2019 Corporate Taxes Law Changes

This subdivision was amended by the 2018 General Assembly to change the definition of a “corporation” for purposes of franchise tax. The annual franchise tax is imposed on corporations doing business in this state. Previously, the definition included limited liability companies that elect to be taxed as corporations but did not include partnerships that elect to be taxed as corporations. This change includes partnerships that elect to be taxed as corporations in the definition of “corporation” and makes consistent the treatment of all business entities that either are corporations or choose to be taxed as corporations. This also makes franchise tax treatment consistent with income tax treatment.

(Effective for taxable years beginning on or after January 1, 2019, and applies to the calculation of franchise tax reported on the 2018 and later corporate income tax returns; SB 99, s. 38.2.(a), S.L. 2018-5.)

This section was rewritten as part of the disaster relief provisions contained in Article 1A of Chapter 166A of the North Carolina General Statutes to help facilitate and expedite the state’s recovery after a natural disaster.

Prior to the enactment of S.L. 2019-187, every corporation organized under the laws of North Carolina or doing business in North Carolina was subject to North Carolina franchise tax.

After the enactment of S.L. 2019-187, subsection (d) was added to provide that G.S. 105-114 does not apply to a nonresident business if the nonresident business derives income in North Carolina solely from performing disaster-related work during a disaster response period at the request of a critical infrastructure company. For the purposes of this subsection, the definitions of nonresident business, disaster-related work, disaster response period, and critical infrastructure company are contained in G.S. 166A-19.70A.

For more information on this amendment, including definitions and related legislation, see Appendix A of this publication.

(Effective August 1, 2019, and applies to disaster declarations made on or after that date; SB 498, s. 1.(e), S.L. 2019-187.)

This new subdivision was added to expand the definition of a holding company. This subdivision includes a corporation that owns copyrights, patents, or trademarks that represent more than eighty percent (80%) of its total assets or receives more than eighty percent (80%) of its gross income from royalties and license fees. In addition, it must be one who is one hundred percent (100%) directly owned by a corporation that is a manufacturer as defined by NAICS codes 31 through 33; must generate more than five billion dollars ($5,000,000,000) in revenue for income tax purposes from goods it manufactures; and must include an investment in the holding company in its net worth franchise tax base.

(Effective for taxable years beginning on or after January 1, 2020, and is applicable to the calculation of franchise tax reported on the 2019 and later corporate income tax returns; SB 557, s. 2.(a), S.L. 2019-246.)

This subsection was amended to eliminate some language, add new subdivision (1b) and delete subdivision (3).

Vague language was eliminated to make clear that if a corporation does not maintain its books and records in accordance with generally accepted accounting principles (GAAP), then its net worth is computed in accordance with the method the corporation uses for federal tax purposes.

Subdivision (1b) was added so that if a corporation uses an accounting method other than GAAP for federal tax purposes, then new subdivision (1b) requires that asset valuation, depreciation, depletion, and amortization be calculated for franchise tax purposes using the same method used for federal income tax purposes.

Subdivision (3) was deleted to prevent a double deduction of treasury stock that is already captured in the current franchise tax calculation.

(Effective for taxable years beginning on or after January 1, 2019, and applies to the calculation of franchise tax reported on the 2018 and later corporate income tax returns; SB 99, s. 38.2.(b), S.L. 2018-5.)

This subsection was amended to require a corporate taxpayer that has made a state net loss apportionment election under G.S. 105-130.4(t3) to use the statutory apportionment method under subdivision (1) of this subsection as if the election had not been made, unless they have been authorized to use a different apportionment method under subdivision (2) of this subsection.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(d), S.L. 2019- 246.)

This subdivision was amended to prohibit the apportionment factor for a wholesale content distributor from being less than two percent (2%).

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(d), S.L. 2019- 246.)

This subdivision from the reorganization of G.S. 105-122 was amended to reinstate a deduction for any indebtedness specifically incurred and existing solely for and as the result of the purchase of any real estate and any improvements made on the real estate. The deduction was previously eliminated in the 2015 General Assembly franchise tax simplification changes. With the reinstatement of the deduction, the term “specifically” was added into the phrase “indebtedness incurred” to emphasize the connection of the debt incurred specifically to the real estate purchased or improved.

