer can choose to apply an Article 3A credit against either its corporate income tax liability or its franchise tax liability, but it cannot apply part of the credit to one and the rest of the credit to the other.
(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

Technology Credit Carryforward: A taxpayer that claims the technology commercialization credit can carry forward any unused part of an installment of that credit for a period of 20 years. This is the same period that is allowed for investments of at least $250 million.
(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

Carryforward When $50 Million Invested: The 2000 General Assembly designated part of existing subsection (b) as a new subsection (c) with the heading "Carryforward" and added a special 10-year carryforward provision for certain taxpayers. The provision was added to benefit the Buckeye Project in Gaston County, but it applies to all industries eligible for the Article 3A credits.
Under the new provision, a taxpayer is eligible for the extended 10-year carryforward if the Secretary of Commerce certifies that the taxpayer will place in service within a two-year period at least $50,000,000 worth of eligible real property, machinery and equipment, or central office or aircraft facility property. The 10-year carryforward is forfeited if the taxpayer fails to make the required investment within the two-year period.
This 10-year carryforward provision is the third carryforward period for Article 3A tax credits. A 20-year carryforward applies to credits for investments of at least $150 million and the technology commercialization credit. The new 10-year carryforward applies to investments of at least $50 million. A 5-year carryforward applies to all other Article 3A credits.
(Effective for taxable years beginning on or after January 1, 2000; HB 1560, ss. 2 and 10, S.L. 00-56.)

G.S. 105-129.6(a1) - Future Fee Exemption: This subsection was amended to exempt certain Article 3A credit applications from the application fee imposed by the subsection. The fee does not apply to applications for a credit with respect to a location in a development zone. Development zones are areas designated by the Department of Commerce in accordance with the procedures under G.S. 105-129.3A.

(Effective January 1, 2001, and applies to applications made on or after that date; HB 1560, ss. 1 and 10, S.L. 00-56.)

G.S. 105-129.7(b) - Conforming Changes: Two subdivisions in this subsection were amended to reflect other changes made by the 2000 General Assembly to the Article 3A credits. The reporting requirements under subdivision (3) were expanded to include the amount of investment made by a taxpayer eligible for a credit with a 10-year carryforward. The 10-year carryforward applies to investments of at least $50 million and is set out in G.S. 129.5(c).

Subdivision (4) was amended to delete a reference to the tax credit for investing in central administrative office property and replace it with a reference to the tax credit for investing in central office or aircraft facility property. This change accompanies the expansion of the tax credits to aircraft facilities made by G.S. 105-129.2 and 105-129.4.

(Effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5(d) and 10, S.L. 00-56.)

G.S. 105-129.8(a) - Jobs Credit Eligibility: This subsection was amended to delete the 40-week requirement. Before the change, a taxpayer was eligible for the credit only if the taxpayer had at least five employees for at least 40 weeks during the taxable year and the taxpayer met all the other requirements. After the change, a taxpayer is eligible if the taxpayer has five employees and meets all the other requirements.

(Effective for taxable years beginning on or after January 1, 2000; HB 1560, ss. 8(a) and 10, S.L. 00-56; SB 1335, s. 92.A, S.L. 00-140.)

G.S. 105-129.9 - Changes to Credit for Investing in Machinery and Equipment: Two changes made to this statute by the 1999 General Assembly are effective for tax year 2000 and later years. One of the changes is a conforming change that accompanies the enactment of the technology commercialization credit set out in G.S. 105-129.9A. The other change adds to the information that must be provided to the Secretary of Commerce on an application for this credit. The 2000 General Assembly amended the expiration provisions in subsection (d) to correct what was perceived as a "reverse loophole." The changes are described below in more detail. The effective date of a change is noted after the explanation of the change.

Technology Credit Change: The 1999 General Assembly added subsection (a1) to this section when it enacted the technology commercialization credit. Subsection (a1) recognizes that a taxpayer may be eligible for both the credit for investing in machinery and equipment provided in this section and the new technology commercialization credit in G.S. 105-129.9A when the taxpayer invests in new machinery and equipment. The subsection prohibits a taxpayer from taking both a credit under this section and under the new technology commercialization credit in G.S. 105-129.9A with respect to the same machinery and equipment.
(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

Application Information: The 1999 General Assembly amended subsection (b) to require a taxpayer to submit additional information with an application made to the Secretary of Commerce for certification of eligibility for the credit for investing in machinery and equipment. The additional information is specific documentation supporting the taxpayer's calculation of the eligible investment amount.
(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

Correction of Reverse Loophole: The 2000 General Assembly amended subsection (d) of this section to define circumstances in which the credit for machinery and equipment does not expire after the taxpayer takes machinery and equipment out of service. When the credit expires, a taxpayer cannot take any of the remaining installments of the credit.
The credit for machinery and equipment is taken in seven installments beginning with the year following the year the property is placed in service. During this seven-year period, the taxpayer may want to replace the property with similar property that has features not previously offered or otherwise better serves the business needs of the taxpayer. Before the amendment, a taxpayer who replaced property or otherwise disposed of property that qualified for the credit before taking all seven installments forfeited any installments not yet taken when the property was taken out of service.
The amendment to subsection (d) allows a taxpayer that replaces or otherwise disposes of property for which a credit was claimed to continue to take the remaining installments of the credit if the net reduction in the cost of the taxpayer's eligible machinery and equipment in the enterprise tier does not exceed 20% of the cost of the disposed property. If the net reduction exceeds 20%, the taxpayer forfeits the remaining installments of the credit. If a taxpayer places machinery and equipment in service during the taxable year and claims a credit for the machinery and equipment under Article 3B, the taxpayer must exclude the cost of this property from the calculation made under this subsection. If during a single tax year the taxpayer disposes of machinery and equipment with respect to two or more credits in the same tier, costs are calculated based on all the credits affected.
The following example illustrates the "net reduction" calculation. Assume the following facts:

• Taxpayer has $10,000,000 of eligible machinery and equipment in service in Tier 1.
• During the tax year, a piece of equipment with a cost of $2,500,000 is taken out of service.
• There are remaining installments of a credit related to the equipment taken out of service.
• Replacement equipment is placed into service during the same tax year at a cost of $1,500,000.
• Total cost of eligible equipment at the end of the tax year is $9,000,000.
• No Article 3B credits are being claimed.

Under these facts, the installments are forfeited. The net investment reduction in Tier 1 is $1,000,000 ($10 million - $9 million). Twenty percent of the cost of the equipment taken out of service is $500,000 ($2,500,000 x .20). The net reduction in total eligible equipment ($1 million) is greater than 20% of the cost of the equipment taken out of service ($500,000).
(Effective for taxable years beginning on or after January 1, 2000; HB 1560, ss. 8(b) and 10, S.L. 00-56; SB 1335, s. 92.A, S.L. 00-140.)

G.S. 105-129.9A - Technology Commercialization Credit Takes Effect: The 1999 General Assembly enacted this statute, effective for tax year 2000, to provide a tax credit for Dupont. Other taxpayers that meet the requirements of the statute are also eligible for the tax credit. The statute provides two alternative credits to the credit in G.S. 105-129.9 for investing in machinery and equipment. The credit is to be taken in the year the machinery and equipment are placed in service.

A taxpayer qualifies for a credit of 20% of the excess of the taxpayer's eligible investment amount over the threshold for Tier 1 (zero), Tier 2 ($100,000), or Tier 3 ($200,000) if all of the following conditions are met:

• The new machinery and equipment are directly related to production based on technology developed by and licensed from a Research I or Research II university.
• The machinery and equipment are placed in a Tier 1, 2, or 3 area.
• The eligible investment amount is at least $10 million for the taxable year.
• The taxpayer is committed to invest at least $150 million in Tiers 1, 2, or 3 by the end of the fourth year after the year in which the taxpayer first places machinery and equipment in service.
• No more than nine years have passed since the first taxable year the taxpayer claimed a credit with respect to the same location.

The taxpayer qualifies for a credit of 15% of the same amount if it meets all of these conditions with one exception. The exception is that the amount of investment committed by the taxpayer during the four-year period is $100 million instead of $150 million.

The calculation of "eligible investment amount" is different under this credit than under the credit in G.S. 105-129.9 for investing in machinery and equipment. This section allows a taxpayer to have a net Statewide reduction in machinery and equipment and still qualify for the credit. This is because this section allows certain machinery and equipment that has been taken out of service to be counted as if it were still in service. For purposes of the base year calculation, any machinery and equipment that has been disposed of in the past three years will not be removed from the calculation if either of the following applies:

• It was transferred to another taxpayer, it is still in service, and the taxpayer to whom it was transferred is not eligible to claim a credit with respect to that machinery and equipment.
• It was taken out of service at a location other than the location with respect to which the taxpayer claims the credit and it was used in a business that is not competitive with the business with respect to which the taxpayer claims the credit. A determination of whether two businesses are in competition must be made by the Attorney General's Office.

G.S. 105-129.4(d) sets out forfeiture provisions for this credit. G.S. 105-129.5 sets out provisions for dividing this credit among income and franchise tax liability and for a 20-year carryforward.

(Effective for taxable years beginning on or after January 1, 2000; SB 1110, S.L. 99-305.)

G.S. 105-129.12 - Credit Expanded to Aircraft Facilities: The credit allowed by this statute for investing in central administrative office property was expanded to include investments in aircraft facility property. As described in G.S. 105-129.2(2)c., an aircraft facility is an auxiliary subdivision of an interstate passenger air carrier engaged primarily in aircraft maintenance and repair services or aircraft rebuilding as defined by NAICS. The credit was expanded to for the benefit of Midway Airlines. Other taxpayers that meet the requirements of the statute are also eligible for the credit.

(Effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5(e) and 10, S.L. 00-56.)

G.S. 105-129.13 - Credit for Contributing to Development Zone Project Takes Effect: The 1999 General Assembly enacted this statute, effective for tax year 2000, to provide a tax credit for contributions of cash or property made by a taxpayer to a development zone agency for an improvement project in a development zone. The 2000 General Assembly made a clarifying change to subsection (e) of the statute.

