GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

S	1 

SENATE BILL 123

Short Title:  Repeal Intangibles Tax/Mandates.	(Public)

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Sponsors: Senators Kincaid, Cochrane, McDaniel, Webster; Forrester, Carrington, Ballantine, Foxx, East, Davis, Horton, Smith, Little, Simpson, Ledbetter, Clark, McKoy, Blackmon, Hartsell, and Carpenter.

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Referred to:  Finance.

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February 2, 1995

A BILL TO BE ENTITLED
AN ACT TO REPEAL THE INTANGIBLES TAX, TO REIMBURSE LOCAL GOVERNMENTS FOR THEIR RESULTING REVENUE LOSS, AND TO PHASE IN STATE FUNDING OF MANDATED LOCAL PROGRAMS AS REIMBURSEMENT IN FUTURE YEARS.
The General Assembly of North Carolina enacts:
Section 1.  (a)	Effective July 1, 1995, G.S. 105-213.1 is recodified as G.S. 105-275.2, and G.S. 105-213 is repealed.
(b)	Effective January 1, 1995, the remainder of Article 7 of Chapter 105 of the General Statutes is repealed.  The Secretary of Revenue shall retain from collections under Division II of Article 4 of Chapter 105 of the General Statutes the cost for the 1995-96 fiscal year of collecting, administering, and refunding the taxes levied in Article 7 of Chapter 105 of the General Statutes.
Sec. 2.  G.S. 105-275 is amended by adding the following new subdivisions:
"(31a)	Accounts receivable.
(31b)	Bonds, notes, and other evidences of debt.
(31c)	Shares of stock, including shares and units of ownership of mutual funds, investment trusts, and investment funds.
(31d)	The beneficial or equitable interest in a trust, trust fund, or trust account, including custodial accounts, held by a foreign fiduciary."
Sec. 3.  G.S. 105-213.1, as recodified as G.S. 105-275.2 by Section 1 of this act, reads as rewritten:
"§ 105-275.2.  Reimbursement to counties and municipalities for partial repeal of tax on intangible personal property.
(a)	Reimbursement for Repeal of Tax on Money on Deposit, Money on Hand, and Funds on Deposit with Insurance Companies. – On or before August 30 of each year, the Secretary of Revenue shall allocate for distribution to each county and the municipalities in the county the amount allocated to the county under this subsection in 1990.
(a1)	Reimbursement for Partial Repeal of Tax on Accounts Receivable. – On or before August 30 of each year, the Secretary of Revenue shall distribute to counties and municipalities an amount equal to forty percent (40%) of the tax collected on accounts receivable under former Article 7 of this Chapter (repealed) during the 1989-90 fiscal year. The Secretary shall allocate this amount among the counties in proportion to the amount allocated to each county under former G.S. 105-213 (repealed) in August 1994.
(a2)	Distribution Between County and Its Municipalities. – The amounts allocated to each county under this section shall be allocated between the county and the municipalities in the county in proportion to the total amount of ad valorem taxes levied by each during the fiscal year preceding the distribution.  In dividing these amounts between each county and its municipalities, the Secretary of Revenue shall treat taxes levied by a merged school administrative unit described in G.S. 115C-513 in a part of the unit located in a county as taxes levied by the county in which that part is located.
After making these allocations, the Secretary shall certify to the State Controller and to the State Treasurer the amount to be distributed to each county and municipality in the State.  The State Controller shall then issue a warrant on the State Treasurer to each county and municipality in the amount certified.
For the purpose of computing the distribution to any county and the municipalities located in the county for any year with respect to which the property valuation of a public service company is the subject of an appeal and the Department of Revenue is restrained by law from certifying the valuation to the county and the municipalities in the county, the Department shall use the last property valuation of the public service company that has been certified.
The chair of each board of county commissioners and the mayor of each municipality shall report to the Secretary of Revenue information requested by the Secretary to enable the Secretary to allocate the amount distributed by this section.  If a county or municipality fails to make a requested report within the time allowed, the Secretary may disregard the county or municipality in allocating the amount distributed by this section.
	(b)	Restrictions on Use. –The amount distributed to each county and municipality shall be used by the county or municipality in proportion to property tax levies made by it for the various funds and activities of the county or municipality, unless the county or municipality has pledged the amount to be distributed to it under this section in payment of a loan agreement with the North Carolina Solid Waste Management Capital Projects Financing Agency.  A county or municipality that has pledged amounts distributed under this section in payment of a loan agreement with the Agency may apply the amount the loan agreement requires.
	(d)	Source. – Funds distributed under this section shall be drawn from collections received under Division II of Article 4 of this Chapter."
Sec. 4.  Article 12 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-275.3.  Reimbursement to counties and municipalities for repeal of tax on accounts receivable, bonds, stocks, and foreign trust interests.
