2020 Corporate Taxes Law Changes

This subdivision was added by the 2019 General Assembly 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 subdivision was amended to simplify the calculation for the addition of affiliated indebtedness used in calculating the net worth franchise tax base and to make it consistent with the interest deduction computed for income tax purposes. As amended, it states that a corporation’s net worth is adjusted by adding the amount of indebtedness owed that creates net interest expense as defined in G.S. 105-130.7B(b)(3), but does not create qualified interest expense as defined in G.S. 105-130.7B(b)(4).

(Effective for taxable years beginning on or after January 1, 2021, and is applicable to the calculation of franchise tax reported on the 2020 and later corporate income tax returns; HB 1080, s. 5.1.(a), S.L. 2020-58.)

This subsection was amended by the 2019 General Assembly 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 remove previous language that prohibited the apportionment factor for a wholesale content distributor from being less than two percent (2%). The previous language created an apportionment floor that was inconsistent with the apportionment factor calculation for income tax for a wholesale content distributor under G.S. 105-130.4B.

(Effective for taxable years beginning on or after January 1, 2020; HB 1080, s. 5.2.(b), S.L. 2020- 58.)

This subdivision from the reorganization of G.S. 105-122 was amended by the 2019 General Assembly 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.)

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 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 2020 General Assembly amended this subsection to correct an error in the wholesale content distributor apportionment language. The amendment replaced the term “income apportioned” with “receipts sourced” in determining a wholesale content distributor’s apportionment.

(Effective for taxable years beginning on or after January 1, 2020; HB 1080, s. 5.2.(a), S.L. 2020- 58.)

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 by the 2019 General Assembly 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 by the 2019 General Assembly 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 by the 2019 General Assembly 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 or 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 repealed because it is an obsolete income tax adjustment. In 2009, certain taxpayers were allowed under the Code to elect to defer reporting cancellation of debt income in tax years 2009 and 2010, and instead report the income over a five-year period beginning in 2014. North Carolina decoupled from this provision and taxpayers were required to recognize the income in 2009 and 2010, but could deduct the amount recognized as income for federal tax purposes for tax years 2014-2018 to avoid being double taxed on the income for State tax purposes. This addition is no longer needed since 2018 was the last year the amount would have been recognized.

(Effective June 30, 2020; HB 1080, s. 5.3., S.L. 2020-58.)

This subdivision was added to decouple from the modification of limitation on business interest allowed under section 2306 of the CARES Act. Federal law increased the limit on deductions for business interest expense under IRC section 163(j) from thirty percent (30%) to fifty percent (50%) of a taxpayer’s adjusted taxable income for tax years 2019 and 2020. As amended, the limit on deductions for business interest expense under IRC section 163(j) remains at thirty percent (30%) of a taxpayer’s adjusted taxable income as calculated on a separate entity basis. This decoupling adjustment requires the taxpayer to add to federal taxable income the amount of interest expense deduction under the IRC section 163(j) that exceeds what would have been allowed under the Code as of January 1, 2020.

(Effective June 30, 2020; HB 1080, s. 1.(c), S.L. 2020-58.)

This subdivision was added to require taxpayers to add the amount of any expense deducted under the Code to the extent that such expense payments result in forgiveness of a loan covered under section 1106(b) of the CARES Act and the income associated with the forgiveness is excluded from gross income under section 1106(i) of the CARES Act to be required to be added back. This amendment was made to prevent taxpayers from receiving a double tax benefit by receiving a deduction for expenses paid with tax exempt income.

(Effective June 30, 2020; HB 1080, s. 1.(c), S.L. 2020-58.)

This subdivision was repealed because it is an obsolete income tax adjustment. In 2009, certain taxpayers were allowed under the Code to elect to defer reporting cancellation of debt income in tax years 2009 and 2010, and instead report the income over a five-year period beginning in 2014. North Carolina decoupled from this provision and taxpayers were required to recognize the income in 2009 and 2010, but could deduct the amount recognized as income for federal tax purposes for tax years 2014-2018 to avoid being double taxed on the income for State tax purposes. This deduction is no longer needed since 2018 was the last year the amount would have been recognized.

(Effective June 30, 2020; HB 1080, s. 5.3., S.L. 2020-58.)

This subsection was amended to add that when a refund is determined in whole or in part by a proposed assessment to an affiliated group member, the refund cannot be issued until the proposed assessment to the affiliated group member has become collectable under G.S. 105-241.22. It further states that the amount of the refund shall reflect any adjustments by the Department.

This amendment prevents refunds based on a proposed adjustment for intercompany transactions from being issued prior to the resolution of the corresponding proposed assessment, and the loss of the statute of limitations for the refund to be adjusted consistent with the settlement of the assessment amount.