A development zone agency is an agency that is certified as such by the Department of Commerce. A taxpayer who makes a donation to a development zone agency is eligible for a tax credit equal to 25% of the amount donated. If the agency does not use the contribution for the project, it must repay the contributor the unused amount with interest. The credit is not taken in the taxable year in which the contribution is made. Instead, it is taken in the taxable year that begins during the calendar year in which the application for the credit becomes effective.

In addition to the application for certification required from the Department of Commerce, the taxpayer must also make application to the Department of Revenue on or before April 15 of the year following the calendar year in which the contribution was made. The 2000 amendment to subsection (e) of this section makes it clear that no fee applies to the application submitted to the Department of Revenue.

The total amount of credit available to all taxpayers is $4 million. The Secretary will calculate the total amount of credit claimed from all applications filed. If the total exceeds $4 million, the credit will be allocated among the qualifying applicants based on their percentage of the total credit claimed. The credit is forfeited if the development zone agency uses the funds for any purpose other than an approved project. A taxpayer is ineligible for the credit if the taxpayer has one of the relationships described in IRC § 267(b) with the agency or is under common control with an affiliate of the agency. Additionally, no credit is allowed if the taxpayer receives anything of value in exchange for the contribution.

(Credit effective for contributions made in taxable years beginning on or after January 1, 2000; SB 1115, s. 2, S.L. 99-360; fee clarification effective for applications made on or after January 1, 2000; HB 1560, ss. 1(b) and 10, S.L. 00-56.)

VI. BUSINESS AND ENERGY TAX CREDITS

Article 3B

Name of Article: The 1999 General Assembly changed the name of Article 3B of Chapter 105 of the General Statutes from "Business Tax Credit" to "Business and Energy Tax Credits." The change reflects the addition of two new tax credits to the Article enacted by the 1999 General Assembly, effective for tax year 2000 and later years, and one new tax credit enacted by the 2000 General Assembly. The two credits enacted in 1999 are set out in G.S. 105-129.16A and 105-129.16B. The tax credit enacted by the 2000 General Assembly is set out in new G.S. 105-129.16C.

New G.S. 105-129.16A consolidates various energy tax credits that were previously in Article 4. New G.S. 105-129.16B is a new affordable housing tax credit. New G.S. 105-129.16C is a new credit for investing in dry-cleaning equipment that does not use a hazardous substance. As enacted, the two credits enacted in 1999 were numbered G.S. 105-129.16A. At the request of the Department, the Codifier of Statutes, which is the Attorney General's Office, designated the energy tax credit as G.S. 105-129.16A and the affordable housing credit as G.S. 105-129.16B.

(Change to name of Article effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 11, S.L. 99-360.)

G.S. 105-129.15 - Definitions: The 1999 General Assembly renumbered an existing definition and three new definitions, effective for tax year 2000 and later years. The three new definitions apply to the consolidated credit for investing in renewable energy property set out in new G.S. 105-129.16A. The three new definitions and the renumbered definition are as follows:

Hydroelectric generator: The term is defined as "a machine that produces electricity by waterpower or by the friction of water or steam." This is the same definition that was in G.S. 105-130.33, the repealed corporate income tax credit for installation of a hydroelectric generator, and G.S. 105-151.7, the repealed individual income tax credit for installation of a hydroelectric generator.

Purchase: This definition was renumbered from subdivision (3) to subdivision (4) to keep the definitions in alphabetical order.

Renewable biomass resources: The term is defined as "organic matter produced by terrestrial and aquatic plants and animals, such as standing vegetation, aquatic crops, forestry and agricultural residues, landfill wastes, and animal wastes." This is the same definition, without examples, that was in G.S. 105-130.30, the repealed corporate income tax credit for construction of a methane gas facility, and G.S. 105-151.10, the repealed individual income tax credit for construction of a methane gas facility.

Renewable energy property: This definition has no counterpart in the repealed energy tax credits. The term includes biomass equipment, hydroelectric generators, solar energy equipment, and wind equipment. The definition combines parts of several of the credits, such as the solar energy credits in repealed G.S. 105-130.23 105-130.32, 105-151.2, and 105-151.8, and changes them. The category of solar energy equipment, for example, is expanded to include equipment used for daylighting, distillation, desalination, and detoxification. The requirement that solar energy equipment meet the performance criteria of the Secretary of Revenue has been deleted.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342.)

G.S. 105-129.15A - Sunsets: This section was enacted to codify sunsets for all but one of the business and energy tax credits provided in Article 3B. These sunsets were previously set out in uncodified Section 10.2(3) of Chapter 13 of the Session Laws of the 1996 Second Extra Session, as amended by Section 1 of Chapter 360 of the 1999 Session Laws. G.S. 105-129.16, which provides a credit for investing in business property, is repealed effective for business property placed in service on or after January 1, 2002. G.S. 105-129.16A, which provides a credit for investing in renewable energy property, is repealed effective for renewable energy property placed in service on or after January 1, 2006. G.S. 105-129.16B, which provides a credit for investing in low-income housing, is repealed effective for buildings to which federal credits are allocated on or after January 1, 2006. New G.S. 105-129.16C, which provides a credit for investing in dry-cleaning equipment that does not use a hazardous substance, does not sunset.

(Effective July 11, 2000; HB 1290, s. 1(d), S.L. 00-173.)

G.S. 105-129.16A - Credit for Investing in Renewable Energy Property: The 1999 General Assembly consolidated various existing energy credits into a single credit for investing in renewable energy property, effective for tax year 2000 and later years. The new consolidated credit replaces the following energy tax credits, which are repealed:

Repealed Corporate Income Tax Credits
G.S. 105-130.23,	Credit for solar energy equipment in residential buildings
G.S. 105-130.26,	Credit for conversion of industrial boiler to wood fuel
G.S. 105-130.27A,	Credit for construction of a peat facility
G.S. 105-130.29,	Credit for construction of an olivine brick facility
G.S. 105-130.30,	Credit for construction of a methane gas facility
G.S. 105-130.31,	Credit for installation of a wind energy device
G.S. 105-130.32,	Credit for installation of solar energy equipment for the production of heat or electricity in certain processes
G.S. 105-130.33,	Credit for installation of a hydroelectric generator

 

Repealed Individual Income Tax Credits
G.S. 105-151.2,	Credit for solar energy equipment
G.S. 105-151.5,	Credit for conversion of industrial boiler to wood fuel
G.S. 105-151.7,	Credit for installation of a hydroelectric generator
G.S. 105-151.8,	Credit for installation of solar energy equipment for the production of heat or electricity in certain processes
G.S. 105-151.9,	Credit for installation of a wind energy device
G.S. 105-151.10,	Credit for construction of a methane gas facility.

New Credit
Subsection (a) of new G.S. 105-129.16A provides a tax credit equal to 35% of the cost of renewable energy property constructed, purchased, or leased by a taxpayer and placed into service in this State during the taxable year. If the property serves a single-family dwelling, the credit is taken for the taxable year in which the property is placed in service. For all other property, the credit is taken in five equal installments beginning with the year the property is placed in service. The credit can be applied against franchise tax or income tax.
Subsection (b) provides that the credit expires and any remaining installments of the credit may not be claimed if the property is disposed of, taken out of service, or moved out of the State during the five-year installment period.
Subsection (c) imposes ceilings on the credit. For nonresidential property, the credit ceiling is $250,000 per installation. For residential property, the ceilings are:

• $1,400 per dwelling unit for solar energy equipment for domestic water heating
• $3,500 per dwelling unit for solar energy equipment for active space heating, combined active space and domestic hot water systems, and passive space heating
• $10,500 per installation for any other renewable energy property for residential property.

Subsection (d) prohibits a taxpayer from claiming a credit for renewable energy property in this section if the taxpayer is claiming any other credit allowed in Chapter 105 with respect to the property. A taxpayer may not take a credit for property the taxpayer leases from another unless the taxpayer obtains the lessor's written certification that the lessor will not claim a credit with respect to the property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342.)

G.S. 105-129.16B - Low-Income Housing Credit: The 1999 General Assembly enacted a new credit for investing in low-income housing, effective for tax year 2000 and later years. The 2000 General Assembly amended the credit to increase the credit amount for housing in counties affected by the 1999 hurricanes and to provide for the expiration of the credit for failure to meet the rent-restriction and income limitations. The hurricane provision is effective for tax year 2001 and later years, and the expiration provision is effective on the same date as the original credit. The credit expires effective for buildings to which federal credits are allocated on or after January 1, 2006, and the increased credit amount in hurricane-damaged counties expires effective January 1, 2005.

A taxpayer is allowed a credit for investing in low-income housing if the taxpayer qualifies for a federal income tax credit for low-income housing under section 42 of the Code and meets any one of the following additional requirements:

• The property is located in a Tier 1 or 2 area.
• The property is located in a county that, at the time the federal credit is allocated to the building, has been designated as having sustained severe or moderate damage from a hurricane or a hurricane-related disaster, according to the Federal Emergency Management Agency impact map, revised on September 25, 1999. Those counties are Bertie, Beaufort, Bladen, Brunswick, Carteret, Columbus, Craven, Dare, Duplin, Edgecombe, Green, Halifax, Hertford, Jones, Lenoir, Martin, Nash, New Hanover, Northampton, Onslow, Pasquotank, Pender, Pitt, Washington, Wayne, and Wilson Counties.
• The property is located in a Tier 3 or 4 area and 40% of its residential units are both rent-restricted and occupied by individuals whose income is 50% or less of the area median gross income.
• The property is located in a Tier 5 area and 40% of it's residential units are both rent-restricted and occupied by individuals whose income is 35% or less of area median gross income.

The amount of the credit is equal to 75% of the total federal credit if the building is located in a Tier 1 or Tier 2 area or in one of the counties listed above that suffered hurricane damage in 1999. For buildings in other tier designations, the credit is equal to 25% of the total federal credit. The credit is taken in five equal installments beginning in the first taxable year in which the federal credit is taken.

The federal credit is the total allowed during the 10-year federal credit period plus the disallowed first year credit allowed in the 11th year. The total federal credit is calculated based on the qualified basis as of the end of the first year of the credit period and is not recalculated to reflect subsequent increases in the basis.

