GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1991

H	1 

HOUSE BILL 1249

Short Title:  Close Sales Tax Loopholes.	(Public)
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Sponsors: Representatives Colton, Luebke, Stamey, Withrow; and Easterling.
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Referred to:  Finance.
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May 10, 1991

A BILL TO BE ENTITLED
AN ACT TO PROVIDE TAX FAIRNESS BY CLOSING LOOPHOLES AND ELIMINATING SPECIAL EXEMPTIONS IN THE SALES TAX AND BEVERAGE TAX LAWS.
The General Assembly of North Carolina enacts:
TABLE OF CONTENTS
I.   SALES TAX PREFERENCES REPEALED
II.  BEVERAGE TAX DISCOUNTS REPEALED
III. EFFECTIVE DATES
Part I.
SALES TAX PREFERENCES REPEALED
Section 1.1.  G.S. 105-164.3(20) reads as rewritten:
"(20)	'Tangible personal property' means and includes personal property which may be seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses.  The term 'tangible personal property' shall not include stocks, bonds, notes, insurance or other obligations or securities, nor shall it include water delivered by or through main lines or pipes either for commercial or domestic use or consumption. The term includes all computer programs.  As used in this subdivision, the term 'computer program' "
	 " " 	 " means the complete plan for the solution of a problem, such as the complete sequence of automatic data-processing equipment instructions necessary to solve a problem, and includes both systems and application programs and subdivisions, such as assemblers, compilers, routines, generators, and utility programs.
	 " 			 " "
Sec. 1.2.  G.S. 105-164.4(a) reads as rewritten:
"(a)	A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate.  The general rate of tax is three percent (3%).
(1)	The general rate of tax applies to the sales price of each item or article of tangible personal property that is sold at retail and is not subject to tax under another subdivision in this section.
(1a)	 The rate of two percent (2%) applies to the sales price of each manufactured home sold at retail, including all accessories attached to the manufactured home when it is delivered to the purchaser, not to exceed three hundred dollars ($300.00). Each section of a manufactured home that is transported separately to the site where it is to be erected is a separate article.
																										(2)	The applicable percentage rate applies to the gross receipts derived from the lease or rental of tangible personal property by a person who is engaged in the business of leasing or renting tangible personal property, or is a retailer and leases or rents property of the type sold by the retailer.  The applicable percentage rate is the rate and the maximum tax, if any, that applies to a sale of the property that is leased or rented.  A person who leases or rents property shall also collect the tax imposed by this section on the separate retail sale of the property.
(3) 	Operators of hotels, motels, tourist homes, tourist camps, and similar type businesses and persons who rent private residences and cottages to transients are considered retailers under this Article.  A tax at the general rate of tax is levied on the gross receipts derived by the retailer from the rental of any rooms, lodgings, or accommodations furnished to transients for a consideration.  This tax does not apply to any private residence or cottage that is rented for less than 15 days in a calendar year or to any room, lodging, or accommodation supplied to the same person for a period of 90 or more continuous days.
		As used in this subdivision, the term 'persons who rent to transients' means (i) owners of private residences and cottages who rent to transients and (ii) rental agents, including 'real estate brokers' as defined in G.S. 93A-2, who rent private residences and cottages to transients on behalf of the owners. If a rental agent is liable for the tax imposed by this subdivision, the owner is not liable.
(4) 	Every person, firm or corporation engaged in the business of operating a pressing club, cleaning plant, hat-blocking establishment, dry-cleaning plant, laundry (including wet or damp wash laundries and businesses known as launderettes and launderalls),  or any similar business, or engaged in the business of renting clean linen or towels or wearing apparel, or any similar business, or engaged in the business of soliciting cleaning, pressing, hat blocking, laundering or rental business for any of the aforenamed businesses, shall be considered 'retailers' for the purposes of this Article.  A tax at the general rate of tax is levied on the gross receipts derived by these retailers from services rendered in engaging in any of the occupations or businesses named in this subdivision, and every person, firm or corporation subject to the provisions of this subdivision shall register and secure a license in the manner hereinafter provided in this section, and, insofar as practicable, all other provisions of this Article shall be applicable with respect to the tax herein provided for.  The taxes levied in this subdivision are additional privilege or license taxes for the privilege of engaging in the occupations or businesses named herein.  Any person, firm or corporation engaged in cleaning, pressing, hat blocking, laundering for, or supplying clean linen or towels or wearing apparel to, another person, firm or corporation engaged in soliciting shall not be required to pay the three percent (3%) tax on its gross receipts derived through such solicitor, if the soliciting person, firm or corporation has registered with the Department, secured the license hereinafter required and has paid the tax at the rate of three percent (3%) of the total gross receipts derived from business solicited.
(4a)	The rate of three percent (3%) applies to the gross receipts derived by a utility from sales of electricity, piped natural gas, or local telecommunications service as defined by G.S. 105-120(e).  A person who operates a utility is considered a retailer under this Article.
(4b)	A person who sells tangible personal property at a flea market, other than his own household personal property, is considered a retailer under this Article.  A tax at the general rate of tax is levied on the sales price of each article sold by the retailer at the flea market.  A person who leases or rents space to others at a flea market may not lease or rent this space unless the retailer requesting to rent or lease the space shows the license or a copy of the license required by this Article or other evidence of compliance.  A person who leases or rents space at a flea market shall keep records of retailers who have leased or rented space at the flea market.  As used in this subdivision, the term 'flea market' means a place where space is rented to a person for the purpose of selling tangible personal property.
(4c)	The rate of six and one-half percent (6 1/2%) applies to the gross receipts derived from providing toll telecommunications services or private telecommunications services as defined by G.S. 105-120(e) that both originate from and terminate in the State and are not subject to the privilege tax under G.S. 105-120.  Any business entity that provides these services is considered a retailer under this Article.  This subdivision does not apply to telephone membership corporations as described in Chapter 117 of the General Statutes.
(5)	The general rate of tax applies to the sales price of spirituous liquor, as defined in G.S. 18B-101."
Sec. 1.3.  G.S. 105-164.10 reads as rewritten:
"§ 105-164.10.  Retail bracket system.
For the convenience of the retailer in collecting the tax due 
					under this Article, the Secretary shall prescribe tables that compute the tax due on sales by rounding off the amount of tax due to the nearest whole cent.  The Secretary shall issue a separate table for each rate of tax that may apply to a sale, including the general rate established in G.S. 105-164.4, any preferential rates, and combined State and local rates.  Use of the tables prescribed by the Secretary does not relieve a retailer of liability for the applicable rate of tax due on the gross receipts or net taxable sales of the retailer."
Sec. 1.4.  G.S. 105-164.13, as amended by Section 17 of Chapter 45 of the 1991 Session Laws, reads as rewritten:
"§ 105-164.13.  Retail sales and use tax exemptions.
The sale at retail, the use, storage or consumption in this State of the following tangible personal property is specifically exempted from the tax imposed by this Article:

Agricultural Group. 

(1)	 The following items sold for commercial use: fertilizer on which the inspection tax is paid and lime and land plaster whether the inspection tax is paid or not.
(2)	 Seeds sold for commercial use; remedies, vaccines, medications, litter materials, and feeds for livestock and poultry; rodenticides, insecticides, herbicides, fungicides, and pesticides for livestock, poultry, and agriculture; defoliants for use on cotton or other crops; plant growth inhibitors, regulators, or stimulators for agriculture including systemic and contact or other sucker control agents for tobacco and other crops.
(3) 	Products of forests and mines in their original or unmanufactured state when such sales are made by the producer in the capacity of producer.
(4) 	Cotton, tobacco, peanuts or other farm products sold to manufacturers for further manufacturing or processing.
(4a) 	Baby chicks and poults sold for commercial poultry or egg production. 
(4b)	Products of a farm sold in their original state by the producer of the products if the producer is not primarily a retail merchant and ice used to preserve agriculture, aquaculture and commercial fishery products until the products are sold at retail.
(4c) 	Commercially manufactured swine, livestock, and poultry facilities to be used for commercial purposes for housing, raising, or feeding of swine, livestock, or poultry or for housing equipment necessary for these commercial activities; building materials, supplies, fixtures, and equipment to be used in the construction, repair, or improvement and that become a part of an enclosure or structure specifically designed, constructed and used for such above commercial purposes; and commercially manufactured swine, livestock, and poultry equipment, parts and accessories therefor placed or installed in or affixed to such facilities, enclosures, or structures.
(4d) 	The lease or rental of burlap tobacco sheets used in handling tobacco in the warehouse and transporting tobacco to and from the warehouse.

Industrial Group. 