(Effective for taxable years beginning on or after January 1, 2020, and applies to the calculation of franchise tax reported on the 2019 and later corporate income tax returns; SB 628, s. 1.3.(b), S.L. 2017-204.)

This subsection from the reorganization of G.S. 105-122 was further amended to provide a reduction in the franchise tax rate for S-Corporations. It provides that the franchise tax rate for an S-Corporation as defined in G.S. 105-130.2 is $200 for the first one million dollars ($1,000,000) of the corporation’s tax base and $1.50 per $1,000 of its tax base that exceeds one million dollars ($1,000,000). This rate reduction is for taxable years beginning on or after January 1, 2019 and will apply to the franchise tax reported on the 2018 and later corporate income tax returns.

(Effective for taxable years beginning on or after January 1, 2019, and applies to the calculation of franchise tax reported on the 2018 and later corporate income tax returns; SB 257, s. 38.6.(a), S.L. 2017-57 and SB 628, s. 1.3.(c), S.L. 2017-204.)

This statute authorizes the Secretary to require a power of attorney of each agent for any taxpayer. The section was recodified as 105- 258.3 under Article 9 (general administration) from Article 3 (franchise tax) because the authority is not limited to franchise tax.

(Effective July 26, 2019; SB 523, s. 6.6.(a), S.L. 2019-169.)

This subsection was added to reenact the Mill Rehabilitation Tax Credit for an eligible railroad station that is allowed a credit under section 47 of the Code. The Mill Rehabilitation Tax Credit was established in 2006 and expired on January 1, 2015 for rehabilitation projects for which an application for eligibility certification had not already been submitted.

To qualify under this new subsection, the taxpayer must incur qualified rehabilitation expenses of at least ten million dollars ($10,000,000) for a certified rehabilitation of an eligible railroad station. To be eligible for the credit, the taxpayer must provide a copy of the eligibility certification and the cost certification to the Secretary.

An eligible railroad station is a site that is located in this state and meets all of the following conditions:

1. Was used as a manufacturing facility and was used as a railroad station or is located adjacent to a site that is or was used as a railroad station. 
2. Is a certified historic structure or state-certified historic structure. 
3. Has been at least eighty percent (80%) vacant for at least two years immediately preceding the eligibility certification date. 
4. Is a designated local landmark certified by a city on or before June 30, 2019. 
5. Is located in a tier one or tier two development area, determined as of the eligibility certification date. 
6. Is located in a designated qualified opportunity zone under sections 1400Z-1 and 1400Z-2 of the Code, determined as of the eligibility certification date. 
7. Is issued a certificate of occupancy on or before December 31, 2021.

Taxpayers with income-producing mill rehabilitation projects that meet the required conditions would be allowed a credit equal to forty percent (40%) of the rehabilitation expenses that qualify for the federal credit. The credit, as reenacted, cannot be claimed for a taxable year prior to January 1, 2021 and must be taken in two equal installments on the 2021 and 2022 tax returns.

(Effective November 1, 2019; HB 399, s. 3.(b), S.L. 2019-237.)

This section was amended to add reference to Article 3L in addition to previously referencing Article 3D. It states that a taxpayer who claims a tax credit under Article 3D or 3L may not also claim a tax credit under Article 3H for the same activity.

The amendment also added a reference to G.S. 105-129.107 to state that the rules and fee schedule adopted under Article 3L applies to tax credits claimed under Article 3H. Previously, only G.S. 105-129.36A was referenced, which provides the rules and fee schedule for tax credits under Article 3D.

(Effective November 1, 2019; HB 399, s. 3.(c), S.L. 2019-237.)

This section was amended to allow for a delayed sunset for credits allowed under newly added G.S. 105- 129.71(a1) and set forth that qualified rehabilitation expenses must be incurred on or after January 1, 2019 and before January 1, 2022. The credit expires for any projects not completed and placed in service by January 1, 2022.

(Effective November 1, 2019; HB 399, s. 3.(d), S.L. 2019-237.)