The credit is forfeited if the taxpayer becomes ineligible for the federal credit. The credit is also forfeited if the building is located in a county that is designated as Tier 3, 4, or 5, the county is not one of the counties that sustained severe or moderate hurricane-related damage, and the building no longer qualifies as a low-income building because less than 40% of its residential units are both rent-restricted and occupied by individuals who meet the income requirements for that Tier. When a credit is forfeited, a taxpayer may not take any remaining installments of the credit.

If a taxpayer is required to recapture all or part of the federal credit claimed, the taxpayer becomes liable for all past taxes avoided as a result of the credit plus interest. The due date for past tax and interest is 30 days after the credit is forfeited.

(Generally effective for taxable years beginning on or after January 1, 2000, for buildings to which federal credits are allocated on or after January 1, 2000, and expires effective for buildings to which federal credits are allocated on or after January 1, 2006; the provision regarding hurricane-damaged counties is effective for taxable years beginning on or after January 1, 2001, for buildings to which federal credits are allocated on or after January 1, 2001, and expires January 1, 2005; SB 1115, s. 1 and 11, S.L. 99-360; HB 1560, ss. 7 and 10, S.L. 2000-56; SB 1335, s. 88, S.L. 2000-140.)

G.S. 105-129.16C - Non-Hazardous Dry-Cleaning Equipment Credit: This new statute creates a credit for investing in qualified dry-cleaning equipment. The credit is effective for tax years beginning on or after July 1, 2001. The credit is equal to twenty percent (20%) of the cost of qualifying equipment purchased or leased and placed into service in North Carolina for commercial purposes during the taxable year. To claim the credit, the taxpayer must file with the tax return on which the credit is claimed a certification by the Department of Environment and Natural Resources that the equipment qualifies for the credit. No credit is allowed to the extent the cost of the equipment was paid with public funds. A taxpayer claiming any other tax credit with respect to the qualified dry-cleaning equipment may not also take this credit.

Qualified dry-cleaning equipment is equipment that is designed and used primarily to dry-clean clothing and other fabric and does not use any hazardous solvent or any other substance that the Department of Environment and Natural Resources determines to pose a threat to human health or the environment. A hazardous solvent is a solvent, any portion of which consists of a chlorine-based solvent, a hydrocarbon-based solvent, a hazardous substance as defined in G.S. 130A-310(2), or any substance determined by the Administrator of the Environmental Protection Agency or the Director of the National Institute of Occupational Safety and Health to possess carcinogenic potential to humans.

(Effective for taxable years beginning on or after July 1, 2001; HB 1583, s. 1, S.L. 2000-160.)

G.S. 105-129.17 - Conforming Changes: The 1999 and 2000 General Assemblies made conforming changes to this section to reflect the expansion of Article 3B from an Article consisting of only one tax credit to an Article consisting of several tax credits. The conforming changes delete references to "a credit" and replace them with references to "credits." This reflects the addition of the consolidated energy credit in G.S. 105-129.16A, the low-income housing credit in G.S. 105-129.16B, and the non-hazardous dry-cleaning equipment credit in G.S. 105-129.16C. Before the addition of these credits, Article 3B contained only one credit, the credit in G.S. 105-129.16 for investing in business property.

(1999 changes effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 13, S.L. 99-360; 2000 changes effective July 21, 2000; SB 1335, s. 63(a) and 88, S.L. 2000-140.)

G.S. 105-129.18 - Conforming Changes: The 1999 General Assembly rewrote this statute to refer to one of several credits rather than a single credit, and the 2000 General Assembly made a similar conforming change to this statute. These changes reflect the addition of the new consolidated energy credit in G.S. 105-129.16A, the new low-income housing credit in G.S. 105-129.16B, and the new non-hazardous dry-cleaning equipment credit in G.S. 105-129.16C. Before the addition of these credits, Article 3B contained only one credit, the credit in G.S. 105-129.16 for investing in business property.

(1999 changes effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 14, S.L. 99-360; 2000 changes effective July 21, 2000; SB 1335, s. 63(b) and 88, S. L. 2000-140.)

G.S. 105-129.19 - Information on New Credits: The 1999 General Assembly rewrote this statute to impose new reporting requirements on the Department, effective for tax year 2000 and later tax years, and the 2000 General Assembly made a technical change in the subdivision (2) of the statute. The new reporting requirements are for the new energy tax credit in G.S. 105-129.16A and the new low-income housing credit in G.S. 105-129.16B. The Department's annual report to the Legislative Research Commission and the Fiscal Research Division of the General Assembly must include the cost of renewable energy property for which an energy credit is claimed and the location of each building for which a low-income housing credit is claimed. The technical change deleted a reference to "business property credits" and replaced it with a reference to "credits." The words "business property" should have been deleted when Article 3B was expanded to include credits other than the business property credit.

(1999 changes effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 15, S.L. 99-360; 2000 technical change effective July 21, 2000; SB 1335, s. 63(c) and 88, S.L. 2000-140.)

VII. CORPORATE INCOME TAX

G.S. 105-130.4(a)(7) - Definition of "Sales" Clarified: This subdivision was amended to clarify that the term "sales" does not include two types of gross receipts. The gross receipts that are not included in sales are receipts that are exempt from taxation and the portion of receipts realized from the sale or maturity of securities or other obligations that represent a return of principal. This definition of sales is used to determine the sales factor for corporate apportionment purposes.

(Effective July 13, 2000; HB 1559, s. 5, S.L. 00-126.)

G.S. 105-130.5(b) - New Hurricane Floyd Deduction and Technical Changes: The 1999 Extra Session enacted new subdivision (b)(19), effective for tax year 1999 and later tax years, and the 2000 General Assembly made a technical change to the new subdivision and to existing subdivision (b)(17). New subdivision (19) is a deduction from federal taxable income for hurricane relief or assistance payments made to the taxpayer by the Office of State Budget and Management from the Hurricane Floyd Reserve Fund. Any compensation paid from the Fund to the taxpayer for goods or services, however, is not deductible. The technical change to this subdivision deleted the phrase "Office of State Budget and Management" and replaced it with the phrase "Office of State Budget, Planning, and Management." This change reflects a change in the name of that Office.

The second technical change made by the 2000 General Assembly amended subdivision (b)(17) to incorporate the income tax exclusion for 911 charges that was previously set out in G.S. 62A-5. The exclusion was moved from G.S. 62A-5 to this subdivision so that all the deductions from federal taxable income would be set out in the tax statutes. Under the deduction, taxable income does not include the amount of 911 charges collected under G.S. 62A-5 and remitted to a local government under G.S. 62A-6. The subdivision already contained a similar deduction for the amount of wireless Enhanced 911 service charges imposed under G.S. 62A-23.

(New hurricane deduction effective for taxable years beginning on or after January 1, 1999; HB 2 of 1999 Extra Session, s. 4.6, S.L. 99-463; technical change in name of Office effective July 1, 2000; SB 1335, s. 93.1(a), S.L. 00-140; technical change about 911 charges effective August 2, 2000; HB 1290, s. 19(c), S.L. 00-173.)

G.S. 105-130.15(a) - Technical Change: This subsection was rewritten to make its language gender-neutral and to make other stylistic changes. The changes do not affect the meaning of the statute.

(Effective July 21, 2000; SB 1335, s. 64(a), S.L. 00-140.)

G.S. 105-130.17(a) - Technical Change: This subsection was rewritten to make its language gender-neutral, to make other stylistic changes, and to avoid repetition. The directions to the Secretary about making forms available were deleted and replaced with a cross-reference to G.S. 105-254. The changes do not affect the meaning of the statute.

(Effective July 21, 2000; SB 1335, s. 64(b), S.L. 00-140.)

G.S. 105-130.18 - Technical Change: This subsection was rewritten to make its language gender-neutral and to make other stylistic changes. The changes do not affect the meaning of the statute.

(Effective July 21, 2000; SB 1335, s. 64(c), S.L. 00-140.)

G.S. 105-130.23 - Recodified: The 1999 General Assembly repealed the credit for solar energy equipment in residential buildings and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.26 - Repealed: The 1999 General Assembly repealed the credit for conversion of an industrial boiler to wood fuel because the credit was not used. Research established that it had never been claimed.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.27A - Repealed: The 1999 General Assembly repealed the credit for construction of a peat facility because the credit was not used. Research established that it had never been claimed.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.28 - Credit for Renewable Energy Equipment Facility: This statute was rewritten to expand the existing credit for constructing a photovoltaic equipment facility to include any facility that is constructed to manufacture renewable energy equipment. The change is effective for tax year 2000 and later tax years. The change follows the pattern set in the new consolidated credit in G.S. 105-129.16A for investing in renewable energy property by making the credit applicable to all types of renewable energy equipment.

Renewable energy equipment is defined as biomass equipment, hydroelectric generators, solar electric or thermal equipment, and wind energy equipment. All of these terms are defined either by cross-reference to the same term in the credit in G.S. 105-129.16A for investing in renewable energy property or by repeating the substance of the definition in G.S. 105-129.16A. See the explanation of that section for further discussion of these terms.

The credit is allowed against corporate income tax and is equal to 25% of the installation and equipment costs of construction. The credit must be taken in five equal installments beginning in the taxable year in which the costs are paid. The credit may not exceed 50% of the income tax imposed. Any unused credit may be carried forward for the succeeding 10 years. No credit is permitted if the taxpayer has claimed another credit under Chapter 105 with respect to the same facility.

(Effective for taxable years beginning on or after January 1, 2000; the statute is repealed effective for costs incurred during taxable years beginning on or after January 1, 2006; HB 1473, ss. 1 and 3, S.L. 00-128.)

G.S. 105-130.29 - Repealed: The 1999 General Assembly repealed the credit for construction of an olivine brick facility because the credit was not used. Research established that it had never been claimed.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.30 - Recodified: The 1999 General Assembly repealed the credit for construction of a methane gas facility and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.31 - Recodified: The 1999 General Assembly repealed the credit for installation of a wind energy device and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.32 - Recodified: The 1999 General Assembly repealed the credit for installation of solar energy equipment for the production of heat or electricity in certain processes and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-130.33 - Recodified: The 1999 General Assembly repealed the credit for installation of a hydroelectric generator and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

VIII. INDIVIDUAL INCOME TAX

G.S. 105-134.6(b)(5b) - Deduction for Retirement Benefits Excluded under Bailey: This subdivision was enacted to recognize in the statutes the deduction from federal taxable income for retirement benefits excluded from North Carolina income tax as a result of the settlement in Bailey v. State, Emory v. State, and Patton v. State. The deduction exists whether or not it is listed in the law. The deduction was added to make the list in subsection (b) complete and to alert those who may not be familiar with the lawsuits. Income excluded under this subdivision does not qualify for the $4,000 deduction provided in G.S. 105-134.6(b)(6).

