2005 North Carolina Code - General Statutes Article 3 - Franchise Tax.
Article 3.
Franchise Tax.
§ 105‑114. Nature of taxes; definitions.
(a) Nature of Taxes. – The taxes levied in this Article upon persons and partnerships are for the privilege of engaging in business or doing the act named.
(a1) Scope. – The taxes levied in this Article upon corporations are privilege or excise taxes levied upon:
(1) Corporations organized under the laws of this State for the existence of the corporate rights and privileges granted by their charters, and the enjoyment, under the protection of the laws of this State, of the powers, rights, privileges and immunities derived from the State by the form of such existence; and
(2) Corporations not organized under the laws of this State for doing business in this State and for the benefit and protection which these corporations receive from the government and laws of this State in doing business in this State.
(a2) Condition for Doing Business. – If the corporation is organized under the laws of this State, the payment of the taxes levied by this Article is a condition precedent to the right to continue in the corporate form of organization. If the corporation is not organized under the laws of this State, payment of these taxes is a condition precedent to the right to continue to engage in doing business in this State.
(a3) Tax Year. – The taxes levied in this Article are for the fiscal year of the State in which the taxes become due, except that the taxes levied in G.S. 105‑122 are for the income year of the corporation in which the taxes become due.
(a4) No Double Taxation. – G.S. 105‑122 does not apply to holding companies taxed under G.S. 105‑120.2. G.S. 105‑122 applies to a corporation taxed under another section of this Article only to the extent the taxes levied on the corporation in G.S. 105‑122 exceed the taxes levied on the corporation in other sections of this Article.
(b) Definitions. – The following definitions apply in this Article:
(1) City. – Defined in G.S. 105‑228.90.
(1a) Code. – Defined in G.S. 105‑228.90.
(2) Corporation. – A domestic corporation, a foreign corporation, an electric membership corporation organized under Chapter 117 of the General Statutes or doing business in this State, or an association that is organized for pecuniary gain, has capital stock represented by shares, whether with or without par value, and has privileges not possessed by individuals or partnerships. The term includes a mutual or capital stock savings and loan association or building and loan association chartered under the laws of any state or of the United States. The term does not include a limited liability company.
(3) Doing business. – Each and every act, power, or privilege exercised or enjoyed in this State, as an incident to, or by virtue of the powers and privileges granted by the laws of this State.
(4) Income year. – Defined in G.S. 105‑130.2(5).
(c) Recodified as G.S. 105‑114.1 by Session Laws 2002‑126, s. 30G.2.(b), effective January 1, 2003. (1939, c. 158, s. 201; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1965, c. 287, s. 16; 1967, c. 286; 1969, c. 541, s. 6; 1973, c. 1287, s. 3; 1983, c. 713, s. 66; 1985, c. 656, s. 7; 1985 (Reg. Sess., 1986), c. 853, s. 1; 1987, c. 778, s. 1; 1987 (Reg. Sess., 1988), c. 1015, s. 2; 1989, c. 36, s. 2; 1989 (Reg. Sess., 1990), c. 981, s. 2; 1991, c. 30, s. 2; c. 689, s. 250; 1991 (Reg. Sess., 1992), c. 922, s. 3; 1993, c. 12, s. 4; c. 354, s. 11; c. 485, s. 5; 1997‑118, s. 4; 1998‑98, ss. 60, 76; 1999‑337, s. 20; 2000‑173, s. 8; 2001‑327, s. 2(b); 2002‑126, s. 30G.2(b).)
§ 105‑114.1. Limited liability companies.
(a) Definitions. – The following definitions apply in this section:
(1) Affiliated group. – Defined in section 1504 of the Code.
(2) Capital interest. – The right under a limited liability company's governing law to receive a percentage of the company's assets upon dissolution after payments to creditors.
(3) Entity. – A person that is not a human being.
(4) Governing law. – A limited liability company's governing law is determined under G.S. 57C‑6‑05 or G.S. 57C‑7‑01, as applicable.
(b) Controlled Companies. – If a corporation or an affiliated group of corporations owns more than fifty percent (50%) of the capital interests in a limited liability company, the corporation or group of corporations must include in its three tax bases pursuant to G.S. 105‑122 the same percentage of (i) the limited liability company's capital stock, surplus, and undivided profits; (ii) fifty‑five percent (55%) of the limited liability company's appraised ad valorem tax value of property; and (iii) the limited liability company's actual investment in tangible property in this State, as appropriate.
(c) Constructive Ownership. – Ownership of the capital interests in a limited liability company is determined by reference to the constructive ownership rules for partnerships, estates, and trusts in section 318(a)(2)(A) and (B) of the Code with the following modifications:
(1) The term "capital interest" is substituted for "stock" each place it appears.
(2) A limited liability company and any noncorporate entity other than a partnership, estate, or trust is treated as a partnership.
(3) The operating rule of section 318(a)(5) of the Code applies without regard to section 318(a)(5)(C).
(d) No Double Inclusion. – If a corporation is required to include a percentage of a limited liability company's assets in its tax bases under this Article pursuant to subsection (b) of this section, its investment in the limited liability company is not included in its computation of capital stock base under G.S. 105‑122(b).