This section was amended to extend the sunset of the existing historic preservation tax credit from January 1, 2020 to January 1, 2024. Qualified rehabilitation expenditures and rehabilitation expenses must be incurred before January 1, 2024 to qualify for the tax credit under this Article. The credit expires for property not placed in service by January 1, 2032.

(Effective November 1, 2019; HB 399, s. 3.(a), S.L. 2019-237.)

This section was rewritten as part of the disaster relief provisions contained in Article 1A of Chapter 166A of the North Carolina General Statutes to help facilitate and expedite the State’s recovery after a natural disaster.

Prior to the enactment of S.L. 2019-187, every corporation doing business in North Carolina was subject to North Carolina corporate income tax.

After the enactment of S.L. 2019-187, subsection (b) was added to provide that G.S. 105-130.1 does not apply to a nonresident business if the nonresident business derives income in North Carolina solely from performing disaster-related work during a disaster response period at the request of a critical infrastructure company. For the purposes of this subsection, the definitions of nonresident business, disaster-related work, disaster response period, and critical infrastructure company are contained in G.S. 166A-19.70A.

For more information on this amendment, including definitions and related legislation, see Appendix A of this publication.

(Effective August 1, 2019, and applies to disaster declarations made on or after that date; SB 498, s. 1.(f), S.L. 2019-187.)

Effective for tax years beginning on or after January 1, 2019, the tax rate for C-Corporations is decreased from three percent (3%) to two and a half percent (2.5%).

(Effective for taxable years beginning on or after January 1, 2019; SB 257, s. 38.5.(b), S.L. 2017-57.)

The 2019 General Assembly enacted legislation to implement market-based sourcing for multistate income tax apportionment. As part of this legislation, the sales factor was amended to establish that receipts are in this state if the taxpayer's market for the receipts is in this state. It provides for reasonable approximation if the market for a receipt cannot be determined, and if that method is not possible, the receipts are excluded from the denominator of a taxpayer's sales factor.

As amended, changes were made to the parameters regarding a taxpayer's market for receipts in this state to include the following subdivisions:

1. The sale, rental, lease, or license of real property, if and to the extent the property is located in this state. 
2. The rental, lease, or license of tangible personal property, if and to the extent the property is located in this state. 
3. The sale of tangible personal property, if and to the extent the property is received in this state by the purchaser. For delivery of goods by common carrier or by other means of transportation, including transportation by the purchaser, the place where the goods are ultimately received after all transportation has been completed is considered the place the goods are received by the purchaser. Direct delivery into this state by the taxpayer to a person or firm designated by a purchaser from inside or outside the state constitutes delivery to the purchaser in this state. 
4. For a sale of a service, if and to the extent the service is delivered to a location in this state. 
5. For intangible property that is rented, leased, or licensed, if and to the extent the property is used in this state. Intangible property utilized in marketing a good or service to a consumer is "used in this state" if that good or service is purchased by a consumer who is in this state. 
6. For intangible property that is sold, if and to the extent the property is used in this state. A contract right, government license, or similar intangible property that authorized the holder to conduct a business activity in a specific geographic area is "used in this state" if the geographic area includes all or part of this state. Receipts from a sale of intangible property that is contingent on the productivity, use, or disposition of the intangible property is treated as receipts from the rental, lease, or licensing of the intangible property as provided under subdivision (5) of this subsection (see above). All other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the sales factor.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

The 2019 General Assembly enacted legislation to implement market-based sourcing for multistate income tax apportionment. As part of this legislation, subsection (l1) was added to refer to newly added G.S. 105-130.4A for the provisions of market-based sourcing for a “wholesale content distributor.”

This new subsection also provides that a wholesale content distributor’s apportionment of income to this state to be no less than the amount determined by multiplying two percent (2%) by the total domestic gross receipts of the wholesale content distributor from advertising and licensing activities. For purposes of this subsection, the term “wholesale content distributor” is defined in G.S. 105-130.4A, discussed below.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

The 2019 General Assembly enacted legislation to implement market-based sourcing for multistate income tax apportionment. As part of this legislation, subsection (l2) was added to refer to newly added G.S. 105-130.4B for the provisions of market-based sourcing for a “bank.” For purposes of this subsection, the term “bank” is defined in G.S. 105-130.4B, discussed later in this document.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

This subsection was amended to provide that, for companies subject to rate regulation by the Federal Energy Regulatory Commission, receipts from the transportation or transmission of petroleum-based liquids or natural gas are to be apportioned using traffic units, defined as barrel miles or cubic foot miles, in this state during the tax year. This was previously limited to petroleum-based liquids pipeline companies with income apportioned by barrel miles. The definition of a barrel mile is one barrel of liquid property transported one mile. A cubic foot mile is defined as one cubic foot of gaseous property transported one mile.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

This subsection was added to define and provide special apportionment rules for an electric power company.