(Effective July 21, 2000; SB 1335, s. 65, S. L. 00-140.)

G.S. 105-134.6(b)(16) - Hurricane Floyd Deduction and Technical Change: The 1999 Extra Session enacted new (b)(16), effective for tax year 1999 and later tax years, and the 2000 General Assembly made a technical change to the new subdivision. The subdivision provides a deduction from federal taxable income for hurricane relief or assistance payments made to the taxpayer by the Office of State Budget and Management from the Hurricane Floyd Reserve Fund. Any compensation paid to the taxpayer for goods or services is not deductible.

The technical change to this subdivision deletes the phrase "Office of State Budget and Management" and replaces it with the phrase "Office of State, Planning, Budget, and Management." This change reflects a change in the name of that Office.

(Deduction effective for taxable years beginning on or after January 1, 1999; HB 2 of 1999 Extra Session, s. 4.6(a), S.L. 99-463; technical change effective July 1, 2000; SB 1335, s. 93.1(a), S.L. 00-140.)

G.S. 105-151.2 - Recodified: The 1999 General Assembly repealed the credit for solar energy equipment and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-151.5 - Repealed: The 1999 General Assembly repealed the credit for conversion of an industrial boiler to wood fuel because the credit was not used. Research established that it had never been claimed.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-151.7 - Recodified: The 1999 General Assembly repealed the credit for installation of a hydroelectric generator and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-151.8 - Recodified: The 1999 General Assembly repealed the credit for installation of solar energy equipment for the production of heat or electricity in certain processes was repealed and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-151.9 - Recodified: The 1999 General Assembly repealed the credit for installation of a wind energy device and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

G.S. 105-151.10 - Recodified: The 1999 General Assembly repealed the credit for construction of a methane gas facility and incorporated its provisions in new G.S. 105-129.16A, the consolidated credit in Article 3B for investing in renewable energy property.

(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 1, S.L. 99-342.)

IX. WITHHOLDING OF INCOME TAX

Withholding on Pension Payments: The 1999 General Assembly enacted legislation requiring income tax to be withheld from pension payments to residents of North Carolina if federal income tax is required to be withheld from the pension payments. The legislation becomes effective January 1, 2001. The law as enacted was for the most part identical to federal law. An exception applied to eligible rollover distributions. Under the law as enacted, eligible rollover distributions were not subject to withholding for North Carolina purposes even though federal withholding on these distributions was mandatory, rather than an option of the recipient. The 2000 General Assembly amended the 1999 law to make North Carolina law with respect to eligible rollover distributions identical to federal law. The change is accomplished by the amendments to G.S. 105-163.1(11)(b) and 105-163.2A(d), discussed in the explanations for those statutes.

G.S. 105-163.1 - Definitions: The 1999 pension withholding legislation amended this section to add subdivisions (11a) and (11b), which define "pension payer" and "pension payment," respectively, and added a "pension payer" to the definition of "withholding agent" in subdivision (14). The 2000 General Assembly amended the definition of "pension payment."
"Pension payer" is defined in subdivision (11a) as "A payer or a plan administrator with respect to a pension payment under section 3405 of the Code." "Pension payment" was originally defined as "A periodic payment or a nonperiodic distribution that is not an eligible rollover distribution, as defined in section 3405 of the Code." The 2000 General Assembly revised the definition to read "A periodic payment or a nonperiodic distribution as those terms are defined in section 3405 of the Code." The revision deleted the exclusion for eligible rollover distributions so that these distributions would be considered a pension payment.
(Effective January 1, 2001; HB 1466, ss. 1 and 2, S.L. 99-414; HB 1559, s. 2, S.L. 00-126.)

G.S. 105-163.2A - Pension Payers Must Withhold Taxes: The 1999 pension withholding legislation enacted this statute to implement pension withholding and the 2000 General Assembly amended subsection (d) of the statute. The statute requires a pension payer that must withhold federal income tax on a pension payment to a resident of this State to also withhold State income tax from the pension payment. The pension payer is liable for the amount required to be withheld or the amount withheld and not remitted to the Department. The statute identifies certain pension payments that are exempt from the withholding requirement.
For periodic payments, the payer must withhold tax as if the payment were wages. To determine the proper amount to withhold, the payer must obtain an exemption certificate (Form NC-4) from the recipient. If the recipient does not provide an exemption certificate, the payer must calculate the amount to withhold as if the recipient were a married individual with three withholding exemptions. For nonperiodic distributions, the payer must withhold taxes at the rate of four percent (4%).
As stated in subsection (d) of the section, a recipient of a pension payment may elect not to have taxes withheld to the extent permitted by section 3405 of the Code. The 2000 General Assembly added the words "to the extent permitted by section 3405 of the Code" to reflect the lack of choice on eligible rollover distributions. Withholding is mandatory on eligible rollover distributions under federal law and will therefore be mandatory under State law. Withholding is optional on other pension payments.
An election must be in the form prescribed by the Secretary. For periodic payments, the election remains in effect until revoked by the recipient. For nonperiodic distributions, the election applies on a distribution-by-distribution basis unless it meets conditions prescribed by the Secretary for it to apply to subsequent nonperiodic distributions. A pension payer must notify each recipient of the right not to have tax withheld. A recipient's election not to have taxes withheld is void if the recipient does not furnish the recipient's tax identification number to the pension payer or the Department notifies the payer that the tax identification number is incorrect.
(Effective January 1, 2001; HB 1466, s. 3, S.L. 99-414; HB 1559, s. 3, S. L. 00-126.)

G.S. 105-163.15(i) - Technical Changes to Penalty Exception for Farmers and Fishermen: This subdivision was amended to make stylistic changes and to correct erroneous language regarding the estimated tax penalty exception that is available to farmers and fishermen who file their income tax returns and pay in full the tax due on that return by March 1. Cross-references to the specific subsections that impose estimated tax penalties were substituted for the vague reference to "other provisions" and the substance of the subsection was divided into three subdivisions.
Subdivision (2) now incorporates the March 1 provision. Subsection (i) previously stated that the one installment could be paid without penalty or interest on or before March 1. The Department has always interpreted this law to be the same as the federal law, however, and has required that a return be filed by March 1 with full payment of tax due to avoid the requirement of installment payments. Subdivision (2) makes this clear.
(Effective July 14, 2000; HB 1559, s. 4, S. L. 00-126.)

X. ESTIMATED TAX PAYMENTS

G.S. 105-163.40 - New Corporate Threshold Takes Effect: The 1999 General Assembly amended this section by revising the catchline to the section and adding new subsection (d). The amendment to the catchline added the words "form of payment" at the end. New subsection (d) adds an additional threshold for determining when a corporation must pay its estimated corporate income tax installments by electronic funds transfer. This subsection requires a corporation to make its estimated payments of State income tax by electronic funds transfer if it is required to make its estimated payments of federal income tax by electronic funds transfer. Under the regulations adopted under the Internal Revenue Code, a corporation is required to make its estimated payments of federal income tax by electronic funds transfer if its aggregate liability for employment and other depository taxes exceeds $200,000 in a calendar year.
Thus, with the addition of this threshold, there are two tests for determining whether a corporation is required to make estimated payments of its State corporate income tax by electronic funds transfer. A corporation that meets the $240,000 a year test in G.S. 105-241(b) must pay by this method. A corporation that makes its federal estimated payments by electronic funds transfer must also pay by this method. No corporation, however, is required to make estimated payments of State income tax unless its expected liability exceeds the $500 threshold set in G.S. 105-163.40(a).
(Effective for taxable years beginning on or after January 1, 2000; SB 251, s. 7, S.L. 99-389.)

XI. SALES AND USE TAX

G.S. 105-164.3 - Definition Changes: One definition was revised and one was recodified. The changes are as follows and become effective as noted after each definition:

Manufactured home - (8a): This definition was revised to reflect changes in the industry. Under the revised definition, a manufactured home is one that is designed to be used as a dwelling and is either manufactured in accordance with the specifications for manufactured homes issued by the U.S. Department of Housing and Urban Development or is manufactured in accordance with the modular home specifications in the North Carolina State Residential Building Code, is built on a permanent chassis, and is transportable in one or more sections. The revised definition deletes requirements pertaining to the size of the home. The revision reflects the Department's current treatment of manufactured housing and modular homes and is not a change in policy.
(Effective August 2, 2000; HB 1290, s. 9, S.L. 00-173.)

Production company - (11c): This new definition was moved from G.S. 105-164.13(22a), the exemption for audiovisual masters, to this subdivision. The substance of the definition did not change. The definition was moved so that it can be cross-referenced more easily. New G.S. 143B-434.3 authorizes grants to production companies and refers to the tax definition of a production company.
(Effective August 2, 2000; SB 1460, s. 3, S.L. 00-153.)

G.S. 105-164.4(c) - Fee Repealed: The 1999 General Assembly repealed the $15.00 fee imposed for a Certificate of Registration, effective January 1, 2000.
The Department asked the General Assembly to eliminate this fee so the Department could implement an on-line registration program.
(Effective January 1, 2000; SB 1112, s. 1, S.L. 99-438.)

G.S. 105-164.6(f) - Fee Repealed: The 1999 General Assembly amended this subsection to repeal the $15.00 fee imposed for issuing a Certificate of Registration to an out-of-State business that sells or delivers tangible personal property for storage, use, or consumption in this State. The change accompanies the repeal of the $15.00 fee imposed in G.S. 105-164.4(c). The Department asked the General Assembly to eliminate this fee so the Department could implement an on-line registration program.
(Effective January 1, 2000; SB 1112, s. 1.1, S.L. 99-438.)