(e) Affiliated Group. – If the owner of the capital interests in a limited liability company is an affiliated group of corporations, the percentage to be included pursuant to subsection (b) of this section by each group member that is doing business in this State is determined by multiplying the capital interests in the limited liability company owned by the affiliated group by a fraction. The numerator of the fraction is the capital interests in the limited liability company owned by the group member, and the denominator of the fraction is the capital interests in the limited liability company owned by all group members that are doing business in this State.
(f) Exemption. – This section does not apply to assets owned by a limited liability company if the total book value of the limited liability company's assets never exceeded one hundred fifty thousand dollars ($150,000) during its taxable year.
(g) Timing. – Ownership of the capital interests in a limited liability company is determined as of the last day of its taxable year. The adjustments pursuant to subsections (b) and (d) of this section must be made to the owner's next following return filed under this Article. If a limited liability company and a corporation or an affiliated group of corporations have engaged in a pattern of transferring assets between them with the result that each did not own the capital interests on the last day of its taxable year, the ownership of the capital interests in the limited liability company must be determined as of the last day of the corporation or group of corporations' taxable year.
(h) Penalty. – A taxpayer who, because of fraud with intent to evade tax, underpays the tax under this Article on assets attributable to it under this section is guilty of a Class H felony in accordance with G.S. 105‑236(7). (2002‑126, s. 30G.2(b); 2002‑126, s. 30G.2(b); 2004‑74, ss. 1, 2; 2004‑170, s. 8.1.)
§ 105‑115. Repealed by Session Laws 1989 (Reg. Sess., 1990), c. 1002, s. 1.
§ 105‑116. Franchise or privilege tax on electric power, water, and sewerage companies.
(a) Tax. – An annual franchise or privilege tax is imposed on the following:
(1) An electric power company engaged in the business of furnishing electricity, electric lights, current, or power.
(2), (2a) Repealed by Session Laws 1998‑22, s. 2, effective July 1, 1999.
(3) A water company engaged in owning or operating a water system subject to regulation by the North Carolina Utilities Commission.
(4) A public sewerage company engaged in owning or operating a public sewerage system.
The tax on an electric power company is three and twenty‑two hundredths percent (3.22%) of the company's taxable gross receipts from the business of furnishing electricity, electric lights, current, or power. The tax on a water company is four percent (4%) of the company's taxable gross receipts from owning or operating a water system subject to regulation by the North Carolina Utilities Commission. The tax on a public sewerage company is six percent (6%) of the company's taxable gross receipts from owning or operating a public sewerage company. A company's taxable gross receipts are its gross receipts from business inside the State less the amount of gross receipts from sales reported under subdivision (b)(2). A company that engages in more than one business taxed under this section shall pay tax on each business.
(b) Report and Payment. – The tax imposed by this section is payable quarterly, semimonthly, or monthly as specified in this subsection. A return is due quarterly.
A water company or public sewerage company must pay tax quarterly when filing a return. An electric power company must pay tax in accordance with the schedule that applies to its payments of sales and use tax under G.S. 105‑164.16 and must file a return quarterly. An electric power company is not subject to interest on or penalties for an underpayment for a semimonthly or monthly payment period if the electric power company timely pays at least ninety‑five percent (95%) of the amount due for each semimonthly or monthly payment period and includes the underpayment with the quarterly return for those semimonthly or monthly payment periods.
A quarterly return covers a calendar quarter and is due by the last day of the month that follows the quarter covered by the return. A taxpayer must submit a return on a form provided by the Secretary. The return must include the taxpayer's gross receipts from all property it owned or operated during the reporting period in connection with its business taxed under this section. A taxpayer must report its gross receipts on an accrual basis. A return must contain the following information:
(1) The taxpayer's gross receipts for the reporting period from business inside and outside this State, stated separately.
(2) The taxpayer's gross receipts from commodities or services described in subsection (a) that are sold to a vendee subject to the tax levied by this section or to a joint agency established under Chapter 159B of the General Statutes or a city having an ownership share in a project established under that Chapter.
(3) The amount of and price paid by the taxpayer for commodities or services described in subsection (a) that are purchased from others engaged in business in this State and the name of each vendor.
(4) For an electric power company the entity's gross receipts from the sale within each city of the commodities and services described in subsection (a).
(c) Repealed by Session Laws 1998‑22, s. 2, effective July 1, 1999.
(d) Distribution. – Part of the taxes imposed by this section on electric power companies is distributed to cities under G.S. 105‑116.1. If a taxpayer's return does not state the taxpayer's taxable gross receipts derived within a city, the Secretary must determine a practical method of allocating part of the taxpayer's taxable gross receipts to the city.
(e) Local Tax. – So long as there is a distribution to cities from the tax imposed by this section, no city shall impose or collect any greater franchise, privilege or license taxes, in the aggregate, on the businesses taxed under this section, than was imposed and collected on or before January 1, 1947.
(e1) An electric power company engaged in the business of furnishing electricity, electric lights, current, or power that collects the annual franchise or privilege tax pursuant to subsection (a) of this section and remits the tax collected to the Secretary shall not be subject to any additional franchise or privilege tax imposed upon it by any city or county.
