GENERAL ASSEMBLY OF NORTH CAROLINA

SECOND EXTRA SESSION 1996

H	1 

HOUSE BILL 8

Short Title:  1996 Tax Reform Act.	(Public)

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Sponsors: Representatives Neely; Capps, Cansler, Daughtry, Ives, and G. Miller.

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Referred to:  Rules, Calendar, and Operations of the House.

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July 8, 1996

A BILL TO BE ENTITLED
AN ACT TO PROVIDE TAX REFORM BY REPEALING THE UNCONSTITUTIONAL CORPORATE TAX CREDIT FOR NORTH CAROLINA WINE, REPEALING THE UNCONSTITUTIONAL CORPORATE TAX DEDUCTION FOR NORTH CAROLINA DIVIDENDS, REVISING THE UNCONSTITUTIONAL INDIVIDUAL INCOME TAX CREDIT FOR NORTH CAROLINA DIVIDENDS, REPEALING THE UNCONSTITUTIONAL TAX CREDIT FOR QUALIFIED BUSINESS INVESTMENTS, CLARIFYING THE TAX TREATMENT OF REFUNDS OF UNCONSTITUTIONAL TAXES, CLARIFYING THE SALES AND USE TAX TREATMENT OF ITEMS GIVEN AWAY BY MERCHANTS, AND PROVIDING THE SECRETARY OF REVENUE AUTHORITY TO IMPROVE USE TAX COLLECTION.
The General Assembly of North Carolina enacts:

TABLE OF CONTENTS
I.   REFORM UNCONSTITUTIONAL TAX PROVISIONS
II.  SALES AND USE TAX COLLECTION
III. EFFECTIVE DATES

PART I.  REFORM UNCONSTITUTIONAL TAX PROVISIONS
Section 1.  G.S. 105-130.38 and G.S. 105-151.15 are repealed.
Sec. 2.  G.S. 105-151.19 reads as rewritten:
"§ 105-151.19.  Credit for dividends.
There is allowed as a credit against the tax imposed by this Division an amount equal to six percent (6%) of the amount of dividends received by the taxpayer directly or indirectly during the taxable year from corporate stock, up to a maximum credit of twelve dollars ($12.00) per taxpayer for the taxable year.  This credit 
applies only with respect to dividends received while the taxpayer was a resident of this State.  In the case of a married couple filing a joint return where both spouses received dividends during the taxable year, the maximum credit amount applies separately to each spouse's dividends for a potential total credit of twenty-four dollars ($24.00) for the couple.  This credit may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed under this Division, except payments of tax made by or on behalf of the taxpayer."
Sec. 3.  Effective for taxable years beginning on or after January 1, 2001, G.S. 105-151.19 is repealed.
Sec. 4.  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 may 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.
	(4)	A corporation that, at the close of its taxable year, has its commercial domicile within North Carolina shall be allowed to deduct all dividends received from corporations in which it owns more than fifty percent (50%) of the outstanding voting stock.
	" " " " " (6)	In no case shall the total amount of dividends that are allowed as a deduction to a corporation under subdivision (3) of this section exceed fifteen thousand dollars ($15,000) for the taxable year."
Sec. 5.  G.S. 105-130.5(b)(3) reads as rewritten:
"(3)	The deductible portion of dividends from stock as provided under G.S. 105-130.7."
Sec. 6.  G.S. 105-130.4(f) reads as rewritten:
"(f)	Interest and net dividends are allocable to this State if the corporation's commercial domicile is in this State.  For
	purposes of this section, the term 'net dividends' means gross dividend income received less related expenses and less that portion of the dividends deductible under G.S. 105-130.7."
Sec. 7.  Section 7 of Chapter 443 of the 1993 Session Laws reads as rewritten:
"Sec. 7.  Division V of Article 4 of Chapter 105 of the General Statutes is repealed effective for investments made on or after January 1, 1997.  Division V of Article 4 of Chapter 105 of the General Statutes will remain in effect for investments made before January 1, 1997."
Sec. 8.  G.S. 53A-46 is repealed.
Sec. 9.  G.S. 105-134.6(d) is amended by adding a new subdivision to read:
"(3)	The taxpayer shall add to taxable income the amount of any recovery during the taxable year not included in taxable income, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by this Division but, due to differences between the Code and this Division, did not reduce the amount of the taxpayer's tax imposed by the Code.  The taxpayer may deduct from taxable income the amount of any recovery during the taxable year included in taxable income under section 111 of the Code, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by the Code but, due to differences between the Code and this Division, did not reduce the amount of the taxpayer's tax imposed by this Division."
Sec. 10.  G.S. 105-130.5(c) is amended by adding a new subdivision to read:
"(4)	The taxpayer shall add to federal taxable income the amount of any recovery during the taxable year not included in federal taxable income, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by this Division but, due to differences between the Code and this Division, did not reduce the amount of the taxpayer's tax imposed by the Code.  The taxpayer may deduct from federal taxable income the amount of any recovery during the taxable year included in federal taxable income under section 111 of the Code, to the extent the taxpayer's deduction of the recovered amount in a prior taxable year reduced the taxpayer's tax imposed by the Code but, due to differences between the Code and this Division, did not reduce the amount of the taxpayer's tax imposed by this Division."