G.S. 105-164.6A(b)(1) - Voluntary Collection of Use Tax: This subdivision was rewritten to provide that a seller who enters into a voluntary collection agreement with the Secretary is not liable for use tax not paid to it by a customer and eliminates the option of the purchaser to not remit tax to the seller.
(Effective July 14, 2000; HB 1624, s. 4, S.L. 00-120.)

G.S. 105-164.7 - Conforming and Technical Changes: This statute was amended to make stylistic changes and to incorporate references to taxable services. The statute directs a retailer to add sales tax to the sales price of an item. The statute mentioned only tangible personal property and did not specifically refer to services. The amendments add specific references to services. This does not represent a change in policy, but simply clarifies that the sales tax is to be added to the gross receipts derived from taxable services, such as rentals of hotel and motel rooms, dry cleaning and laundry services, and telecommunications services.
(Effective June 26, 2000; HB 1326, s. 1.3, S.L. 00-19.)

G.S. 105-164.13(14a) - Printed Material Exemption Recodified: This exemption was repealed because its substance was incorporated in new G.S. 105-164.13(33a).
(Effective July 14, 2000; HB 1624, s. 5, S.L. 00-120.)

G.S. 105-164.13(33a) - Printed Material Exemption Expanded to All Property: This new subdivision incorporates repealed G.S. 105-164.13(14a) and expands it to include all types of property. The repealed subdivision applied only to printed material. As rewritten, the exemption applies to property sold by a retailer to a purchaser when the property is delivered in North Carolina to a common carrier or the mails for delivery to the purchaser or the purchaser's designees outside the State and the purchaser does not subsequently use the property in this State. This change was made to allow North Carolina to accommodate the proposed "ship-to address" sourcing rule of the Streamlined Sales Tax System.
(Effective July 14, 2000; HB 1624, s. 5, S.L. 00-120.)

G.S. 105-164.13(45) - Interstate Air Courier Exemption Takes Effect: The 1998 General Assembly enacted an exemption for aircraft lubricants, aircraft repair parts, and aircraft accessories sold to an interstate air courier for use at its hub. The definitions of interstate air courier and hub are set out in G.S. 105-164.3. The exemption had a delayed effective date of January 1, 2001. The exemption applies to taxes paid on or after the effective date. This exemption was part of the tax incentives enacted for Federal Express to locate at Greensboro.
(Effective January 1, 2001; SB 1569, S.L. 98-55.)

G.S. 105-164.14(c)(16) - Foothills Regional Airport Authority: This subdivision allows all local airport authorities that are created by local acts to receive a refund of sales and use taxes. A local act was enacted to allow Caldwell County, Burke County, and the Cities of Lenoir and Morganton to jointly establish an airport authority to maintain and operate the existing airport currently operated by the Morganton-Lenoir Airport Authority. Once the Foothills Regional Airport Authority is established, the Morganton-Lenoir Airport Authority will cease to exist. The Foothills Regional Airport Authority will be eligible for refunds under subdivision (c)(16).
(Effective June 14, 2000; HB 1517, S.L. 00-9.)

G.S. 105-164.14(h) - Refunds for Businesses in Low Enterprise Tier: The 1999 General Assembly enacted this subsection to allow an annual refund to eligible taxpayers of taxes paid at the general rate on qualifying machinery and equipment purchased for use in an enterprise tier one area or an enterprise tier two area, as defined in G.S. 105-129.3. Taxes paid at the 1% rate or another preferential rate are not eligible for refund. An annual claim for refund is due before January 1 and covers the preceding fiscal year (July 1 to June 30). Form E-585S, Incentive Claim for Refund, is the form to use in claiming this refund.
An eligible taxpayer is a taxpayer that is engaged primarily in a type of business that qualifies for a tax credit under Article 3A of Chapter 105. The types of businesses that qualified under that Article in tax year 2000 and, consequently, under this new refund provision are providers of air courier services, a business that creates a central administrative office and hires at least 40 new employees, a customer service center, a data processing business, an electronic mail order house that creates at least 250 new jobs, a manufacturer, a warehouse business, and a wholesale business.
The 2000 General Assembly added another type of business to the list of eligible businesses. The additional type of business is an aircraft maintenance facility that creates at least 40 new jobs. A qualifying aircraft maintenance facility located in an enterprise tier one area or an enterprise tier two area is eligible for a refund for taxes paid on eligible machinery and equipment on or after January 1, 2001.
To qualify for the refund, the machinery and equipment must be capitalized under the Internal Revenue Code. This means that its cost must be depreciated over several years.
(Aircraft maintenance facility addition effective for taxable years beginning on or after January 1, 2001; HB 1560, ss. 5 and 10, S.L. 00-56; remainder effective for taxes paid on or after January 1, 2000; SB 1115, s. 4, S.L. 99-360.)

G.S. 105-164.14(i)(2) - Clarifying Change: This subdivision was amended to revise the description of a nonprofit insurance company that is eligible for a refund of sales and use taxes paid by it on certain purchases. Under the revised description, the company can provide insurance and annuity contracts to public institutions and their employees. Before the change, a company qualified only if it provided contracts to organizations exempt under section 501(c)(3) of the Internal Revenue Code and their employees. TIAA-CREF, the target of this refund, provides contracts to state universities and other institutions that are public institutions but are not 501(c)(3) organizations.
(Effective for taxes paid on or after May 1, 1999, and expires January 1, 2008; HB 1560, s. 9, S.L. 00-56.)

G.S. 105-164.16(d) - Future Change in Use Tax on Out-of-State Purchases: This subdivision deletes the requirement for an individual to report and pay use tax on the individual income tax return effective with the 2003 tax year. Effective for the 2003 tax year, an individual who owes use tax on out-of-State purchases must file a separate, annual return and pay the tax. The due date of the separate use tax return is the due date, including approved extensions, of the individual's income tax return.
(Effective for taxable years beginning January 1, 2003; HB 1624, s. 11, S.L. 00-120.)

G.S. 105-164.27 - Authority for Direct Pay Certificate: This new section grants the Secretary the authority to issue direct pay certificates to applicants who purchases tangible personal property whose tax status cannot be determined at the time of purchase because the place of use of the property or the manner of use of the property is not known. The Department has administratively issued certificates of authority to qualifying taxpayers for many years. The direct pay certificate supersedes the certificate of authority. Like the certificate of authority, the direct pay certificate allows a taxpayer to purchase tangible personal property without paying tax to the seller and to accrue and remit the appropriate tax to the Department when the property is placed in use. The Secretary can revoke a direct pay certificate if the holder of the certificate does not file a return on time, does not pay the tax on time, or otherwise fails to comply with the sales and use tax laws.
(Effective July 14, 2000; HB 1624, s. 1, S.L. 00-120.)

G.S. 105-164.28 - Certificate of Resale: This statute was amended to delete the "good faith" requirement imposed on a seller who accepts a certificate of resale from a purchaser. A seller will not be held liable for the tax if, for a sale made in person, the certificate is signed by the purchaser, states the purchaser's name, address, and registration number, and describes the property generally sold by the purchaser. For a remote sale, the seller will not be held liable for the tax if the registration number given to the seller matches the number on the Department's registry of exempt purchases.
(Effective July 14, 2000; HB 1624, s. 6, S.L. 00-120.)

G.S. 105-164.43A - Certified Sales Tax Software and Tax Collector: This section gives the Secretary the authority to certify a software program as a certified sales tax collection program and a third-party tax collector as a certified sales tax collector. To be certified, a program and a collector must meet certain requirements. A software program must be able to generate sales tax reports and returns and must be able to determine the applicable State and local sales and use taxes due on a transaction. A certified sales tax collector must use a certified program, must integrate the program with the system of a retailer, must file sales and use tax returns on behalf of the retailer, and must meet any other conditions set in the contract with the Secretary. This section accompanies new G.S. 105-164.43B and 105-164.43C. It was enacted to enable North Carolina to implement the Streamlined Sales Tax System, which is designed to simplify the collection of sales and use taxes.
(Effective July 14, 2000; HB 1624, s. 1, S.L. 00-120.)

G.S. 105-164.43B - Contract with Certified Sales Tax Collectors: This section gives the Secretary the authority to contract with a Certified Sales Tax Collector for the collection and remittance of sales and use taxes. A certified sales tax collector must file a bond or an irrevocable letter of credit. The amount a certified sales tax collector charges under the contract is a cost of collecting the tax and is payable from the amount collected. This section accompanies new G.S. 105-164.43A and 105-164.43C. It was enacted to enable North Carolina to implement the Streamlined Sales Tax System, which is designed to simplify the collection of sales and use taxes.
(Effective July 14, 2000; HB 1624, s. 1, S.L. 00-120.)

G.S. 105-164.43C - Effect of Contract with Certified Sales Tax Collectors: This section describes the effect a contract with a certified sales tax collector has on a retailer and on the sales tax collector. Whether or not a retailer chooses to use a certified sales tax collector is optional with the retailer. Unless a retailer commits fraud, a retailer that uses a certified sales tax collector is not subject to audit by the State on the transactions processed by the certified collector. The Department can review a retailer's procedures to determine if the system is functioning properly. A contract with a certified sales tax collector is not a factor to be considered in determining whether a retailer has nexus. This section accompanies new G.S. 105-164.43A and 105-164.43B. It was enacted to enable North Carolina to implement the Streamlined Sales Tax System, which is designed to simplify the collection of sales and use taxes.
(Effective July 14, 2000; HB 1624, s. 1, S.L. 00-120.)

G.S. 105-466(c) - Restrictions on Local Rate Changes: This subsection was rewritten to limit the frequency of local sales and use tax rate changes. As rewritten, a new local tax or a change in an existing local tax rate requires at least 90 days' advance notice to the Department of Revenue and can only be effective on the first day of January or July.
(Effective July 14, 2000; HB 1624, s. 12, S.L. 00-120.)

Chapter 1096 of the 1967 Session Laws - Restrictions on Mecklenburg Rate Change: The local act that authorizes Mecklenburg County to levy its 1% local tax was amended to limit the frequency of sales and use tax rate changes. Section 10.3 was added to require Mecklenburg County to give the Department of Revenue at least 90 days' notice of a rate change and to provide that a rate change can become effective only on the first day of January or July.
(Effective July 14, 2000; HB 1624, s. 13, S.L. 00-120.)