(f) Repealed by Session Laws 1998‑22, s. 2, effective July 1, 1999. (1939, c. 158, s. 203; 1949, c. 392, s. 2; 1951, c. 643, s. 3; 1955, c. 1313, s. 2; 1957, c. 1340, s. 3; 1959, c. 1259, s. 3; 1963, c. 1169, s. 1; 1965, c. 517; 1967, c. 519, ss. 1, 3; c. 1272, ss. 1, 3; 1971, c. 298, s. 1; c. 833, s. 1; 1973, c. 476, s. 193; c. 537, s. 3; c. 1287, s. 3; c. 1349; 1975, c. 812; 1983 (Reg. Sess., 1984), c. 1097, ss. 2, 16; 1987 (Reg. Sess., 1988), c. 882, s. 4.4; 1989 (Reg. Sess., 1990), c. 813, s. 3; c. 814, s. 10; c. 945, ss. 3, 17; 1991, c. 598, s. 4; c. 689, s. 28(c); 1991 (Reg. Sess., 1992), c. 1007, s. 2; 1993, c. 321, s. 26(h); 1997‑118, s. 2; 1997‑426, s. 3; 1998‑22, s. 2; 1998‑98, s. 72; 1998‑217, s. 32(a); 2000‑140, s. 62; 2001‑427, s. 6(c), (d); 2002‑72, s. 10; 2002‑120, s. 8.)
§ 105‑116.1. Distribution of gross receipts taxes to cities.
(a) Definitions. – The following definitions apply in this section:
(1) Freeze deduction. – The amount by which the percentage distribution amount of a city was required to be reduced in fiscal year 1995‑96 in determining the amount to distribute to the city.
(2) Percentage distribution amount. – Three and nine hundredths percent (3.09%) of the gross receipts derived by an electric power company from sales within a city that are taxable under G.S. 105‑116.
(b) Distribution. – The Secretary must distribute to the cities part of the taxes collected under this Article on electric power companies. Each city's share for a calendar quarter is the percentage distribution amount for that city for that quarter minus one‑fourth of the city's hold‑back amount and one‑fourth of the city's proportionate share of the annual cost to the Department of administering the distribution. The Secretary must make the distribution within 75 days after the end of each calendar quarter. The General Assembly finds that the revenue distributed under this section is local revenue, not a State expenditure, for the purpose of Section 5(3) of Article III of the North Carolina Constitution. Therefore, the Governor may not reduce or withhold the distribution.
(c) Limited Hold‑Harmless Adjustment. – The hold‑back amount for a city that, in the 1995‑96 fiscal year, received from gross receipts taxes on electric power companies and natural gas companies less than ninety‑five percent (95%) of the amount it received in the 1990‑91 fiscal year but at least sixty percent (60%) of the amount it received in the 1990‑91 fiscal year is the amount determined by the following calculation:
(1) Adjust the city's 1995‑96 distribution by adding the city's freeze deduction attributable to receipts from electric power companies and natural gas companies to the amount distributed to the city for that year.
(2) Compare the adjusted 1995‑96 amount with the city's 1990‑91 distribution.
(3) If the adjusted 1995‑96 amount is less than or equal to the city's 1990‑91 distribution, the hold‑back amount for the city is zero.
(4) If the adjusted 1995‑96 amount is more than the city's 1990‑91 distribution, the hold‑back amount for the city is the city's freeze deduction attributable to receipts from electric power companies and natural gas companies minus the difference between the city's 1990‑91 distribution and the city's 1995‑96 distribution.
(c1) Additional Limited Hold‑Harmless Adjustment. – The hold‑back amount for a city that, in the 1995‑96 fiscal year, received from gross receipts taxes on electric power companies and natural gas companies less than sixty percent (60%) of the amount it received in the 1990‑91 fiscal year is the amount determined by the following calculation:
(1) Adjust the city's 1999‑2000 distribution by adding the city's freeze deduction attributable to receipts from electric power companies and natural gas companies to the amount distributed to the city for that year.
(2) Compare the adjusted 1999‑2000 amount with the city's 1990‑91 distribution.
(3) If the adjusted 1999‑2000 amount is less than or equal to the city's 1990‑91 distribution, the hold‑back amount for the city is zero.
(4) If the adjusted 1999‑2000 amount is more than the city's 1990‑91 distribution, the hold‑back amount for the city is the city's freeze deduction attributable to receipts from electric power companies and natural gas companies minus the difference between the city's 1990‑91 distribution and the city's 1999‑2000 distribution.
(d) Allocation of Hold‑Harmless Adjustment. – The hold‑back amount for a city that, in the 1995‑96 fiscal year, received from gross receipts taxes on electric power companies and natural gas companies at least ninety‑five percent (95%) of the amount it received in the 1990‑91 fiscal year is the amount determined by the following calculation:
(1) Determine the amount by which the freeze deduction attributable to receipts from electric power companies and natural gas companies is reduced for all cities whose hold‑back amount is determined under subsections (c) and (c1) of this section. This amount is the total hold‑harmless adjustment.
(2) Determine the amount of gross receipts taxes that would be distributed for the quarter to cities whose hold‑back amount is determined under this subsection if these cities received their percentage distribution amount minus one‑fourth of their freeze deduction attributable to receipts from electric power companies and natural gas companies.
(3) For each city included in the calculation in subdivision (2) of this subsection, determine that city's percentage share of the amount determined under that subdivision.
