GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	1 

HOUSE BILL 1064

Short Title:  Restore Tax Burden on Wealthy.	(Public)

─────────────────────────────────────── 
Sponsors: Representatives Luebke; Adams, Beall, Bowen, Braswell, Earle, Easterling, Fitch, Gamble, H. Hunter, Lee, Michaux, G. Miller, Oldham, Ramsey, Sutton, Wainwright, and Womble.

─────────────────────────────────────── 
Referred to:  Business and Labor, if favorable, Finance.

─────────────────────────────────────── 

May 15, 1995

A BILL TO BE ENTITLED
AN ACT TO RESTORE THE TAX BURDEN ON THE WEALTHY IN ORDER TO HELP EDUCATION AND REDUCE THE FOOD TAX.
Whereas, the repeal of the intangibles tax by Senate Bill 8 grants a large tax reduction to wealthy individuals and large businesses who previously paid the great majority of the intangibles tax; and
Whereas, these tax reductions for the wealthy and for large businesses will be paid for by reimbursements to local governments from the State's General Fund; and
Whereas, rather than being used to give a tax break to the wealthy and to large businesses, the State's General Fund dollars could be used to restore education funding cut in the 1995 budget passed by the House of Representatives and to reduce the food tax for all citizens; and
Whereas, for these reasons, the General Assembly by this bill restores taxes on the wealthy and on large corporations that were eliminated by the intangibles tax repeal of Senate Bill 8; Now, therefore,
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-151.19 is repealed.
Sec. 2. G.S. 105-130.7 reads as rewritten:
"§ 105-130.7.  Deductible portion of dividends.
Dividends from stock issued by a corporation are deductible to the extent provided in this section.
		(3)	A corporation shall be allowed to deduct such proportionate part of dividends received by it from a regulated investment company or a real estate investment trust, as defined in G.S. 105-130.12, as represents and corresponds to income received by such regulated investment company or real estate investment trust which would not be taxed by this State if received directly by the corporation.
(3a)	Dividends received on shares of capital stock owned in a stock-owned savings and loan association taxed under Article 8D of this Chapter shall be deductible.
(4)	Notwithstanding any other provision of this section, a corporation may deduct all dividends received from corporations in which it owns more than fifty percent (50%) of the outstanding voting stock.
(5)	Notwithstanding any other provisions of this Division, a corporation that is a shareholder in a holding company may deduct an amount equal to those dividends received by it from the holding company, multiplied by a fraction, the numerator of which is the dividends received by the holding company that are deductible by it under subdivisions (3) and (3a) of this section and the denominator of which is the gross dividends received by the holding company. A holding company that owns more than fifty percent (50%) of the outstanding voting stock of one or more holding companies as defined in this subdivision is allowed a deduction for all dividends received from those holding companies and all other corporations in which it owns more than fifty percent (50%) of the outstanding voting stock. As used in this section, the term 'holding company' means a corporation subject to the tax imposed by G.S. 105-130.3 whose ordinary gross income consists of fifty percent (50%) or more of dividend income received from corporations in which it owns more than fifty percent (50%) of the outstanding voting stock.  As used in this subdivision, the term 'dividend' includes, in addition to corporate dividends, distributions received from a partnership by a corporation owning more than a fifty percent (50%) interest in the partnership.
(6)	In no case shall the total amount of dividends that are allowed as a deduction to a corporation as a result of the application of subdivisions (3) and (3a) of this section be in excess of fifteen thousand dollars ($15,000) for the taxable year."
Sec. 3.  G.S. 105-120.2 reads as rewritten:
"§ 105-120.2.  Franchise or privilege tax on holding companies.
(a)	
			Tax. – An annual privilege tax is imposed on holding companies.  This tax is in lieu of the tax imposed by G.S. 105-122.  A holding company shall report and pay the tax at the time set in G.S. 105-122 for reporting and paying the tax imposed by that section.
(b)		
			Rate. – The tax rate is one dollar and seventy cents ($1.70) for each one thousand dollars ($1,000) of value of the greatest of:
(1)	The holding company's issued and outstanding capital stock, surplus, and undivided profits determined in accordance with G.S. 105-122.
(2)	Fifty-five percent (55%) of the appraised value as determined for ad valorem tax purposes of the holding company's real and tangible personal property in this State as determined annually under G.S. 105-122(d).
(3)	The holding company's investment in tangible property in this State determined in accordance with G.S. 105-122(d).
The tax imposed under subdivision (1)	of this subsection may not exceed two hundred thousand dollars ($200,000).  The tax imposed by this section may not be less than the minimum tax set in G.S. 105-122.