G.S. 105-164.44E - Transfer to Dry-Cleaning Solvent Cleanup Fund: This new section directs the Secretary to transfer to the Dry-Cleaning Solvent Cleanup Fund an amount equal to 15% of the net State sales and use taxes collected under G.S. 105-164.4(a)(4) on receipts from dry cleaners, laundries, and similar businesses. The amount will be based on the collections of the previous fiscal year and will be transferred at the end of each calendar quarter. The Secretary will determine the amount to transfer based on available data. The first transfer will occur after July 1, 2003, for the calendar quarter beginning April 1, 2003. The last transfer will occur after April 1, 2010, for the calendar quarter beginning January 1, 2010. Four transfers will occur each year starting in fiscal year 2003-04 through fiscal year 2009-10.
(Effective April 1, 2003 and expires June 30, 2010; HB 1326, s. 1.1, S.L. 00-19.)

XII. HIGHWAY USE TAX

G.S. 105-187.1 - Retailer Defined: This statute was amended to add a new subdivision (3a) that defines a motor vehicle retailer. It cross-references the definition of retailer in the sales and use tax law.
(Effective August 2, 2000; HB 1290, s. 10(a), S.L. 00-173.)

G.S. 105-187.5(a) - Conforming Change: This subsection was amended to delete language made obsolete by the addition of the definition of retailer in G.S. 105-187.1(3a).
(Effective August 2, 2000; HB 1290, s. 10(b), S.L. 00-173.)

XIII. WHITE GOODS DISPOSAL TAX

Chapter 109 of the 2000 Session Laws - White Goods Sunset Repealed: This act repealed the sunset of the white goods disposal tax. The tax was originally set to expire on July 1, 2001. With this change, the tax has no expiration date.
(Effective July 13, 2000; HB 1854, s. 9(a), S.L. 00-109.)

XIV. DRY-CLEANING SOLVENT TAX

G.S. 105-187.31 - Dry-Cleaning Solvent Tax Increased: This statute was amended to increase the per gallon tax rates on dry-cleaning solvent. The tax on chlorine-based solvent is increased from $5.85 to $10.00 per gallon and the tax on hydrocarbon-based solvent is increased from $0.80 to $1.35 per gallon. The increases have a delayed effective date of October 1, 2001.
(Effective October 1, 2001 and expires January 1, 2010; HB 1326, s. 1.2, S.L. 00-19.) XV.

INSURANCE PREMIUMS TAX

 

G.S. 58-6-25 - Insurance Regulatory Charge: The percentage rate to be used in calculating the insurance regulatory charge under this statute is 7% for the 2000 calendar year. This charge is a percentage of gross premiums tax liability. Previously, Service Corporations and Health Maintenance Organizations (HMOs) were not required to pay the insurance regulatory charge. Effective January 1, 2000, however, they are subject to the insurance regulatory charge. The first returns reflecting this change will be due March 15, 2001; the charge levied is payable by March 15 following the end of each calendar year. HMOs and Service Corporations compute the charge using a "presumed premium tax liability" as if the organization or corporation were an insurer providing health insurance.
(2000 regulatory rate effective July 13, 2000; HB 1854, s.3, S.L. 00-109; expansion to Service Corporations and HMOs effective January 1, 2000; HB 1289, S.L. 99-413.)

XVI. EXCISE TAX ON CONVEYANCES

Article 8E - Title Change: The 1999 General Assembly changed the title of the Article, "Excise Stamp on Conveyances." The change replaced the word "Stamp" with the word "Tax." The change was necessary due to the repeal of the statute requiring issuance of conveyance stamps. The change had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.28 - Technical Change: The 1999 General Assembly rewrote this statute to make stylistic changes. The changes had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.29 - Technical Changes: The 1999 General Assembly rewrote this statute to make stylistic changes and to put the exemptions in a numbered list. The changes had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.30 - Timber Revision and Conforming Changes: The 1999 General Assembly amended this statute to delete a reference to "stamp" and to make stylistic changes. The reference to "stamp" was deleted because, with the repeal of G.S. 105-228.31, the reference was obsolete. These conforming changes had a delayed effective date of July 1, 2000.
The 2000 General Assembly also amended this statute to make timber deeds and contracts for the sale of standing timber subject to the excise tax to the same extent as if these deeds and contracts conveyed an interest in real property. Based on the Uniform Commercial Code, the North Carolina Supreme Court had held that timber deeds and contracts for the sale of standing timber did not convey an interest in real property. Before this ruling, the tax had been administered to apply to timber deeds and contracts for the sale of standing timber.
(Effective July 1, 2000; HB 56, S.L. 99-28; HB 1545, S.L. 00-16.)

G.S. 105-228.31 - Stamp Requirement Repealed: The 1999 General Assembly repealed this statute. With its repeal, the Secretary of Revenue no longer has the duty to issue stamps to place on deeds. The Registers of Deeds will use a meter or another device to mark the tax paid upon recording a deed. The repeal had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.32 - Conforming Changes: The 1999 General Assembly rewrote this statute to eliminate references to stamps issued by the Department of Revenue. The revision reflects the repeal of G.S. 105-228.31, which required the Department to issue stamps for use in recording instruments at the Register of Deeds Office. Previously, the Register of Deeds had the duty of affixing a tax stamp on an instrument presented for registration. Under the revised statute, the register of deeds has the duty of marking the instrument to indicate that the tax has been paid before recording the instrument. The changes had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.33 - Technical Change: The 1999 General Assembly rewrote this statute to reflect more modern language. The changes had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.34 - Repealed: The 1999 General Assembly repealed this statute, which made it a Class 3 misdemeanor for a person to willfully and knowingly fail to pay the excise tax imposed by Article 8E or to willfully and knowingly help another person fail to pay the tax. This criminal sanction was not used. The repeal had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.35 - Technical and Conforming Changes: The 1999 General Assembly rewrote this statute to delete the reference to repealed Article 30 of Chapter 105 of the General Statutes and to replace it with a reference to Article 9 of that Chapter. The changes had a delayed effective date of July 1, 2000. The 2000 General Assembly added the phrase "Except as otherwise provided in this Article" at the beginning of this section to reflect the addition of new G.S. 105-228.37. That statute has provisions that differ from the standard administrative provisions in Article 9 of Chapter 105.
(Effective July 1, 2000; HB 56, S.L. 99-28; HB 1544, S.L. 00-170.)

G.S. 105-228.36 - Repealed: The 1999 General Assembly repealed this statute because it was no longer needed. It declared that reproducing tax stamps was punishable as forgery. With the repeal of the requirement to have a tax stamp, a statute about forging the tax stamps is unnecessary. The repeal had a delayed effective date of July 1, 2000.
(Effective July 1, 2000; HB 56, S.L. 99-28.)

G.S. 105-228.37 - Refund for Overpayment of Excise Tax: This statute was enacted to establish a refund procedure for the deed excise tax. The deed excise tax is a State tax that is collected by the local Registers of Deeds. Although G.S. 105-228.35 states that the provisions of Article 9 of Chapter 105 apply to the deed excise tax, it was not clear how a taxpayer should apply for a refund of an overpayment. This statute resolves that lack of clarity.
Under this statute, a person who pays more tax than is due can claim a refund by filing a written request for refund with the board of county commissioners of the county where the tax was paid. The request must be filed within six months after the tax was paid and must explain why the taxpayer is due the refund. The taxpayer is entitled to a hearing. If the county denies a refund after a hearing, the taxpayer can ask for an administrative review by the Secretary of Revenue. A decision by the Secretary is binding on the county. If the Secretary also denies the refund, the taxpayer may bring an action in superior court to recover the disputed overpayment. If a refund is allowed, a corrected deed reflecting the proper amount of tax must be recorded before the refund is made.
(Effective January 1, 2000; HB 1544, S.L. 00-170.)

XVII. GENERAL ADMINISTRATION

G.S. 105-228.90(b) - Changes in Definitions: Two definitions were added to this subsection and several were renumbered or revised. The changes are as follows and become effective as noted after each definition:

Charter School - (b)(1): This definition was added to implement the motor fuel tax exemption in G.S. 105-449.88 for motor fuel sold to a charter school and used for charter school purposes. A charter school is a nonprofit corporation that has a charter under G.S. 115C-238.29D to operate a charter school.
(Effective October 1, 2000; HB 1302, S.L. 00-72.)

City - (b)(1a): This definition was renumbered from (b)(1) to (b)(1a) to reflect the insertion of "charter school" in the list of definitions. The definitions are in alphabetical order, so a renumbering was required to put a definition before "city."
(Effective October 1, 2000; HB 1302, S.L. 00-72.)

Code - (b)(1b): This definition was renumbered from (b)(1) to (b)(1a) to reflect the insertion of "charter school" in the list of definitions, and it was amended to update the reference to the Internal Revenue Code from June 1, 1999, to January 1, 2000. The definitions are in alphabetical order, so a renumbering was required to put a definition before "city." As a result of updating the reference to the Internal Revenue Code, the changes included in the Tax Relief Extension Act of 1999, which was part of Public Law 106-170, have been adopted for North Carolina income tax purposes.
(Update of IRC reference effective July 14, 2000; HB 1559, s. 1, S.L. 00-126; renumbering effective October 1, 2000; HB 1302, S.L. 00-72.)

County - (b)(1c): This definition was renumbered from (b)(1b) to (b)(1c) to reflect the insertion of "charter school" in the list of definitions. The definitions are in alphabetical order, so a renumbering was required to put a definition before "city."
(Effective October 1, 2000; HB 1302, S.L. 00-72.)

Department - (b)(2): This definition was added to define "Department" as "the Department of Revenue."
(Effective July 21, 2000; SB 1335, s. 69, S. L. 00-140.)

G.S. 105-236(5a) - Penalty Applies to All Exemption Certificates: This subdivision was rewritten to include all sales tax exemption certificates. Before the change, the subdivision required the Secretary to impose a $250 penalty for misuse of a certificate of resale. As rewritten, the $250 penalty applies to the misuse of any sales tax exemption certificate. A sales tax exemption certificate is a certificate issued by the Secretary that authorizes a retailer to sell tangible personal property to the holder of the certificate and either collect tax at a preferential rate or not collect any tax. Examples of an exemption certificate include a certificate of resale, a direct pay certificate, and a farmer's certificate.
(Effective January 1, 2001; HB 1624, s. 7, S.L. 00-120.)