(4) Add to the city's freeze deduction attributable to receipts from electric power companies and natural gas companies an amount equal to the city's percentage share under subdivision (3) of this subsection multiplied by the total hold‑harmless adjustment.
(e) Disqualification. – No municipality may receive any funds under this section if it was incorporated with an effective date of on or after January 1, 2000, and is disqualified from receiving funds under G.S. 136‑41.2. No municipality may receive any funds under this section, incorporated with an effective date on or after January 1, 2000, unless a majority of the mileage of its streets is open to the public. The previous sentence becomes effective with respect to distribution of funds on or after July 1, 1999. (1997‑118, s. 1; 1997‑426, s. 3.1; 1997‑439, s. 3; 1997‑456, s. 55.5; 1998‑22, s. 3; 1999‑458, s. 11; 2000‑128, s. 2; 2001‑430, s. 11; 2002‑120, s. 2; 2005‑435, s. 34(b).)
§§ 105‑117 through 115‑118: Repealed by Session Laws 1995 (Regular Session, 1996), c. 646, s. 3.
§ 105‑119: Repealed by Session Laws 2000‑173, s. 7.
§ 105‑120: Repealed by Session Laws 2001‑430, s. 12, effective January 1, 2002, and applies to taxable services reflected on bills dated on or after January 1, 2002.
§ 105‑120.1: Repealed by Session Laws 2000‑173, s. 7.
§ 105‑120.2. Franchise or privilege tax on holding companies.
(a) Every corporation, domestic and foreign, incorporated or, by an act, domesticated under the laws of this State or doing business in this State which, at the close of its taxable year is a holding company as defined in subsection (c) of this section, shall, pursuant to the provisions of G.S. 105‑122:
(1) Make a report and statement, and
(2) Determine the total amount of its issued and outstanding capital stock, surplus and undivided profits, and
(3) Apportion such outstanding capital stock, surplus and undivided profits to this State.
(b) (1) Every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the report and statement are due, a franchise or privilege tax, which is hereby levied, at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the amount determined under subsection (a) of this section, but in no case shall the tax be more than seventy‑five thousand dollars ($75,000) nor less than thirty‑five dollars ($35.00).
(2) Notwithstanding the provisions of subdivision (1) of this subsection, if the tax produced pursuant to application of this paragraph (2) exceeds the tax produced pursuant to application of subdivision (1), then the tax shall be levied at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) on the greater of the amounts of
a. Fifty‑five percent (55%) of the appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State of each such corporation plus the total appraised value of intangible property returned for taxation of intangible personal property as computed under G.S. 105‑122(d); or
b. The total actual investment in tangible property in this State of such corporation as computed under G.S. 105‑122(d).
(c) For purposes of this section, a "holding company" is any corporation which receives during its taxable year more than eighty percent (80%) of its gross income from corporations in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock.
(d) Repealed by Session Laws 1985, c. 656, s. 39.
(e) Counties, cities and towns shall not levy a franchise tax on corporations taxed under this section. The tax imposed under the provisions of G.S. 105‑122 shall not apply to businesses taxed under the provisions of this section.
(f) In determining the total tax payable by any holding company under this section, there shall be allowed as a credit on such tax the amount of the credit authorized under Part 5 of Article 4 of this Chapter. (1975, c. 130, s. 1; 1985, c. 656, s. 39; 1985 (Reg. Sess., 1986), c. 854, s. 1; 1987 (Reg. Sess., 1988), c. 882, s. 4.2; 1991, c. 30, s. 4; 1998‑98, s. 72.)
§ 105‑121: Repealed by Session Laws 1945, c. 752, s. 1.
§ 105‑121.1. Mutual burial associations.
An annual franchise or privilege tax on all domestic mutual burial associations shall be due and payable to the Secretary of Revenue on or before the first day of April of each year. The amount of this franchise or privilege tax shall be based on the membership of such associations according to the following schedule:
Membership less than 3,000 ......................................................... $15.00
Membership of 3,000 to 5,000 ........................................................ 20.00
Membership of 5,000 to 10,000 .................................................... 25.00
Membership of 10,000 to 15,000 .................................................. 30.00
Membership of 15,000 to 20,000 .................................................. 35.00
Membership of 20,000 to 25,000 .................................................. 40.00
Membership of 25,000 to 30,000 .................................................. 45.00
Membership of 30,000 or more ..................................................... 50.00
(1943, c. 60, s. 2; 1973, c. 476, s. 193.)
§ 105‑122. Franchise or privilege tax on domestic and foreign corporations.
(a) Every corporation, domestic and foreign, incorporated, or, by an act, domesticated under the laws of this State or doing business in this State, except as otherwise provided in this Article, shall, on or before the fifteenth day of the third month following the end of its income year, annually make and deliver to the Secretary in the form prescribed by the Secretary a full, accurate, and complete report and statement signed by either its president, vice‑president, treasurer, assistant treasurer, secretary or assistant secretary, containing the facts and information required by the Secretary as shown by the books and records of the corporation at the close of the income year.
There shall be annexed to the return required by this subsection the affirmation of the officer signing the return.