On or before August 30, 1995, the Secretary shall distribute the sum of ninety-eight million one hundred ninety-two thousand dollars ($98,192,000) to local governments for the 1995-96 fiscal year to reimburse them for their revenue losses due to the repeal of the remainder of the intangibles tax.  Each year thereafter, on or before August 30, the Secretary shall distribute to local governments one hundred three percent (103%) of the amount distributed under this section the previous year.  The Secretary shall allocate these funds among the counties in proportion to the amount allocated to each county under former G.S. 105-213 (repealed) in August 1994.  The amount allocated to each county shall be allocated and distributed between the county and the municipalities in the county in accordance with G.S. 105-275.2(a3).  Funds distributed under this section shall be drawn from collections received under Division II of Article 4 of this Chapter.  It is the intent of the General Assembly that this reimbursement shall be phased out over four years as State funding of selected mandated local programs is phased in to replace the reimbursement."
Sec. 5.  (a)	The Legislative Research Commission is authorized to study existing State mandates to local governments that have required local government funding to implement and for which the State can assume financial responsibility, including, but not limited to:
(1)	Due process mandates that require notice of proposed local government actions directed by the State;
(2)	Entitlement mandates that provide that certain classes of citizens are entitled to receive a specific benefit;
(3)	Personnel mandates that relate to fringe benefits, retirement benefits, and other terms or conditions of local government employment;
(4)	Record-keeping mandates that relate to accounting standards, financial statements, or other local governmental operations;
(5)	Regulatory mandates that require that local governments comply with State environmental, health, and other governmental regulations;
(6)	Service level mandates that require that local services meet certain minimum standards; and
(7)	Tax base mandates that grant exemptions from the local tax base.
(b)	The Commission shall review existing State mandates to local governments, identify those that have required local government funding to implement, and determine what local revenue sources and what amounts have been used to fund these mandates. The Commission shall then determine which mandates should be financed by the State and which mandates may properly be funded by the local governments.  In reviewing State mandates to local government, the Commission's inquiry shall relate to the following:
(1)	Whether the mandate prescribes an activity that the local government ought to be doing whether mandated to do so or not;
(2)	If the activity is a reasonable one for local government, whether the prescribed level of the activity is excessive and whether differing economies of scale affect the reasonableness of the activity;
(3)	Whether the State should pay for some or all of the cost of the activity;
(4)	Whether the benefits of a State mandate accrue only to local citizens or to residents of a broader area; and
(5)	Whether the benefits of a State mandate exceed the costs of complying with it or impose an unreasonable burden on some local governments.
(c)	The Commission shall recommend transition schedules and implementing legislation for shifting the costs of State mandates, as appropriate, from the local governments to the State.  The Commission shall establish a plan for phasing in State financial responsibility for mandates with a corresponding phaseout of the State's distributions to local governments to reimburse them for the repeal of the intangibles tax, so that State funding of these mandates will substitute for the State distribution by the beginning of the 1999-2000 fiscal year.  When the recommendations of the Commission, if enacted, would result in an increase or decrease in State revenues or expenditures, the report of the Commission shall include an estimate of the increase or decrease.
(d)	The Commission may call upon the Governor, the Council of State, the North Carolina Association of County Commissioners, and the North Carolina League of Municipalities to cooperate with it in the study of State mandates.
(e)  The Commission shall make an interim report of its recommendations to the 1996 Regular Session of the 1995 General Assembly and a final report of its recommendations to the 1997 General Assembly.
Sec. 6.  G.S. 105-501 reads as rewritten:
"§ 105-501.  Distribution of additional taxes.
The Secretary shall, on a quarterly basis, allocate the net proceeds of the additional one-half percent (1/2%) sales and use taxes levied under this Article to the taxing counties on a per capita basis according to the most recent annual population estimates certified to the Secretary by the State Budget Officer.  The Secretary shall then adjust the amount allocated to each county as provided in G.S. 105-486(b).  The amount allocated to each taxing county shall then be divided among the county and the municipalities located in the county in accordance with the method by which the one percent (1%) sales and use taxes levied in that county pursuant to Article 39 of this Chapter or Chapter 1096 of the 1967 Session Laws are distributed.
If any taxes levied under this Article by a county have not been collected in that county for a full quarter because of the levy or repeal of the taxes, the Secretary shall distribute a pro rata share to that county for that quarter based on the number of months the taxes were collected in that county during the quarter.
In determining the net proceeds of the tax to be distributed, the Secretary shall deduct from the collections to be allocated an amount equal to one-fourth of the costs during the preceding fiscal year of:
(1)	The Department of Revenue in performing the duties imposed by Article 15 of this Chapter.
(2)	The Property Tax Commission.
(3)	The Institute of Government in operating a training program in property tax appraisal and assessment.
(4)	The personnel and operations provided by the Department of State Treasurer for the Local Government Commission."
Sec. 7.  G.S. 105-288(d) reads as rewritten:
"(d)	Expenses. – The members of the Property Tax Commission shall receive travel and subsistence expenses in accordance with G.S. 138-5 and a salary of two hundred dollars ($200.00) a day when hearing cases.  The Secretary of Revenue shall supply all the clerical and other services required by the Commission.  All expenses of the Commission and the Department of Revenue in performing the duties enumerated in this Article shall be paid as provided in G.S. 105-501."
Sec. 8. G.S. 105-276 reads as rewritten:
"§ 105-276.  Taxation of intangible personal property.
Intangible personal property that is not excluded from taxation under G.S. 	105-275 is subject to this Subchapter.  ."
Sec. 9.  G.S. 105-282.1(a)(2) reads as rewritten:
"(2)	Owners of the special classes of property excluded from taxation under G.S. 105-275(5), (15), (16), (26), (31), (31a), (31b), (31c), (31d), (32a), (33), (34), or (40), or exempted under G.S. 105-278.2 are not required to file applications for the exclusion or exemption of that property."
Sec. 10.  G.S. 105-305 reads as rewritten:
"§ 105-305.  Place for listing intangible personal property.
(a)	Listing Instructions. – This section applies to all taxable intangible personal property that has a tax situs in this State and is not required by this Subchapter to be appraised originally by the Department of Revenue.  The place in this State at which this property is taxable shall be determined as provided in this section.  The person whose duty it is to list property shall list it in the county in which the place of taxation is located, indicating on the abstract the information required by G.S. 105-309(d).  If the place of taxation lies within a city or town that requires separate listing under G.S. 105-326(a), the person whose duty it is to list shall also list the property for taxation in the city or town.
(b)	General Rule. – Except as otherwise provided in subsections (c) through (e) of this section, intangible personal property shall be taxable at the residence of the owner.  For the purposes of this section:
(1)	The residence of a person who has two or more places in this State at which the person occasionally dwells shall be the place the person dwelt for the longest period of time during the calendar year immediately preceding the date as of which property is to be listed for taxation.
(2)	The residence of a domestic or foreign taxpayer other than an individual person shall be the place at which its principal North Carolina office is located.
(c)	Intangible personal property representing an interest or interests in real property that is situated in this State shall be taxable in the place in which the represented real property is located.
(d)	The intangible personal property of a decedent whose estate is in the process of administration or has not been distributed shall be taxable in the place at which it would be taxable if the decedent were still alive and still residing in the place at which the decedent resided at the time of death.
(e)	Intangible personal property within the jurisdiction of the State held by a resident or nonresident trustee, guardian, or other fiduciary having legal title to the property shall be taxable in accordance with the following rules:
(1)	If a beneficiary is a resident of the State, an amount representing the beneficiary's portion of the property shall be taxable in the place at which it would be taxable if the beneficiary were the owner of that portion.
(2)	If a beneficiary is a nonresident of the State, an amount representing the beneficiary's portion of the property shall be taxable in the place at which it would be taxable if the fiduciary were the beneficial owner of the property."
Sec. 11.  G.S. 108A-93 reads as rewritten:
"§ 108A-93.  Withholding of State moneys from counties failing to pay public assistance costs.
The Director of the Budget may withhold from any county that does not pay its full share of public assistance costs to the State and has not obtained a loan for repayment under G.S. 108A-89, any State moneys appropriated from the General Fund for public assistance and related administrative costs, or may direct the Secretary of Revenue and State Controller to withhold any tax owed to a county under G.S. 105-113.82, Subchapter VIII of Chapter 105 of the General Statutes, or Chapter 1096 of the Session Laws of 1967.  The Director of the Budget shall notify the chair of the board of county commissioners of the proposed action prior to the withholding of funds."
Sec. 12.  G.S. 142-12.1(c) reads as rewritten:
"(c)	The interest on any of these bonds or obligations shall maintain its existing exemption from State income taxation, or other taxation, if any, notwithstanding that the interest may be or become subject to federal income taxation as a result of legislative action by the federal government."
Sec. 13.  Section 1(a) of this act becomes effective July 1, 1995.  Section 1(b) of this act is effective for taxable years beginning on or after January 1, 1995.  Section 4 of this act becomes effective July 1, 1995.  Sections 3, 5, 6, 7, and 11 of this act become effective July 1, 1995, and apply to distributions made on or after that date.  The remainder of this act is effective for taxable years beginning on or after January 1, 1995.
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.