G.S. 105-236(10a) - Frivolous Return Penalty: This subdivision was enacted to add a new penalty applicable to individual income taxpayers. The penalty applies to a taxpayer who files a frivolous return. The amount of the penalty is up to $500. The penalty is patterned after the federal frivolous return penalty. A return is frivolous if it meets both of the following requirements:

• It fails to provide sufficient information to permit a determination that the return is correct or it contains information which positively indicates the return is incorrect.
• It evidences an intention to delay, impede, or negate the revenue laws of this State or purports to adopt a position that is lacking in seriousness.

(Effective October 1, 2000, for returns filed on or after that date; HB 1551, s. 2, S.L. 00-119.)

G.S. 105-241.1(e) - Conforming Change: This subsection was amended to delete the reference to forfeiture of a tax credit "pursuant to G.S. 105-163.014 or Article 3A of this Chapter" and replace it with a reference to forfeiture of a tax credit or benefit "pursuant to forfeiture provisions of this Chapter." This change was made to reflect new forfeiture provisions added to statutes outside Article 3A, such as the new consolidated energy credit in G.S. 105-129.16A, the new credit for low-income housing in G.S. 105-129.16B, and the new sales and use tax refund for nonprofit insurance companies in G.S. 105-164.14(i).
(Effective for taxable years beginning on or after January 1, 2000; SB 1115, s. 16, S.L. 99-360.)

G.S. 105-259(b) - Secrecy Provision Changes: The 1999 General Assembly added one new exception to the secrecy prohibition, effective January 1, 2000, and the 2000 General Assembly added two new exceptions to the secrecy prohibition. The changes are as follows:

Privilege, Excise, and Unauthorized Substance Tax Information-(b)(15): This subdivision was amended to add the Division of Adult Probation and Parole of the Department of Correction as a agency with whom the Department can exchange information concerning a privilege tax, an excise tax, or an unauthorized substance tax or to fulfill a duty imposed on the Department.
(Effective August 2, 2000; HB 1290, s.11, S.L. 00-173.)

Information on Article 3A Credits - (b)(24): The 1999 General Assembly enacted this exception to allow the Department to give the Department of Commerce and the Employment Security Commission a copy of the qualifying information submitted by taxpayers who claim any of the tax credits in Article 3A of Chapter 105, such as the jobs tax credit and the credit for investing in machinery and equipment. This subdivision was designated as subdivision (22) in the legislation that enacted it. Another subdivision with the number (22) and a subdivision (23) were enacted by other legislation. The Codifier of Statutes, which is the Attorney General's Office, designated this subdivision as subdivision (24).
(Effective January 1, 2000. SB 1115, s. 2.1, S.L. 99-360.)

Registered Retailers - (b)(25): This subdivision was added to enable the Department to provide public access to a database containing the names of retailers who are registered to collect sales and use taxes. This database is needed so that taxpayers can determine if a remote seller collected sales tax on a sale to the taxpayer.
(Effective July 14, 2001; HB 1624, s. 8, S.L. 00-120.)

G.S. 105-262 - Technical Change: This section was amended to delete the phrase "Office of State Budget and Management" and replace it with the phrase "Office of State Budget, Planning, and Management." The amendment reflects a change in the name of that office.
(Effective July 1, 2000; SB 1335, s. 93.1(a), S.L. 00-140.)

G.S. 105-269.13 - Debts Not Collectible: This statute combines provisions that were previously in G.S. 105-88 with new provisions concerning debts owed to retailers that are not registered to remit North Carolina sales and use taxes. The provisions that were moved to this section from G.S. 105-88 declare that a person who makes loans and does not pay the tax imposed by G.S. 105-88 cannot enforce the payment of the loan. The new provisions declare that certain retailers cannot enforce debts owed to them as the result of the purchase of tangible personal property. The retailers to whom this prohibition applies are those that are described in G.S. 105-164.8(b), are not registered to collect sales and use taxes, and have annual gross sales of at least $5,000,000.
(Effective July 14, 2000; HB 1624, s. 9, S.L. 00-120.)

G.S. 105-269.14 - Future Repeal of Payment of Use Tax with Individual Income Tax: The 1999 General Assembly enacted this statute to require individuals who make out-of-state consumer purchases to report and pay the use tax due on these purchases when filing their individual income tax returns. This requirement was effective for tax years beginning on or after January 1, 1999. The 2000 General Assembly repealed this statute, effective for 2003 income tax returns. The General Assembly repealed the statute as part of legislation enabling the State to have better tools by which remote sellers can collect the use tax due and remit it directly to the State. The hope is that by 2003 the better collection system will supplant the need for collection of the tax through the individual income tax return.
(Effective for taxable years beginning on or after January 1, 2003; HB 1624, s. 10, S. L. 00-120.)

XVIII. PROPERTY TAX

G.S. 105-275(5a) - Exemption for Disabled Veteran Vehicle: This new subdivision exempts certain motor vehicles from property tax. The motor vehicles that are exempt are those that are owned by a disabled veteran and have been altered with special equipment to accommodate a service-connected disability of the veteran.
(Effective for taxes imposed for tax years beginning on or after July 1, 2000; HB 133, S.L. 00-18.)

G.S. 105-275(41) - Exemption for Certain Short-Term Lease or Rental Vehicles: This new subdivision exempts certain short-term lease or rental vehicles from property tax. The short-term lease or rental vehicles that are exempt are those that are rented or leased to the same person for fewer than 365 continuous days. To replace the lost revenue, the counties and cities are authorized to levy a gross receipts tax of up to 1.5% on the receipts from short-term leases and rentals of vehicles. The authorization for the counties to levy a gross receipts tax is in new G.S. 153A-156, and the authorization for the cities to levy a gross receipt tax is in new G.S. 160A-215.1.
(Effective for taxes imposed for tax years beginning on or after July 1, 2000; SB 1076, S.L. 00-2.)

G.S. 131A-21 - Clarification of Exemption for Health Care Facilities Financed by the Medical Care Commission: This statute was amended to clarify the property tax exemption for health care facilities financed with bonds or notes issued by the Medical Care Commission. The revision makes it clear that when property is renovated, the exemption applies only to the part of the facility being renovated and that when an addition is made to an existing facility, the exemption applies only to the part added. The revised statute also states that the exemption may not exceed the lesser of the principal amount of the bonds or the assessed value of the facility for ad valorem tax purposes.
(Effective October 1, 2000, and applies to bonds or notes issued on or after that date; HB 1573, S.L. 00-20.)

G.S. 105-277.13 - Partial Exemption for Brownfields Improvements: This statute designates improvements on brownfields properties as a special class of property and excludes part of their value from property tax. The exclusion is for a five-year period beginning when the improvements are made and declines during this period from 90% of the appraised value for the first year, to 75% for the second year, then 50% for the third year, then 30% for the fourth year, and 10% for the fifth year. The improvements are fully taxable in the sixth and subsequent years.
(Effective for taxes imposed for taxable years beginning on or after July 1, 2001; SB 1252, S.L. 00-158.)

G.S. 105-278.6A - CCRC Sunset Extended One Year: The property tax exemption for continuing care retirement centers was extended from July 1, 2000 to July 1, 2001. The exemption was scheduled to sunset effective July 1, 2000.
(Effective July 1, 2000; HB 1573, S.L. 00-20.)

G.S. 105-322 - Lincoln County Board of Equalization and Review: This statute was amended to apply only to Lincoln County. Under the amendment, the Lincoln County Board of Commissioners is authorized to appoint a special board of equalization and review for Lincoln County. The special board consists of five members, all of whom must have lived in Lincoln County for at least three years and have satisfactory knowledge of real estate, fee appraisals, banking, farming, or other business management. The amendment sets out procedures for meetings, quorums, terms of office, and filling vacancies.
(Effective June 30, 2000; HB 1656, S.L. 00-40.)

Chapter 92 of the Session Laws - Cabarrus County Board of Equalization and Review: This local act authorizes the Cabarrus County Board of Equalization and Review to meet after its formal adjournment date.
(Effective July 7, 2000; SB 1364, S.L. 00-92.)

XIX. MOTOR FUELS TAX

G.S. 105-449.37(a)(1a) - Technical Change: This statute was amended to revise the statutory cross-references to the definitions of "motor vehicle" and "special mobile equipment." The revisions deleted the specific subdivision references, leaving the section reference. This change was made to avoid problems if the subdivisions within cross-referenced G.S. 105-164.3 are renumbered. Subdivisions in definition sections are sometimes renumbered when new definitions are added and the numbering must be changed to keep the definitions in alphabetical order.
(Effective July 21, 2000; SB 1335, s. 74, S.L. 00-140.)

G.S. 105-449.44 - Clarifying and Technical Changes: This statute was amended to make stylistic changes and to clarify the Department's responsibility concerning the assessment of motor carriers based on presumed mileage. The stylistic changes divide existing subsection (b) into subsections (b) and (c), add the heading "Vehicles" to newly designated subsection (c), and substitute the word "must" for the word "shall" in the first sentence of subsection (b).
Two clarifying changes were made. The first deletes the word "carries" in subsection (a) and replaces it with the word "uses." This change clarifies the gallons that should be used to claim a credit on the motor carrier return.
The second clarifying change revises the language on assessments based on presumed mileage. The change makes it clear that the Department is not supposed to automatically assess a motor carrier based on presumed mileage whenever the records of the Division of Motor Vehicles of the Department of Transportation show that the carrier was operating in the State and the records of the Department of Revenue show that the carrier has not filed a motor carrier return. Instead, the Department of Revenue is to exercise judgment and can use this information to make an assessment. The practice of the Department of Revenue is to notify carriers when the records establish a discrepancy and give the carriers the opportunity to explain the facts and, if needed, to file a return. After this opportunity, the Department will assess the carrier based on the presumed mileage if the Department finds that the carrier was operating in this State and has not filed a return.
(Effective August 2, 2000; HB 1290; s. 12, S.L. 00-173.)