(b) Every such corporation taxed under this section shall determine the total amount of its issued and outstanding capital stock, surplus and undivided profits; no reservation or allocation from surplus or undivided profits shall be allowed other than for definite and accrued legal liabilities, except as herein provided; taxes accrued, dividends declared and reserves for depreciation of tangible assets as permitted for income tax purposes shall be treated as deductible liabilities. There shall also be treated as a deductible liability reserves for the entire cost of any air‑cleaning device or sewage or waste treatment plant, including waste lagoons, and pollution abatement equipment purchased or constructed and installed which reduces the amount of air or water pollution resulting from the emission of air contaminants or the discharge of sewage and industrial wastes or other polluting materials or substances into the outdoor atmosphere or streams, lakes, or rivers, upon condition that the corporation claiming such deductible liability shall furnish to the Secretary a certificate from the Department of Environment and Natural Resources or from a local air pollution control program for air‑cleaning devices located in an area where the Environmental Management Commission has certified a local air pollution control program pursuant to G.S. 143‑215.112 certifying that the Environmental Management Commission or local air pollution control program has found as a fact that the air‑cleaning device, waste treatment plant or pollution abatement equipment purchased or constructed and installed as above described has actually been constructed and installed and that such plant or equipment complies with the requirements of the Environmental Management Commission or local air pollution control program with respect to such devices, plants or equipment, that such device, plant or equipment is being effectively operated in accordance with the terms and conditions set forth in the permit, certificate of approval, or other document of approval issued by the Environmental Management Commission or local air pollution control program and that the primary purpose thereof is to reduce air or water pollution resulting from the emission of air contaminants or the discharge of sewage and waste and not merely incidental to other purposes and functions. The cost of purchasing and installing equipment or constructing facilities for the purpose of recycling or resource recovering of or from solid waste or for the purpose of reducing the volume of hazardous waste generated shall be treated as deductible for the purposes of this section upon condition that the corporation claiming such deductible liability shall furnish to the Secretary a certificate from the Department of Environment and Natural Resources certifying that the Department of Environment and Natural Resources has found as a fact that the equipment or facility has actually been purchased, installed or constructed, that it is in conformance with all rules and regulations of the Department of Environment and Natural Resources, and the recycling or resource recovering is the primary purpose of the facility or equipment. The cost of constructing facilities of any private or public utility built for the purpose of providing sewer service to residential and outlying areas shall be treated as deductible for the purposes of this section; the deductible liability allowed by this section shall apply only with respect to such pollution abatement plants or equipment constructed or installed on or after January 1, 1955. Treasury stock shall not be considered in computing the capital stock, surplus and undivided profits as the basis for franchise tax, but shall be excluded proportionately from said capital stock, surplus and undivided profits as the case may be upon the basis and to the extent of the cost thereof. In the case of an international banking facility, the capital base shall be reduced by the excess of the amount as of the end of the taxable year of all assets of an international banking facility which are employed outside the United States over liabilities of the international banking facility owed to foreign persons. For purposes of such reduction, foreign persons shall have the same meaning as defined in G.S. 105‑130.5(b)(13)d.
Every corporation doing business in this State which is a parent, subsidiary, or affiliate of another corporation shall add to its capital stock, surplus and undivided profits all indebtedness owed to a parent, subsidiary or affiliated corporation as a part of its capital used in its business and as a part of the base for franchise tax under this section. The term "indebtedness" as used in this paragraph includes all loans, credits, goods, supplies, or other capital of whatsoever nature furnished by a parent, subsidiary, or affiliated corporation, other than indebtedness endorsed, guaranteed, or otherwise supported by one of these corporations. The terms "parent," "subsidiary," and "affiliate" as used in this paragraph shall have the meaning specified in G.S. 105‑130.6. If any part of the capital of the creditor corporation is capital borrowed from a source other than a parent, subsidiary or affiliate, the debtor corporation, which is required under this paragraph to include in its tax base the amount of debt by reason of being a parent, subsidiary, or affiliate of the said creditor corporation, may deduct from the debt thus included a proportionate part determined on the basis of the ratio of such borrowed capital as above specified of the creditor corporation to the total assets of the said creditor corporation. Further, in case the creditor corporation as above specified is also taxable under the provisions of this section, such creditor corporation shall be allowed to deduct from the total of its capital, surplus and undivided profits the amount of any debt owed to it by a parent, subsidiary or affiliated corporation to the extent that such debt has been included in the tax base of said parent, subsidiary or affiliated debtor corporation reporting for taxation under the provisions of this section.
(c) (1) After ascertaining and determining the amount of its capital stock, surplus and undivided profits, as provided herein, every corporation permitted to allocate and apportion its net income for income tax purposes under the provisions of Article 4 of this Chapter shall apportion its capital stock, surplus and undivided profits to this State through use of the fraction computed for apportionment of its apportionable income under that Article. A corporation that is subject to franchise tax under this Article but is not subject to income tax under Article 4 of this Chapter must apportion its capital stock, surplus, and undivided profits to this State by using the apportionment formula that would apply to the corporation if it were subject to Article 4.
Notwithstanding the foregoing, if a corporation is authorized by the Tax Review Board to apportion its apportionable income by use of an alternative formula or method, the corporation may not use this alternative formula or method for apportioning its capital stock, surplus and undivided profits unless specifically authorized to do so by order of the Tax Review Board.
A corporation that is required to pay an income tax to this State on its entire net income shall apportion its entire capital stock, surplus and undivided profits to this State.