(5) 	Manufactured products produced and sold by manufacturers or producers to other manufacturers, producers, or registered wholesale or retail merchants, for the purpose of resale except as modified by Division I, G.S. 105-164.3, subdivision (23). Provided, however, this exemption shall not extend to or include retail sales to users or consumers not for resale.
(6) 	Repealed by Session Laws 1989 (Reg. Sess., 1990), c. 1068, s. 1. 
(7)	Sales of products of waters in their original or unmanufactured state when such sales are made by the producer in the capacity of producer. Fish and seafoods are likewise exempt when sold by the fisherman in that capacity.
(8) 	Sales of tangible personal property to a manufacturer which enters into or becomes an ingredient or component part of tangible personal property which is manufactured.
(8a) 	Sales to a small power production facility, as defined in 16 U.S.C. § 796(17)(A), of fuel used by the facility to generate electricity.
(9) 	Sales of boats, fuel oil, lubricating oils, machinery, equipment, nets, rigging, paints, parts, accessories, and supplies to persons for use by them principally in commercial fishing operations within the meaning of G.S. 113-152, except when the property is for use by persons principally to take fish for recreation or personal use or consumption. As used in this subdivision, "fish" is defined as in G.S. 113-129(7).
	
Motor Fuels Group. 

(11)	Gasoline or other motor fuel on which the tax levied in G.S. 105-434 and/or G.S. 105-435 is due and has been paid, and the fact that a refund of the tax levied by either of said sections is made pursuant to the provisions of Subchapter V of Chapter 105 shall not make the sale or the seller of such fuels subject to the tax levied by this Article.

Medical Group. 

(12)	Therapeutic, prosthetic, or artificial devices, such as pulmonary respirators or medical beds, that are designed for individual personal use to correct or alleviate physical illness, disease, or incapacity and that are sold on the written prescription of a physician, dentist, or other professional person licensed to prescribe, and crutches, artificial limbs, artificial eyes, hearing aids, false teeth, eyeglasses ground on prescription of a physician or an optometrist, and orthopedic appliances designed to be worn by the purchaser or user. This subdivision does not apply to a motor vehicle.
(13)	Medicines sold on prescription of physicians, dentists, or veterinarians; insulin whether or not sold on prescription.

Printed Materials Group. 

(14)	Public school books on the adopted list, the selling price of which is fixed by State contract.
(14a)	Printed material which is sold by a printer to a purchaser within or without this State, when such printed material is delivered in this State to a common carrier or to the United States Postal Service for delivery to the purchaser or the purchaser's designees outside this State, if the purchaser does not thereafter use the printed material in this State.

Transactions Group. 

(15)	Accounts of purchasers, representing taxable sales, on which the tax imposed by this Article has been paid, that are found to be worthless and actually charged off for income tax purposes may, at corresponding periods, be deducted from gross sales, provided, however, they must be added to gross sales if afterwards collected.
(16)	Sales of used articles taken in trade, or a series of trades, as a credit or part payment on the sale of a new article. "New article" means the original stock in trade of the merchant, and is not limited to newly manufactured articles.  The resale of articles repossessed by the vendor shall likewise be exempt from gross sales taxable under this Article.

Exempt Status Group. 

(17)	Sales which a state would be without power to tax under the limitations of the Constitution or laws of the United States or under the Constitution of this State.

Unclassified Group. 