An electric power company is defined as a company, including any of its wholly owned noncorporate limited liability companies, primarily engaged in the business of supplying electricity for light, heat, current, or power to persons in this state that is subject to control of the N.C. Utilities Commission or the Federal Energy Regulatory Commission.

The numerator of its apportionment factor is the average value of real and tangible personal property owned or rented and used in this state by the electric power company during the taxable year and the denominator is the average value of all real and tangible personal property owned or rented and used during the taxable year.

The average value of real and tangible personal property owned or rented by an electric power company is determined by the following:

1. The average value of property is determined by averaging the values at the beginning and end of the taxable year. The Secretary may require averaging of monthly or other periodic values during the taxable year if reasonably required to reflect properly the average value of the corporation’s property. 
2. If an electric power company ceases its operations in this state before the end of its taxable year because it intends to dissolve or relinquish its certificate of authority, or because of a merger, conversion, or consolidation, or for any other reason, it must use the real estate and tangible personal property values as of the first day of the taxable year and the last day of its operations in this state to determine the average value of the property. The Secretary may require averaging of monthly or other periodic values during the taxable year if reasonably required to reflect properly the average value of the electric power company’s property. 
3. Property owned by an electric power company is valued at its original cost. 
4. Property rented by an electric power company is valued at eight times the net annual rental rate. 
5. The net annual rental rate is the annual rental rate paid by an electric power company less any annual rental rate received by the electric power company from sub-rentals except that sub-rentals are not deducted when they constitute apportionable income. 
6. Any property under construction and any property whose income constitutes nonapportionable income is excluded from the computation of the average value of an electric power company’s real and tangible personal property.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

This subsection was added to allow a corporate taxpayer with a state net loss balance as of the end of its 2019 taxable year, as computed under GS 105-130.8A, to elect to apportion receipts from services based on the percentage of its income-producing activities performed in this State. The election must be made on the 2020 tax return and in the form prescribed by the Secretary with any supporting documentation required. The election is binding and irrevocable until the earlier of the tax year in which the existing state net loss balance is fully utilized or has expired.

It also defines state net loss balance as the total amount of state net losses computed under G.S. 105-130.8A for taxable years beginning before January 1, 2020, and available to carry forward to taxable years beginning on or after January 1, 2020. A state net loss balance does not include a loss created in a taxable year beginning on or after January 1, 2020. If created on or after January 1, 2020, the state net loss must be determined using the apportionment for market-based sourcing as set forth in G.S. 105-130.4(l).

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(a), S.L. 2019- 246.)

The 2019 General Assembly enacted legislation to implement market-based sourcing for multistate income tax apportionment. As part of this legislation, this section was added to set forth provisions concerning market-based sourcing for wholesale content distributors.

Subsection (a) defines terms applicable to the statute which include the following:

1. Customer – A person who has a direct contractual relationship with a wholesale content distributor from whom the wholesale content distributor derives gross receipts, including a business customer such as an advertiser or licensee, and an individual customer that directly subscribes with the wholesale content distributor for access to film programming. 
2. Gross receipts – The same meaning as the term "sales" in G.S. 105-130.4. 
3. Wholesale content distributor – A broadcast television network, a cable program network, or any television distribution company owned by, affiliated with, or under common ownership with any such network and does not mean or include a multichannel video programming distributor or a distributor of subscription-based internet programming services.