(2) If any corporation believes that the method of allocation or apportionment hereinbefore described as administered by the Secretary has operated or will so operate as to subject it to taxation on a greater portion of its capital stock, surplus and undivided profits than is reasonably attributable to business within the State, it may file with the Tax Review Board a petition setting forth the facts upon which its belief is based and its argument with respect to the application of the allocation formula. This petition shall be filed in such form and within such time as the Tax Review Board may prescribe. The Board shall grant a hearing on the petition. The time limitations set in G.S. 105‑241.2 for the date of the hearing, notification to the taxpayer, and a decision following the hearing apply to a hearing held pursuant to this subdivision.
At least three members of the Tax Review Board shall attend any hearing pursuant to such petition. In such cases the Tax Review Board's membership shall be augmented by the addition of the Secretary, who shall sit as a member of the Board with full power to participate in its deliberations and decisions with respect to petitions filed under the provisions of this section. An informal record containing in substance the evidence, contentions and arguments presented at the hearing shall be made. All members of the augmented Tax Review Board shall consider such evidence, contentions and arguments, and the decision thereon shall be made by a majority vote of the augmented Board.
If the corporation employs in its books of account a detailed allocation of receipts and expenditures which reflects more clearly than the applicable allocation formula or alternative formulas prescribed by this section the portion of the capital stock, surplus and undivided profits attributable to the business within this State, application for permission to base the return upon the taxpayer's books of account shall be considered by the Tax Review Board. The Board may permit such separate accounting method in lieu of applying the applicable allocation formula if the Board finds that method best reflects the portion of the capital stock, surplus and undivided profits attributable to this State.
If the corporation shows that any other method of allocation than the applicable allocation formula or alternative formulas prescribed by this section reflects more clearly the portion of the capital stock, surplus and undivided profits attributable to the business within this State, application for permission to base the return upon such other method shall be considered by the Tax Review Board. The application shall be accompanied by a statement setting forth in detail, with full explanations, the method the taxpayer believes will more nearly reflect the portion of its capital stock, surplus and undivided profits attributable to the business within this State. If the Board concludes that the allocation formula and the alternative formulas prescribed by this section allocate to this State a greater portion of the capital stock, surplus and undivided profits of the corporation than is reasonably attributable to business within this State, it shall determine the allocable portion by such other method as it finds best calculated to assign to this State for taxation the portion reasonably attributable to its business within this State.
There shall be a presumption that the appropriate allocation formula reasonably attributes to this State the portion of the corporation's capital stock, surplus and undivided profits reasonably attributable to its business in this State and the burden shall rest upon the corporation to show the contrary. The relief herein authorized shall be granted by the Board only in cases of clear, cogent and convincing proof that the petitioning taxpayer is entitled thereto. No corporation shall use any alternative formula or method other than the applicable allocation formula provided by statute in making a franchise tax report or return to this State except upon order in writing of the Board and any return in which any alternative formula or other method other than the applicable allocation formula prescribed by statute is used without the permission of the Board, shall not be a lawful return.
When the Board determines, pursuant to the provisions of this Article, that an alternative formula or other method more accurately reflects the portion of the capital stock, surplus and undivided profits allocable to North Carolina and renders its decision with regard thereto, the corporation shall allocate its capital stock, surplus and undivided profits for future years in accordance with such determination and decision of the Board so long as the conditions constituting the basis upon which the decision was made remain unchanged or until such time as the business method of operation of the corporation changes. Provided, however, that the Secretary may, with respect to any subsequent year, require the corporation to furnish information relating to its property, operations and activities.
A corporation which proposes to do business in this State may file a petition with the Board setting forth the facts upon which it contends that the applicable allocation formula will allocate a greater portion of the corporation's capital stock, surplus and undivided profits to North Carolina than will be reasonably attributable to its proposed business within the State. Upon a proper showing in accordance with the procedure described above for determination by the Board, the Board may authorize such corporation to allocate its capital stock, surplus and undivided profits to North Carolina on the basis prescribed by the Board under the provisions of this section for such future years as the conditions constituting the basis upon which the Board's decision is made remain unchanged and the business operations of the corporation continue to conform to the statement of proposed methods of business operations presented by the corporation to the Board.
When the Secretary asserts liability under the formula adjustment decision of the Tax Review Board, an aggrieved taxpayer may pay the tax under protest and bring a civil action for recovery under the provisions of G.S. 105‑241.4.
(3) The proportion of the total capital stock, surplus and undivided profits of each such corporation so allocated shall be deemed to be the proportion of the total capital stock, surplus and undivided profits of each such corporation used in connection with its business in this State and liable for annual franchise tax under the provisions of this section.