PART II.  SALES AND USE TAX COLLECTION
Sec. 11.  Article V of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-164.6A.  Voluntary collection of use tax by sellers.
(a)	Voluntary Collection Agreements. – The Secretary may enter into agreements with sellers pursuant to which the seller agrees to collect and remit on behalf of its customers State and local use taxes due on items of tangible personal property the seller sells.  For the purpose of this section, a seller is a person who is engaged in the business of selling tangible personal property for use in this State and who does not have sufficient nexus with this State to be required to collect use tax on the sales.
(b)	Mandatory Provisions. – The agreements must contain the following provisions:
(1)	The customer may elect to pay the use tax directly to the Secretary in accordance with law rather than to the seller.
(2)	A customer's payment of a use tax to the seller relieves the customer of liability for the use tax.
(3)	The seller must remit all use taxes it collects from customers on or before the due date specified in the agreement, which may not be later than 31 days after the end of a quarter or other collection period.
(4)	A seller who fails to remit use taxes collected on behalf of its customers by the due date specified in the agreement is subject to the interest and penalties provided in Article 9 of this Chapter with respect to the taxes to the same extent as if the seller were a retailer and were required to collect use taxes under this Article.
(c)	Optional Provisions. – The agreements may contain the following provisions:
(1)	The seller will collect the use tax only on items that are subject to the general rate of tax.
(2)	The seller will collect local use taxes only to the extent they are at the same rate in every unit of local government in the State.
(3)	The seller will remit the tax and file reports in the form prescribed by the Secretary.
(4)	Other provisions establishing the types of transactions on which the seller will collect tax and prescribing administrative procedures and requirements."
Sec. 12.  G.S. 105-469 reads as rewritten:
"§ 105-469.  Secretary to collect and administer local sales and use tax.
(a)	The Secretary shall collect and administer a tax levied by a county pursuant to this Article.
(b)	The Secretary shall require retailers who collect use tax on sales to North Carolina residents to ascertain the county of residence of each buyer and provide that information to the Secretary along with any other information necessary for the Secretary to allocate the use tax proceeds to the correct taxing county."
Sec. 13.  G.S. 105-164.3(15) reads as rewritten:
"(15)	'Sale' or "selling. – The transfer of title or possession of tangible personal property, conditional or otherwise, in any manner or by any means whatsoever, for a consideration paid or to be paid.
	The term includes the fabrication of tangible personal property for consumers by persons engaged in business who furnish either directly or indirectly the materials used in the fabrication work.  The term also includes the furnishing or preparing for a consideration of any tangible personal property consumed on the premises of the person furnishing or preparing the property or consumed at the place at which the property is furnished or prepared.  The term also includes a transaction in which the possession of the property is transferred but the seller retains title or security for the payment of the consideration.
	If a retailer engaged in the business of selling prepared food and drink for immediate or on-premises consumption also gives prepared food or drink to its patrons or employees free of charge, for the purposes of this Article the property given away is considered sold along with the property sold.  If a retailer gives an item of inventory to a customer free of charge on the condition that the customer purchase similar or related property, the item given away is considered sold along with the item sold.  In all other cases, property given away or used by any retailer or wholesale merchant is not considered sold, whether or not the retailer or wholesale merchant recovers its cost of the property from sales of other property."
Sec. 14.  G.S. 105-164.3 is amended by adding a new subdivision to read:
"(11a)	Prepared food and drink. –  Meals, food, and beverages to which a retailer has added value or whose state the retailer has altered (other than solely by cooling) by preparing, combining, dividing, heating, or serving, in order to make them available for immediate human consumption."

PART III.   EFFECTIVE DATES
Sec. 15.  Notwithstanding G.S. 105-163.15 and G.S. 105-163.41, no addition to tax may be made under either of those statutes for a taxable year beginning on or after January 1, 1996, and before January 1, 1997, with respect to an underpayment of individual or corporation income tax to the extent the underpayment was created or increased by this act.
Sec. 16.  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.
Prosecutions for offenses committed before the effective date of this act are not abated or affected by this act, and the statutes that would be applicable but for this act remain applicable to those prosecutions.
Sec. 17.  This act becomes effective as follows:
(1)	Unconstitutional Tax Preferences. – Sections 1, 2, 4 through 6, and 9 and 10 of Part I of this act are effective for taxable years beginning on or after January 1, 1996.  Section 3 of Part I of this act becomes effective for taxable years beginning on or after January 1, 2001.
(2)	Repeal Qualified Business Tax Credits. – Sections 7 and 8 of Part I of this act are effective upon ratification and apply to investments made on or after January 1, 1997.
(3)	Sales and Use Tax Collection. – Part II of this act becomes effective August 1, 1996.
(4)	Remainder. – The remainder of this act is effective upon ratification.