(c)	Definition. – A 'holding company' is a corporation that 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)	No Local Tax. –  Counties, cities, and towns shall not levy a franchise tax on a holding company taxed under this section. 
(f)	Credit. – A credit is allowed against the tax imposed by this section for a holding company's investments in certain corporations in accordance with Division V of Article 4 of this Chapter.  "
Sec. 4.  G.S. 105-122(d) reads as rewritten:
"(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 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 seventy cents ($1.70) 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. 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, Health, 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.
In determining the total tax payable by any corporation under this section, there shall be allowed as a credit on such tax the amount of the credit authorized by Division V of Article 4 of this Chapter."
Sec. 5. Division II of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-134.2A. Supplemental income tax imposed.
(a)	Tax. – A tax is imposed upon certain resident individuals' net income from intangibles at the rate of three percent (3%).  This tax applies only to individuals whose North Carolina taxable income for the taxable year exceeds one hundred thousand dollars ($100,000).  This tax is in addition to the tax imposed in G.S. 105-134.2 and shall be levied, collected, and paid annually in the same manner as the tax levied in G.S. 105-134.2.  A taxpayer whose tax liability under this section for a taxable year is fifteen dollars ($15.00) or less is not required to pay the tax for that year.  An individual's net income from intangibles is the lesser of the individual's North Carolina taxable income or the sum of the following:
(1)	The individual's net capital gains, as defined in section 1222 of the Code, from intangible personal property described in G.S. 105-275(31b) and (31c).
(2)	The individual's gross dividend income, as determined under the Code, from intangible personal property described in G.S. 105-275(31b) and (31c).
(3)	The individual's gross interest income, as determined under the Code, from intangible personal property described in G.S. 105-275(31b) and (31c).
(b)	Exemptions. – The tax levied in this section does not apply to:
(1)	Income from an obligation of (i) the United States or its possessions, (ii) this State or a political subdivision of this State, or (iii) a nonprofit educational institution organized or chartered under the laws of this State.
(2)	Income deductible under G.S. 105-134.6(b)(2).
(3)	Income from units of ownership in an investment trust, the corpus of which is composed entirely of obligations described in subdivisions (1) and (2) of this subsection, at least eighty percent (80%) of the fair market value of which represents obligations of this State.  In order for the exemption described in this subdivision to apply, the trustees of the investment trust must provide the Secretary not later than December 31 of each year information in the form required by the Secretary sufficient to establish the applicability of the exemption.
(4)	In the case of a part-year resident, income earned during the period individual was not a resident of this State."
Sec. 6.  Division III of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-160.2A. Supplemental tax.
A tax is imposed upon certain trusts' and estates' net income from intangibles that is for the benefit of a resident of this State.  The tax shall be at the rate of three percent (3%).  This tax applies only to trusts and estates whose income taxable under G.S. 105-160.2  for the taxable year exceeds one hundred thousand dollars ($100,000).  This tax is in addition to the tax imposed in G.S. 105-160.2 and shall be levied, collected, and paid annually in the same manner as the tax levied in G.S. 105-160.2.  The tax levied in this section does not apply to income exempt from the tax under G.S. 105-134.2A(b)(1)-(3).  A taxpayer whose tax liability under this section for a taxable year is fifteen dollars ($15.00) or less is not required to pay the tax for that year.  A trust's or an estate's net income from intangibles is the lesser of the trust's or estate's income taxable under G.S. 105-160.2 or the sum of the following:
(1)	The trust's or estate's net capital gains, as defined in section 1222 of the Code, from intangible personal property described in G.S. 105-275(31b) and (31c).
(2)	The trust's or estate's gross dividend income, as determined under the Code, from intangible personal property described in G.S. 105-275(31b) and (31c).
(3)	The trust's or estate's gross interest income, as determined under the Code, from intangible personal property described in G.S. 105-275(31b) and (31c)."
Sec. 7.  Notwithstanding the provisions of G.S. 105-163.15 and G.S. 105-163.41, no addition to tax shall be made under those sections for a taxable year beginning on or after January 1, 1995, and before January 1, 1996, with respect to any underpayment to the extent the underpayment was created or increased by Sections 1, 2, 5, and 6 of this act.
Sec. 8.  This act is effective for taxable years beginning on or after January 1, 1995.