(d) After determining the proportion of its total capital stock, surplus and undivided profits as set out in subsection (c) of this section, which amount so determined shall in no case be less than fifty‑five percent (55%) of the appraised value as determined for ad valorem taxation of all the real and tangible personal property in this State of each such corporation plus the total appraised value of intangible property returned for taxation of intangible personal property as herein specified nor less than its total actual investment in tangible property in this State, every corporation taxed under this section shall annually pay to the Secretary of Revenue, at the time the report and statement are due, a franchise or privilege tax, which is hereby levied at the rate of one dollar and fifty cents ($1.50) per one thousand dollars ($1,000) of the total amount of capital stock, surplus and undivided profits as herein provided. The tax imposed in this section shall in no case be less than thirty‑five dollars ($35.00) and shall be for the privilege of carrying on, doing business, and/or the continuance of articles of incorporation or domestication of each such corporation in this State. Appraised value of tangible property including real estate shall be the ad valorem valuation for the calendar year next preceding the due date of the franchise tax return. Appraised value of intangible property shall be the total gross valuation required to be reported for intangible tax purposes on April 15 coincident with or next preceding the due date of the franchise tax return. The term "total actual investment in tangible property" as used in this section shall be construed to mean the total original purchase price or consideration to the reporting taxpayer of its tangible properties, including real estate, in this State plus additions and improvements thereto less reserve for depreciation as permitted for income tax purposes, and also less any indebtedness incurred and existing by virtue of the purchase of any real estate and any permanent improvements made thereon. In computing "total actual investment in tangible personal property" there shall also be deducted reserves for the entire cost of any air‑cleaning device or sewage or waste treatment plant, including waste lagoons, and pollution abatement equipment purchased or constructed and installed which reduces the amount of air or water pollution resulting from the emission of air contaminants or the discharge of sewage and industrial wastes or other polluting materials or substances into the outdoor atmosphere or into streams, lakes, or rivers, upon condition that the corporation claiming such deduction shall furnish to the Secretary a certificate from the Department of Environment and Natural Resources or from a local air pollution control program for air‑cleaning devices located in an area where the Environmental Management Commission has certified a local air pollution control program pursuant to G.S. 143‑215.112 certifying that said Department or local air pollution control program has found as a fact that the air‑cleaning device, waste treatment plant or pollution abatement equipment purchased or constructed and installed as above described has actually been constructed and installed and that such device, plant or equipment complies with the requirements of the Environmental Management Commission or local air pollution control program with respect to such devices, plants or equipment, that such device, plant or equipment is being effectively operated in accordance with the terms and conditions set forth in the permit, certificate of approval, or other document of approval issued by the Environmental Management Commission or local air pollution control program and that the primary purpose thereof is to reduce air or water pollution resulting from the emission of air contaminants or the discharge of sewage and waste and not merely incidental to other purposes and functions. The cost of constructing facilities of any private or public utility built for the purpose of providing sewer service to residential and outlying areas shall be treated as deductible for the purposes of this section; the deductible liability allowed by this section shall apply only with respect to such pollution abatement plants or equipment constructed or installed on or after January 1, 1955.
(d1) Credits. – A corporation is allowed a credit against the tax imposed by this section for a taxable year equal to one‑half of the amount of tax payable during the taxable year under Article 5E of this Chapter. The credit allowed by this subsection may not exceed the amount of tax imposed by this section for the taxable year, reduced by the sum of all other credits allowed against that tax, except tax payments made by or on behalf of the taxpayer.
(e) Any corporation which changes its income year, and files a "short period" income tax return pursuant to G.S. 105‑130.15 shall file a franchise tax return in accordance with the provisions of this section in the manner and as of the date specified in subsection (a) of this section. Such corporation shall be entitled to deduct from the total franchise tax computed (on an annual basis) on such return the amount of franchise tax previously paid which is applicable to the period subsequent to the beginning of the new income year.
(f) The report, statement and tax required by this section shall be in addition to all other reports required or taxes levied and assessed in this State.
(g) Counties, cities and towns shall not levy a franchise tax on corporations taxed under this section.
(h) Repealed by Session Laws 1981 (Regular Session, 1982), c. 1211, s. 5. (1939, c. 158, s. 210; 1941, c. 50, s. 4; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1947, c. 501, s. 3; 1951, c. 643, s. 3; 1953, c. 1302, s. 3; 1955, c. 1100, s. 2 1/2; c. 1350, s. 17; 1957, c. 1340, s. 3; 1959, c. 1259, s. 3; 1963, c. 1169, s. 1; 1967, c. 286; c. 892, ss. 10, 11; c. 1110, s. 2; 1973, c. 476, s. 193; c. 695, s. 17; c. 1262, s. 23; c. 1287, s. 3; 1975, c. 764, s. 2; 1977, c. 771, s. 4; 1981, c. 704, s. 18; c. 855, s. 3; 1981 (Reg. Sess., 1982), c. 1211, s. 5; 1985, c. 656, s. 40; 1985 (Reg. Sess., 1986), c. 826, s. 6; c. 854, s. 1; 1987 (Reg. Sess., 1988), c. 882, s. 4.3; 1989, c. 148, s. 1; c. 727, ss. 218(39), 219(27); 1991, c. 30, s. 5; 1993, c. 532, s. 11; 1995 (Reg. Sess., 1996), c. 560, s. 1; 1997‑443, s. 11A.119(a); 1998‑22, ss. 8, 9; 1998‑98, ss. 72, 77; 1998‑217, s. 43; 1999‑337, s. 21; 2001‑427, s. 12(a); 2003‑416, s. 5(j).)
§ 105‑123: Repealed by Session Laws 1991, c. 30, s. 1.
§ 105‑124. Repealed by Session Laws 1959, c. 1259, s. 9.
§ 105‑125. Exempt corporations.