(Effective June 30, 2020; HB 1080, s. 5.4., S.L. 2020-58.)

This subdivision was repealed. The federal Tax Cut and Jobs Act of 2017 imposed income tax on unrelated business income from parking facilities provided by nonprofit organizations. North Carolina originally enacted this exclusion to ensure that nonprofit organizations would not be taxed on such income for State purposes, however the Taxpayer Certainty and Disaster Relief Act of 2019 repealed the federal tax provision retroactively. Thus, the provision is no longer needed.

(Effective June 30, 2020; HB 1080, s. 5.5., S.L. 2020-58.)

This section was amended by the 2020 General Assembly to set the insurance regulatory charge at six and one half percent (6.5%) statutorily. Language was removed referencing the General Assembly reviewing the rate each year unless it is necessary to change the percentage.

(Effective June 30, 2020; HB 1080, s. 8, S.L. 2020-58.)

The title of this section was changed from “Taxes Upon Insurance Companies” to “Taxes Upon Insurance Companies and Prepaid Health Plans.” This amendment was made to include prepaid health plans in the types of organizations subject to the gross premiums tax and the insurance regulatory charge.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(a)., S.L. 2020-88.)

Amendments were made to the following subsections of this section:

(2) The term “capitation payment” was added along with its definition to state that a capitation payment is defined as “amounts paid by the Department of Health and Human Services to prepaid health plans under capitated contracts for the delivery of Medicaid and NC Health Choice services in accordance with Article 4 of Chapter 108D of the General Statutes.”

(3) The definition of “captive insurance company” was renumbered as (3). It was previously numbered as (1a).

(4) The definition of “foreign captive insurance company” was renumbered as (4). It was previously numbered as (1b). 

(5) The definition of “insurer” was renumbered as (5). It was previously numbered as (2). 

(6) The term “prepaid health plan” was added and its definition references what is defined in G.S. 108D-1. 

(7) The definition of “self-insurer” was renumbered as (7). It was previously numbered as (3). 

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(b)., S.L. 2020-88.)

This subsection was amended to include prepaid health plans as defined in G.S. 108D-1(30) in the types of organizations subject to gross premiums tax. It also includes prepaid health plans in the types of organizations that if subject to gross premiums tax, are not subject to franchise or corporate income taxes imposed in Articles 3 and 4, respectively of Chapter 105.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)

This subdivision was added to define the gross premiums tax base for prepaid health plans. As amended, subdivision (5) states that a prepaid health plan’s gross premiums tax is measured by the gross capitation payments received by the prepaid health plan from the Department of Health and Human Services for services provided to enrollees in the State Medicaid program or NC Health Choice program in the preceding calendar year.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)

This subsection was amended to describe the calculation of the tax base for prepaid health plans. As amended, it states that gross premiums from business done in this State by a prepaid health plan is all capitation payments received from the Department of Health and Human Services for the delivery of services to enrollees in the State Medicaid program or NC Health Choice program in the calendar year. It further states that the only allowable deductions are for capitation payments refunded by a prepaid health plan to the State.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)

This subdivision lists the premiums that are excluded from gross premiums tax to the extent that federal law prevents their taxation under this Article. Amendments were made to the following sub-subdivisions of this subdivision:

(b) Medicaid was removed so that only Medicare premiums are listed in this item.

(c) This item was added to include “Medicaid or NC Health Choice premiums, other than capitation payments, paid by or on behalf of a Medicaid or NC Health Choice beneficiary” to the list of premiums excluded from gross premiums tax to the extent that federal law prevents their taxation under this Article.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)

This subdivision was added to establish the gross premiums tax rate for prepaid health plans. As amended, subdivision (2a) states that a prepaid health plan’s tax rate for gross premiums from capitation payments received is one and nine-tenths percent (1.9%); the same rate applicable to other insurance contracts. It also states that the net proceeds will be credited to the General Fund.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)

This subsection was amended to replace the term “company” with “taxpayer.” The term “taxpayer” was used instead to be inclusive of prepaid health plans, as well as insurance companies. As amended, it states that the taxpayer (now including prepaid health plans) must remit the installment payment balance by March 15th following the taxable year and that an overpayment of tax will be credited to the taxpayer and applied against the taxes imposed on them under this Article.

This subsection was also amended to state that prepaid health plans as well as insurance companies may be permitted by the Secretary to pay less than the required estimated payment when the insurer or prepaid health plan believes that the total estimated payments made for the current year will exceed the total anticipated tax liability for the year. Previously, only insurance companies were referenced.

(Effective 30 days after becomes law (June 30, 2020) and applies to capitation payments received by prepaid health plans on or after that date; SB 808, s. 16.(c)., S.L. 2020-88.)