(18) 	Funeral expenses, including coffins and caskets, not to exceed one thousand five hundred dollars ($1,500). All other funeral expenses, including gross receipts for services rendered, are taxable at the general rate of tax set in G.S. 105-164.4(a). However, "services rendered" shall not include those services which have been taxed pursuant to G.S. 105-164.4(4), or to those services performed by any beautician, cosmetologist, hairdresser or barber employed by or at the specific direction of the family or personal representative of a deceased; and "funeral expenses" and "services rendered" shall not include death certificates procured by or at the specific direction of the family or personal representative of a deceased. Where coffins, caskets or vaults are purchased direct and a separate charge is paid for services, the provisions of this subdivision shall apply to the total for both. 
(19)	Sales by concession stands operated by the State prison system within the confines of the prisons where such sales are made to prison inmates and guards therein while on duty.
(20)	Sales by blind merchants operating under supervision of the Department of Human Resources.
(21)	The lease or rental of motion picture films used for exhibition purposes by the State prison system within the confines of a prison, by a public school, or by a nonprofit religious or charitable organization for religious or charitable purposes. 
	(23) 	Sales of wrapping paper, labels, wrapping twine, paper, cloth, plastic bags, cartons, packages and containers, cores, cones or spools, wooden boxes, baskets, coops and barrels, including paper cups, napkins and drinking straws and like articles sold to manufacturers, producers and retailers, when such materials are used for packaging, shipment or delivery of tangible personal property which is sold either at wholesale or retail and when such articles constitute a part of the sale of such tangible personal property and are delivered with it to the customer.
	(25)	Sales by merchants on the Cherokee Indian Reservation when such merchants are authorized to do business on the Reservation and are paying the tribal gross receipts levy to the Tribal Council.
(26)	Lunches to school children when such sales are made within school buildings and are not for profit.
(27)	Meals and food products served to students in dining rooms regularly operated by State or private educational institutions or student organizations thereof.
(28) 	Sales of newspapers by newspaper street vendors. 
(29)	Sales to the North Carolina Museum of Art of paintings and other objects or works of art for public display, the purchases of which are financed in whole or in part by gifts or donations.
(30) 	Sales from vending machines when sold by the owner or lessee of said machines at a price of one cent (1¢) per sale.
(31)	Sales of meals not for profit to elderly and incapacitated persons by charitable or religious organizations not operated for profit which are entitled to the refunds provided by G.S. 105-164.14(b), when such meals are delivered to the purchasers at their places of abode.
(31a)	Food sold by a church or religious organization not operated for profit when the proceeds of the sales are actually used for religious activities. 
(32)	Sales of motor vehicles, the separate sales of a motor vehicle body and a motor vehicle chassis when the body is to be mounted on the chassis, and the sale of a body mounted on a motor vehicle chassis that temporarily enters the State so the manufacturer of the body can mount the body on the chassis. of the sale.
	" " 						(34)	Sales of items by a nonprofit civic, charitable, educational, scientific or literary organization when the net proceeds of the sales will be given or contributed to the State of North Carolina or to one or more of its agencies or instrumentalities, or to one or more nonprofit charitable organizations, one of whose purposes is to serve as a conduit through which such net proceeds will flow to the State or to one or more of its agencies or instrumentalities.
(35)	Sales by a nonprofit civic, charitable, educational, scientific, literary or fraternal organization continuously chartered or incorporated within North Carolina for at least two years when such sales are conducted only upon an annual basis for the purpose of raising funds for its activities, and when the proceeds thereof are actually used for such purposes; provided, however, that no such sale shall be exempt if not actually consummated within 60 days after the first solicitation of any sale made during said organization's annual sales period.
		" " (38)	Food and other items lawfully purchased with coupons issued under the Food Stamp Program, 7 U.S.C. § 51, and supplemental foods lawfully purchased with a food instrument issued under the Special Supplemental Food Program, 42 U.S.C. § 1786.
	" 					(40) 	Sales to the Department of Transportation."
Sec. 1.5.   G.S. 105-470, 105-485, and 105-500 and Article 41 of Chapter 105 of the General Statutes are repealed.
Sec. 1.6.  G.S. 105-113.80(c) reads as rewritten:
"(c)	Liquor. – An excise tax of twenty-eight percent (28%) is levied on liquor sold in ABC stores. Pursuant to G.S. 18B-804(b), the price of liquor on which this tax is computed is the distiller's price plus (i) the State ABC warehouse freight and bailment charges, and (ii) a markup for local ABC boards. "
Sec. 1.7.  G.S. 105-164.14 reads as rewritten:
"§ 105-164.14.  Certain refunds authorized.
(a)	Any person engaged in transporting persons or property in interstate commerce for compensation who is subject to regulation by, and to the jurisdiction of, the Interstate Commerce Commission or the United States Department of Transportation and who is required by either such federal agency to keep records according to its standard classification of accounting or, in the case of a small certificated air carrier, is required by the U.S. Department of Transportation to make reports of financial and operating statistics, may secure a refund from the Secretary of Revenue with respect to sales or use tax paid by such person on purchases or acquisitions of lubricants, repair parts and accessories in this State for motor vehicles, railroad cars, locomotives, and airplanes operated by such person, upon the conditions described below. The Secretary of Revenue shall prescribe the periods of time, whether monthly, quarterly, semiannually or otherwise, with respect to which refunds may be claimed, and shall prescribe the time within