(a) Exemptions. – The following corporations are exempt from the taxes levied by this Article. Upon request of the Secretary, an exempt corporation must establish its claim for exemption in writing:
(1) A charitable, religious, fraternal, benevolent, scientific, or educational corporation not operated for profit.
(2) An insurance company subject to tax under Article 8B of this Chapter.
(3) A mutual ditch or irrigation association, a mutual or cooperative telephone association or company, a mutual canning association, a cooperative breeding association, or a similar corporation of a purely local character deriving receipts solely from assessments, dues, or fees collected from members for the sole purpose of meeting expenses.
(4) A cooperative marketing association that operates solely for the purpose of marketing the products of members or other farmers and returns to the members and farmers the proceeds of sales, less the association's necessary operating expenses, including interest and dividends on capital stock, on the basis of the quantity of product furnished by them. The association's operations may include activities directly related to these marketing activities.
(5) A production credit association organized under the federal Farm Credit Act of 1933.
(6) A club organized and operated exclusively for pleasure, recreation, or other nonprofit purposes, a civic league operated exclusively for the promotion of social welfare, a business league, or a board of trade.
(7) A chamber of commerce or merchants' association not organized for profit, no part of the net earnings of which inures to the benefit of a private stockholder, an individual, or another corporation.
(8) An organization, such as a condominium association, a homeowners' association, or a cooperative housing corporation not organized for profit, the membership of which is limited to the owners or occupants of residential units in the condominium, housing development, or cooperative housing corporation. To qualify for the exemption, the organization must be operated exclusively for the management, operation, preservation, maintenance, or landscaping of the residential units owned by the organization or its members or of the common areas and facilities that are contiguous to the residential units and owned by the organization or by its members. To qualify for the exemption, no part of the net earnings of the organization may inure, other than through the performance of related services for the members of the organization, to the benefit of any person.
(9) Except as otherwise provided by law, an organization exempt from federal income tax under the Code.
Provided, that an entity that qualifies as a real estate mortgage investment conduit, as defined in section 860D of the Code, is exempt from all of the taxes levied in this Article. Upon request by the Secretary of Revenue, a real estate mortgage investment conduit must establish in writing its qualification for this exemption.
(b) Certain Investment Companies. – A corporation doing business in North Carolina that qualifies as a "regulated investment company" under section 851 of the Code or as a "real estate investment trust" under section 856 of the Code and elects for federal income tax purposes to be treated as a "regulated investment company" or as a "real estate investment trust," may, in determining its basis for franchise tax, deduct the aggregate market value of its investments in the stocks, bonds, debentures, or other securities or evidences of debt of other corporations, partnerships, individuals, municipalities, governmental agencies, or governments. (1939, c. 158, s. 213; 1951, c. 937, s. 3; 1955, c. 1313, s. 1; 1957, c. 1340, s. 3; 1963, c. 601, s. 3; c. 1169, s. 1; 1967, c. 1110, s. 2; 1971, c. 820, s. 3; c. 833, s. 1; 1973, c. 476, s. 193; c. 1053, s. 2; c. 1287, s. 3; 1975, c. 591, s. 1; 1983, c. 28, s. 2; c. 713, s. 67; 1985 (Reg. Sess., 1986), c. 826, s. 4; 1991, c. 30, s. 6; 1993, c. 485, s. 4, c. 494, s. 1.)
§ 105‑126. Repealed by Session Laws 1959, c. 1259, s. 9.
§ 105‑127. When franchise or privilege taxes payable.
(a) Every corporation, domestic or foreign, from which a report is required by law to be made to the Secretary of Revenue, shall, unless otherwise provided, pay to said Secretary annually the franchise tax as required by G.S. 105‑122.
(b) Repealed by Session Laws 1998‑98, s. 78, effective August 14, 1998.
(c) It shall be the duty of the treasurer or other officer having charge of any such corporation, domestic or foreign, upon which a tax is herein imposed, to transmit the amount of the tax due to the Secretary of Revenue within the time provided by law for payment of same.
(d), (e) Repealed by Session Laws 2002‑72, s. 11, effective August 12, 2002.
(f) After the end of the income year in which a domestic corporation is dissolved pursuant to Article 14 of Chapter 55 of the General Statutes, the corporation is no longer subject to the tax levied in this Article unless the Secretary of Revenue finds that the corporation has engaged in business activities in this State not appropriate to winding up and liquidating its business and affairs. (1939, c. 158, s. 215; 1973, c. 476, s. 193; 1991, c. 30, s. 7; 1993, c. 485, s. 6; 1998‑98, s. 78; 2002‑72, s. 11.)
§ 105‑128. Power of attorney.
The Secretary of Revenue shall have the authority to require a proper power of attorney of each and every agent for any taxpayer under this Article. (1939, c. 158, s. 217; 1973, c. 476, s. 193.)
§ 105‑129. Extension of time for filing returns.
A return required by this Article is due on or before the date set in this Article. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105‑263. (1939, c. 158, s. 216; 1955, c. 1350, s. 17; 1959, c. 1259, s. 9; 1973, c. 476, s. 193; 1977, c. 1114, s. 6; 1989 (Reg. Sess., 1990), c. 984, s. 7; 1997‑300, s. 2.)
§ 105‑129.1: Repealed by Session Laws 1989, c. 582, s. 1.
Disclaimer: These codes may not be the most recent version. North Carolina may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