Subsection (b) establishes the fraction for a wholesale content distributor's receipts factor. The numerator of its receipts factor is the sum of the wholesale content distributor’s gross receipts from transactions and activity in the regular course of its trade or business within this state and the denominator is the sum of the wholesale content distributor’s gross receipts from transactions and activity in the regular course of its trade or business everywhere. Receipts from transactions and activities in the regular course of business, including advertising, licensing, and distribution activities; but excluding receipts from the sale of real or tangible personal property, are in this state if received from a business customer who is commercially domiciled in this state. Receipts from an individual customer are from sources within this state if the individual’s billing address listed in the broadcaster’s books and records is in this state.

(Effective for taxable years beginning on or after January 1, 2020; SB 557, s. 3.(b), S.L. 2019- 246.)

The 2019 General Assembly enacted legislation to implement market-based sourcing for multistate income tax apportionment. As part of this legislation, this section was added to set forth provisions concerning market-based sourcing for banks.

Subsection (a) provides the following definitions applicable to this statute:

1. Bank – Defined in G.S. 105-130.7B. 
2. Billing address – The location indicated in the books and records of the taxpayer on the first day of the taxable year, or on the date in the taxable year when the customer relationship began, as the address where any notice, statement, or billing relating to the customer's account is mailed. 
3. Borrower, cardholder, or payor located in this state – A borrower, credit cardholder, or payor whose billing address is in this state. 
4. Card issuer's reimbursement fee – The fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit, debit, or similar type of card has charged merchandise or services to the card. 
5. Credit card – A card, or other means of providing information, that entitles the holder to charge the cost of purchases, or a cash advance, against a line of credit. 
6. Debit card – A card, or other means of providing information, that enables the holder to charge the cost of purchases, or a cash withdrawal, against the holder's bank account or a remaining balance on the card. 
7. Loan – Any extension of credit resulting from direct negotiations between the taxpayer and its customer, and/or the purchase, in whole or in part, of such an extension of credit from another. The term includes participations, syndications, and leases treated as loans for federal income tax purposes. 
8. Loan secured by real property – A loan or other obligation of which fifty percent (50%) or more of the aggregate value of the collateral used to secure the loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property. 
9. Merchant discount – The fee, or negotiated discount, charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit, debit, or similar type of card is accepted in payment for merchandise or services sold to the cardholder, net of any cardholder chargeback and unreduced by any interchange transaction or issuer reimbursement fee paid to another for charges or purchases made by its cardholder. 
10. Participation – An extension of credit in which an undivided ownership interest is held on a prorated basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower. 
11. Payor – The person who is legally responsible for making payment to the taxpayer.
12. Real property owned – Real property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes or could claim depreciation if subject to federal income tax. Real property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure. 
13. Syndication – An extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount. 
14. Tangible personal property owned – Tangible personal property (i) on which the taxpayer may claim depreciation for federal income tax purposes or (ii) to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes could claim deprecation if subject to federal income tax. Tangible personal property does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure. 
15. Transportation property – Vehicles and vessels capable of moving under their own power as well as any equipment or containers attached to such property. Examples of transportation property include aircraft, trains, water vessels, motor vehicles, rolling stock, barges, and trailers.

As added, subsection (b) establishes a general receipts factor fraction for a bank and includes only the receipts described under the statute as apportionable income for the taxable year. The numerator is the total receipts of the taxpayer in this state during the taxable year, and the denominator is the total receipts of the taxpayer everywhere during the taxable year. The taxpayer would use the same method in calculating receipts for the denominator as the numerator. The following are excluded from the receipts factor:

1. Receipts from a casual sale of property; 
2. Receipts exempt from taxation; 
3. The portion of receipts realized from the sale or maturity of securities or other obligations that represent a return of principal; 
4. Receipts in the nature of dividends subtracted under G.S. 105-130.5(b)(3a) and (3b) and dividends excluded for federal tax purposes. 
5. The portion of receipts from financial swaps and other similar financial derivatives that represent the notional principal amount that generate the cash flow traded in the swap agreement.

Subsection (c) provides for the treatment of receipts from the sale, lease, or rental of real property in calculating the apportionment factor. Such receipts are included in the numerator of the apportionment factor if it is owned by the taxpayer and located in this state or receipts from the sublease of real property if the property is located in this state.