which, following such periods, an application for refund may be made. An applicant for refund shall furnish such information as the Secretary may require, including detailed information as to lubricants, repair parts and accessories wherever purchased, whether within or without the State, acquired during the period with respect to which a refund is sought, and the purchase price thereof, detailed information as to sales and use tax paid in this State thereon, and detailed information as to the number of miles such motor vehicles, railroad cars, locomotives, and airplanes were operated both within this State, and without this State, during such period, together with satisfactory proof thereof. The Secretary shall thereupon compute the tax which would be due with respect to all lubricants, repair parts and accessories acquired during the refund period as though all such purchases were made in this State, but only on such proportion of the total purchase prices thereof as the total number of miles of operation of such applicants' motor vehicles, railroad cars, locomotives, and airplanes within this State bears to the total number of miles of operation of such applicants' motor vehicles, railroad cars, locomotives and airplanes within and without this State, and such amount of sales and use tax as the applicant has paid in this State during said refund period in excess of the amounts so computed shall be refunded to the applicant.
	(c)	Upon receipt of timely applications for refund, the Secretary of Revenue shall make refunds annually to all governmental entities, as hereinafter defined, of sales and use tax paid under this Article, except under G.S. 105-164.4(a)(4a) and G.S. 105-164.4(a)(4c) governmental entities on direct purchases of tangible personal property. Sales and use tax liability indirectly incurred by such governmental entities on building materials, supplies, fixtures and equipment which shall become a part of or annexed to any building or structure being erected, altered or repaired which is owned or leased by such governmental entities shall be construed as sales or use tax liability incurred on direct purchases by such governmental entities, and such entities may obtain refunds of such taxes indirectly paid. The refund provisions contained in this subsection shall not apply to any governmental entities not specifically named herein. In order to receive the refund herein provided for, governmental entities shall file a written request for said refund within six months of the close of the fiscal year of the governmental entities seeking said refund, and such request for refund shall be substantiated by such records, receipts and information as the Secretary may require. No refunds shall be made on applications not filed within the time allowed by this section and in such manner as the Secretary may otherwise require. The term "governmental entities," for the purposes of this subsection, shall mean all counties, incorporated cities and towns, water and sewer authorities created and existing under the provisions of Chapter 162A of the General Statutes, lake authorities created by a board of county commissioners pursuant to an act of the General Assembly, sanitary districts, regional councils of governments created pursuant to G.S. 160A-470, area mental health, mental retardation, and substance abuse authorities (other than single-county area authorities) established pursuant to Article 4 of Chapter 122C of the General Statutes, district health departments, regional planning and economic development commissions created pursuant to G.S. 158-14, regional sports authorities created pursuant to G.S. 160A-479, regional economic development commissions created pursuant to G.S. 158-8, regional planning commissions created pursuant to G.S. 153A-391, metropolitan sewerage districts and metropolitan water districts in this State, the North Carolina Low-Level Radioactive Waste Management Authority created pursuant to Chapter 104G of the General Statutes, the North Carolina Hazardous Waste Management Commission created pursuant to Chapter 130B of the General Statutes, and the Rockingham County Airport Authority.
(d)	Refunds made pursuant to applications filed after the date provided in subsection (c) are subject to the following penalties for late filing: applications filed within 30 days after the due date, twenty-five percent (25%); applications filed after 30 days but within six months after the due date, fifty percent (50%).  However, refunds which are applied for after six months following the due date are barred."
Part II.
BEVERAGE TAX DISCOUNTS REPEALED
Sec. 2.1.  G.S. 105-113.56A reads as rewritten:
"§ 105-113.56A. Alternate method of payment of tax.
Instead of paying the tax levied in this Article in the manner otherwise provided, any distributor or wholesale dealer may pay the tax in the following manner, with respect to bottled soft drinks:
Beginning with sales made on and after October 1, 1969, of bottled soft drinks subject to the tax, sales reports shall be made to the Secretary on or before the fifteenth day of each succeeding month, accompanied by payment of the tax due, determined as follows: For the first fifteen thousand gross of bottled soft drinks sold annually, seventy-two cents (72¢) per gross; for all in excess of fifteen thousand gross, one cent (1¢) per bottle. 
All persons paying the tax in this manner shall be subject to such rules and regulations as the Secretary may prescribe, including the requirement that such persons furnish such bond as the Secretary may deem advisable, in such amount and upon such conditions as in the opinion of the Secretary will adequately protect the State in the collection of the taxes levied by this Article. The alternate method set forth in this section shall be available only to those distributors and wholesale dealers liable for payment of the soft drink tax under the provisions of this Article."
Sec. 2.2.  G.S. 105-113.85 is repealed.
Part III.
EFFECTIVE DATES
Sec. 3.1.  This act does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this act before its amendment or repeal; nor does it affect the right to any refund or credit of a tax that would otherwise have been available under the amended or repealed statute before its amendment or repeal.
Sec. 3.2.  Part I of this act becomes effective July 1, 1992, and applies to sales made on or after that date.  Part II of this act becomes effective October 1, 1991.  The remainder of this act is effective upon ratification.