G.S. 105-449.60(31) - Conforming Change: This statute was amended to delete the reference to a two-party "transaction" and substitute a reference to a two-party "exchange." This change was made because the defined term "two- party transaction" in G.S. 105-449.60(40) was changed to "two-party exchange."
(Effective July 1, 2000; HB 1290, s. 13, S.L. 00-173.)

G.S. 105-449.60(40) - Two-Party Exchange Reinstated: This statute was revised to reinstate the former definition of "two-party exchange." This change excludes from the definition sales between two licensed suppliers that occur as motor fuel crosses a terminal rack. The effect of this change is that when one of these sales occurs, the selling supplier rather than the receiving supplier is liable for the tax. With this change, the definition has returned to the one enacted in 1995 when the motor fuel laws were rewritten to implement "tax at the rack."
(Effective July 1, 2000; HB 1290, s. 13, S.L. 00-173.)

G.S. 105-449.60(41) - Clarifying Change: The definition of "user" was amended to insert a minimum weight threshold for a vehicle. With the clarification, a user of motor fuel is a person who owns or operates a motor vehicle that has a registered gross vehicle weight of at least 10,001 pounds. Prior law, before the 1995 change to "tax at the rack," had this requirement. The requirement was inadvertently omitted when the motor fuel law was rewritten. The Department has continued to administer the law as if it contained the weight threshold.
(Effective August 2, 2000; HB 1290, s. 14, S.L. 00-173.)

G.S. 105-449.68 - Technical Change: This statute was amended to apply the defined term "bulk-end user" consistently. The word "user" was changed to "bulk-end user" to accomplish this change. The term "user" is a defined term also. Therefore, the two terms must applied consistently to avoid confusion.
(Effective August 2, 2000; HB 1290, s. 14, S.L. 00-173.)

G.S. 105-449.88(1) - Clarifying Change: This statute was amended to clarify that the exemption for motor fuel sold for export applies only if the motor fuel is removed from the terminal by a licensed distributor or a licensed exporter. The change was made to harmonize this subdivision with G.S. 105-449.82(c). That subsection states that an unlicensed exporter that removes fuel for export is liable for tax on the fuel at both the North Carolina rate and the destination state rate. The liability for the North Carolina rate applies only upon assessment, however. The reference in G.S. 105-449.82(c) to an unlicensed exporter includes an unlicensed distributor because a person licensed as a distributor is not required to have a separate exporter license.
(Effective August 2, 2000; HB 1290; s. 15, S.L. 00-173)

G.S. 105-449.88(1a) - Tax on Sales Between Suppliers at the Rack: G.S. 105-449.98 was amended by adding new subdivision (1a). The new subdivision exempts from the North Carolina tax certain motor fuel sold for export. Fuel sold for export is exempt if the fuel is sold from one supplier to another as the fuel crosses the rack, the purchasing supplier or its customer receives the fuel for export, and the supplier that is the position holder collects tax at the rate of the destination state. This change was needed as a result of the change made to the definition of two-party transaction in G.S. 105-449.60(40). Without this change, the selling supplier would be liable for tax at the North Carolina rate.
(Effective July 1, 2000; HB 1290, s. 13, S.L. 00-173.)

G.S. 105-449.88(6) - Charter School Exemption: G.S. 105-449.86 was amended to add a new exemption for motor fuel sold to charter schools and used for charter school purposes. Motor fuel sold to a local board of education for use in the public school system is exempt under subdivision (4) of that statute. This exemption therefore extends the exemption for motor fuel used for school purposes to include charter schools. G.S. 115C-238.29J requires the Department of Public Instruction to notify the Department of Revenue when a charter for a charter school is granted, not renewed, or terminated.
(Effective October 1, 2000; HB 1302; S.L. 00-72.)

G.S. 105-449.97(c) - Technical Change: This statute was amended to insert the missing word "the."
(Effective August 2, 2000; HB 1290, s. 14, S.L. 00-173.)

G.S. 105-449.105 - Technical Change: This statute was revised to delete an obsolete reference in the catchline of the section to a refund for undyed diesel fuel used in boats. Former subsection (d) of the statute allowed a marina to obtain a refund for undyed diesel fuel sold for use in boats. Subsection (d) was repealed in 1998 because federal law changed so that boats could use dyed diesel, which is untaxed. The needed conforming change to the catchline was not made when subsection (d) was repealed.
(Effective August 2, 2000; HB 1290, s. 16, S.L. 00-173.)

G.S. 105-449.105A - Changes to Conform to Federal Law: This statute was amended by designating the existing language as subsection (a) with the heading "Refund," by modifying subdivision (2) to conform to federal law, and by adding a new subsection (b) that explicitly addresses the liability of a distributor erroneous refunds. Under revised subdivision (a)(2), a distributor may obtain a refund for tax paid on undyed kerosene if the kerosene is delivered to a retail station with a storage facility that is marked "Undyed, Untaxed Kerosene, Nontaxable Use Only" and either has a dispensing device that is blocked in such a way that a highway vehicle could not be fueled by the device or a pump that is locked by the retailer after each sale. New subsection (b) sets out the policy of the Department concerning overpayments of refunds. A distributor that receives an overpayment of a refund is liable for the amount of the overpayment. This principle applies even if the retailer's failure to comply with the marking and pump requirements is the reason the distributor does not qualify for the refund.
(Effective August 2, 2000; HB 1290, s. 17, S.L. 00-173.)

G.S. 105-449.121(b)(2) - Audit Scope Restored: This statute was amended to add retailers and bulk-end users to those subject to audit by the Department of Revenue. Before August 10, 1999, these two groups had been subject to audit because they were required to have a license issued by the Secretary. The license requirement was repealed because it was not necessary. A conforming change was not made to this subdivision, however, at the time of the repeal. Even though retailers and bulk-end users do not need a license, the Department may need to audit them to account for all motor fuel sold in the State.
(Effective August 2, 2000; HB 1290, s. 18, S.L. 00-173.)

XX. DEBT SET-OFF

G.S. 105A - Setoff Debt Collection Changes: Chapter 105A was rewritten in 1997 to make the following changes, which take effect January 1, 2000:

• Allow local government agencies to file claims for setoff of individual income tax refunds.
• Require all State agencies to submit debts for setoff unless the State Controller waives the requirement for that agency.
• Shift liability for the collection assistance fee retained by the Department of Revenue from the claimant agency to the debtor, except for child support arrearages.
• Make the setoff process automatic within the Department of Revenue if a claim has been filed and the claim and refund available for setoff is $50 or more.

(Effective January 1, 2000, for income tax refunds determined on or after that date; SB 39; s. 1, S.L. 97-490.)

G.S. 105A-13 - Collection Assistance Fee on Federal Setoffs: This section was amended to designate the existing language in the section as subsection (a) and to add a new subsection (b). Subsection (a) applies to setoffs made by the Department of Revenue, and subsection (b) applies to setoffs made by the Internal Revenue Service. Subsection (b) was added to permit the Department of Revenue to add a $15 collection assistance fee to a taxpayer's North Carolina individual income tax liability when the Department submits the liability to the United States Department of the Treasury for setoff against the taxpayer's federal income tax refund. Upon collection, the fee is retained by the Department.
The fee has priority over the tax liability. For example, assume a taxpayer has a North Carolina income tax liability of $200. The Department adds a collection assistance fee of $15 to the liability and submits the total liability of $215 to the United States Department of the Treasury. The taxpayer's federal income tax refund of $150 is set off against the liability. Of the $150 received by the Department from the U.S. Treasury in payment of the liability, $15 is applied against the collection assistance fee and $135 is applied against the income tax liability.
(Effective July 14, 2000; HB 1559, s. 6, S. L. 2000-126.)

XXI. VIDEO POKER REPORTS

G.S. 14-306.1(e1) - Video Poker Machine Reporting Requirement: This new statute requires owners of video poker machines to report various items to the Department. They must report the total gross receipts from video poker machines, itemized by each machine, the total number of machines at each location, and the total value of prizes and merchandise awarded to players of each machine at a location. The report is due quarterly on or before the 15th day after the end of a calendar quarter. The first reports are due April 15, 2001, for the first quarter of calendar year 2001.
The Department of Revenue must compile the reports and present a summary report each quarter to the Joint Legislative Commission on Governmental Operations. The Department must also make the reports available upon request to the Sheriff of the county in which the machines are located.
(Effective October 1, 2000; SB 1542, S.L. 00-151.)

XXII. STUDIES

Tax Policy Commission: Part III of Chapter 395 of the 1999 Session Laws established the North Carolina Tax Policy Study Commission. The Governor, the Speaker of the House of Representatives, and the President Pro Tempore of the Senate each made 5 appointments to the Commission. The Commission is to establish the principles of taxation on which the State's tax structure should be based, review the tax structure to determine if it meets these principles, and recommend changes needed to align the tax structure in accordance with the principles. The Commission is to make a final report to the General Assembly, the Governor, and the citizens of the State by March 1, 2001.
The 2000 General Assembly added two new members to the Commission, one to be appointed by the President Pro Tempore of the Senate and one to be appointed by the Speaker of the House of Representatives.
(Legislation establishing Commission effective July 1, 1999; HB 163, s. 3.1 through 3.13, S.L. 99-395; legislation adding two more members effective August 2, 2000;SB 1385, s. 2.2, S.L. 00-181.)

Revenue Laws Study Committee: Seven topics are listed for study by this committee. The seven topics are:

1. The simplification of all State revenue and tax forms.
2. Tax credits to encourage the production of affordable housing.
3. The establishment of an investment advisory committee to serve as a liaison between the General Assembly and the Department of State Treasurer and to assist the Treasurer in setting investment policies for the State.
4. The homestead exemption.
5. Simplification of taxes on telecommunications.
6. Interstate tax cooperation to eliminate multiple filings by individuals.
7. The impact on local property tax revenue of the State's acquisition of land for conservation purposes.

The committee is also authorized in G.S. 120-70.106 to study any aspect of the tax laws. The committee is authorized to report its findings and recommendations to the 2001 General Assembly.
(Effective July 21, 2000; SB 787, Part IV, S.L. 00-138.)