Subsection (d) provides for the treatment of receipts from the sale, lease, or rental of tangible personal property in calculating the apportionment factor as below:

1. Unless it is transportation property, the numerator of the apportionment factor includes receipts from the sale, lease, or rental of tangible personal property owned by the taxpayer if the property is located in this state when it is first placed in service by the lessee. 
2. If the tangible personal property is transportation property owned by the taxpayer, receipts from its lease or rental are included in the numerator to the extent that the property is used in this state. Aircraft will be considered used in this state and receipts included in the numerator as determined by the multiplication of all receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft. If the extent of use of any transportation property in this state cannot be determined, then the property will be considered to be used wholly in the state where it has its principal base of operations. A motor vehicle will be considered wholly used in the state in which it is registered.

Subsection (e) provides for the treatment of receipts from interest, fees, and penalties from loans secured by real property in calculating the apportionment factor. The numerator of the apportionment factor includes interest, fees, and penalties from loans secured by the real property if the borrower is located in this State. If the property is both located in this state and one or more other states, such receipts are included in the numerator if more than 50% of the fair market value of the real property is located in this state. If more than 50% of the fair market value is not located within any one state, then such receipts are included in the numerator of the receipts factor if the borrower is located in this state. The determination of if the real property securing a loan is located in this state is made as of the time the original agreement was made and any and all subsequent substitutions of collateral are disregarded.

Subsection (f) provides for the treatment of receipts from interest, fees, and penalties from loans not secured by real property in calculating the apportionment factor. The numerator of the apportionment factor includes interest, fees, and penalties from loans not secured by real property if the borrower is located in this state.

Subsection (g) provides for the treatment of receipts from net gains from the sale of loans in calculating the apportionment factor. The numerator of the apportionment factor includes net gains from the sale of loans. Such net gains include income recorded under the coupon stripping rules of section 1286 of the Code. The amount of net gains from the sale of loans included in the numerator is determined as follows:

1. Secured by real property – The amount of net gains, not less than zero, from the sale of loans secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to the special rule for “interest, fees, and penalties from loans secured by real property” (see above), and the denominator of which is the total amount of interest, fees, and penalties from loans secured by real property. The amount of net gains cannot be less than zero.
2. Not secured by real property – The amount of net gains, not less than zero, from the sale of loans not secured by real property is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to the special rule for “interest, fees, and penalties from loans not secured by real property” (see above), and the denominator of which is the total amount of interest, fees, and penalties from loans not secured by real property.

Subsection (h) provides for the treatment of receipts from interest, fees, and penalties from cardholders in calculating the apportionment factor. The numerator of the apportionment factor includes interest, fees, and penalties charged to credit, debit, or similar cardholders, including annual fees and overdraft fees, if the cardholder is located in this state.

Subsection (i) provides for the treatment of receipts from ATM fees in calculating the apportionment factor. The numerator of the apportionment factor includes receipts from fees from the use of an ATM owned or rented by the taxpayer, if the ATM is located in this state. The receipts factor includes all ATM fees not forwarded directly to another bank. Receipts from ATM fees not sourced under the special rule for “receipts from ATM fees” are sourced as “all other receipts” (see below).

Subsection (j) provides for the treatment of receipts from net gains from the sale of credit card receivables in calculating the apportionment factor. The numerator of the apportionment factor includes net gains, not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to the subsection (h) for “receipts from interest, fees, and penalties from cardholders,” and the denominator of which is the taxpayer's total amount of interest, fees, and penalties charged to cardholders.

Subsection (k) provides for the treatment of miscellaneous receipts in calculating the apportionment factor. The numerator of the apportionment factor includes all of the following:

1. Card issuer's reimbursement fees – Receipts from card issuer's reimbursement fees if the payor is located in this state. 
2. Receipts from merchant's discount – Receipts from a merchant discount if the payor is located in this state. 
3. Loan servicing fees – Receipts from loan servicing fees if the payor is located in this state. 
4. Receipts from services – Receipts from services not otherwise apportioned under this section if the payor is located in this state.
5. Receipts from investment assets and activity and trading assets and activity include receipts from one or more of the following:
   a. Interest and dividends from investment assets and activities and trading assets and activities if the payor is located in this state.
   b. Net gains and other income, not less than zero, from investment assets and activities and trading assets and activities multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor of interest and dividends from investment assets and activities and trading assets and activities if the payor is located in this state, and the denominator of which is the taxpayer's total amount of interest and dividends from investment assets and activities and trading assets and activities.

Subsection (l) provides for the treatment of all other receipts in calculating the apportionment factor. Any other receipts not specifically addressed by a special rule are included in the numerator if the payor is located in this state.

(Effective for taxable years beginning on or after January 1, 2020; s. 3.(c), S.L. 2019-246.)

This subdivision was amended to change a statutory reference from IRC section 1400Z-2(b) to IRC section 1400Z-2(a).

(Effective March 20, 2019; SB 56, s. 2.1, S.L. 2019-6.)

This section was added as part of the disaster relief provisions contained in Article 1A of Chapter 166A of the North Carolina General Statutes to help facilitate and expedite the State’s recovery after a natural disaster.

As added, an addition to federal taxable income is required in determining state net income for payments made to an affiliate or subsidiary that is not subject to corporate income tax pursuant to the exceptions for critical infrastructure disaster relief provided under G.S. 166A-19.70A, to the extent the payments are deducted in determining federal taxable income. For more information on this amendment, including definitions and related legislation, see Appendix A of this publication.

(Effective August 1, 2019, and applies to disaster declarations made on or after that date; SB 498, s. 1.(g), S.L. 2019-187.)

This subdivision was amended to replace the term “federal taxable income” with the term “State net income.”

In 2018, the North Carolina General Assembly decoupled from federal law which allows a taxpayer to defer gains from investments in Opportunity Zones. Under G.S. 105-130.5(a)(26), a taxpayer is required to include in state net income any gain deferred or excluded from the taxpayer’s federal taxable income pursuant to the provisions of section 1400Z-2 of the Internal Revenue Code. To prevent double taxation, G.S. 105-130.5(b)(30) allows the taxpayer to deduct from federal taxable income the amount of gain previously required to be included in the calculation of state net income.

Prior to the enactment of this legislation, the statute referred to gain that was included in the taxpayer's federal taxable income. G.S. 105-130.5(b)(30) was rewritten to correct the terms to conform with the intent of the 2018 legislation.

(Effective March 20, 2019; SB 56, s. 2.2, S.L. 2019-6.)

This subdivision was added to create a corporate income tax deduction for amounts received by a taxpayer as an economic incentive under the Job Maintenance and Capital Development Fund (JMAC), the Jobs Development Investment Grant Program (JDIG), or the One North Carolina Fund.

Prior to 2017, IRC §118 excluded from gross income "any contribution to the capital of the taxpayer." Under the Tax Cuts and Jobs Act, enacted by Congress in 2017, IRC §118 was amended to expressly provide that the term "contribution to the capital of the taxpayer" does not include "any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such)." Accordingly, contributions of money or property to a corporation by a governmental entity made on or after December 22, 2017, were includible in gross income. Because the General Assembly did not specifically address this provision when it enacted its IRC Update legislation in 2018, the updated Code date resulted in North Carolina conforming to the provision, thereby making those cash grants included in taxable income. As amended, this law change decouples from the 2017 federal tax law change.

(Effective for taxable years beginning on or after January 1, 2019, and applies to amounts received by a taxpayer on or after that date; HB 399, s. 2.(a), S.L. 2019-237.)

This subsection was amended to replace the phrase “or other officer of the United States,” with a specific reference to “an agreement of the U.S. competent authority.” As amended and specifically stated, if a taxpayer’s federal taxable income or a federal tax credit is changed or corrected by the Commissioner of Internal Revenue or an agreement of the U.S. competent authority, and the change or correction affects the amount of state tax payable, the taxpayer must file an income tax return reflecting each change or correction from a federal determination (as the term is defined in G.S. 105-228.90) within six months after being notified of the change or correction.

(Effective July 26, 2019, and applies to a federal determination on or after that date; SB 523, s. 6.3.(b), S.L. 2019-169.)

The percentage rate to be used in calculating the insurance regulatory charge under this statute is six and one-half percent (6.5%) for the 2019 and 2020 calendar year. This charge is a percentage of gross premiums tax liability.

(Effective November 1, 2019; HB 399, s. 7, S.L. 2019-237.)