GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	1 

HOUSE BILL 982

Short Title:  Tax Vehicle Only Upon Sale.	(Public)

─────────────────────────────────────── 
Sponsors: Representatives Hardy; Hall, Davis, Gulley, Morris, Starnes, and Hill.

─────────────────────────────────────── 
Referred to:  Transportation, if favorable, Finance.

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

April 17, 1997

A BILL TO BE ENTITLED
AN ACT TO PROVIDE THAT THE HIGHWAY USE TAX ON MOTOR VEHICLES APPLIES ONLY WHEN THE CERTIFICATE OF TITLE IS ISSUED BECAUSE OF A SALE OF THE MOTOR VEHICLE.
The General Assembly of North Carolina enacts:
Section 1.  Article 5A of Chapter 105 of the General Statutes reads as rewritten:
"ARTICLE 5A.
"North Carolina Highway Use Tax.
"§ 105-187.1.  Definitions.
The following definitions and the definitions in G.S. 105-164.3 apply to this Article:
(1)	Commissioner. – The Commissioner of Motor Vehicles.
(2)	Division. – The Division of Motor Vehicles, Department of Transportation.
(3)	Long-term lease or rental. – A lease or rental made under a written agreement to lease or rent property to the same person for a period of at least 365 continuous days.
(4)	Short-term  lease or rental. – A lease or rental that is not a long-term lease or rental.
"§ 105-187.2.  Highway use tax imposed.
A tax is imposed on the privilege of using the highways of this State.  This tax is in addition to all other taxes and fees imposed.  The tax applies to the issuance of a certificate of title because of the sale of a motor vehicle.
"§ 105-187.3.   Rate of tax.
(a)	Amount. – The rate of the use tax imposed by this Article is three percent (3%) of the retail value of a motor vehicle for which a certificate of title is issued because of a sale.  The tax is payable as provided in G.S. 105-187.4. The tax may not be more than one thousand dollars ($1,000) for each certificate of title issued for a Class A or Class B motor vehicle that is a commercial motor vehicle, as defined in G.S. 20-4.01. The tax may not be more than one thousand five hundred dollars ($1,500) for each certificate of title issued for any other motor vehicle.
(b)	Retail Value. – The retail value of a motor vehicle for which a certificate of title is issued because of a sale of the motor vehicle by a retailer is the sales price of the motor vehicle, including all accessories attached to the vehicle when it is delivered to the purchaser, less the amount of any allowance given by the retailer for a motor vehicle taken in trade as a full or partial payment for the purchased motor vehicle. The retail value of a motor vehicle for which a certificate of title is issued because of a sale of the motor vehicle by a seller who is not a retailer is the market value of the vehicle, less the amount of any allowance given by the seller for a motor vehicle taken in trade as a full or partial payment for the purchased motor vehicle. A transaction in which two parties exchange motor vehicles is considered a sale regardless of whether either party gives additional consideration as part of the transaction. 
	"§ 105-187.4.  Payment of tax.
(a)	Method.  The tax imposed by this Article must be paid to the Commissioner when applying for a certificate of title for a motor vehicle.  The Commissioner may not issue a certificate of title for a vehicle that has been sold until the tax imposed by this Article has been paid.  The tax may be paid in cash or by check.
(b)	Sale by Retailer.  When a certificate of title for a motor vehicle is issued because of a sale of the motor vehicle by a retailer, the applicant for the certificate of title must attach a copy of the bill of sale for the motor vehicle to the application.  A retailer who sells a motor vehicle may collect from the purchaser of the vehicle the tax payable upon the issuance of a certificate of title for the vehicle, apply for a certificate of title on behalf of the purchaser, and remit the tax due on behalf of the purchaser. If a check submitted by a retailer in payment of taxes collected under this section is not honored by the financial institution upon which it is drawn because the retailer's account did not have sufficient funds to pay the check or the retailer did not have an account at the institution, the Division may suspend or revoke the license issued to the retailer under Article 12 of Chapter 20 of the General Statutes. 
"§ 105-187.5.  Alternate tax for those who rent or lease motor vehicles.
(a)	Election. – A retailer who is engaged in the business of leasing or renting motor vehicles may elect not to pay the tax imposed by this Article at the rate set in G.S. 105-187.3 when applying for a certificate of title for a motor vehicle purchased by the retailer for lease or rental. A retailer who makes this election shall pay a tax on the gross receipts of the lease or rental of the vehicle. Like the tax imposed by G.S. 105-187.3, this alternate tax is a tax on the privilege of using the highways of this State. The tax is imposed on a retailer, but is to be added to the lease or rental price of a motor vehicle and thereby be paid by the person who leases or rents the vehicle.
(b)	Rate. – The tax rate on the gross receipts from the short-term lease or rental of a motor vehicle is eight percent (8%) and the tax rate on the gross receipts from the long-term lease or rental of a motor vehicle is three percent (3%). Gross receipts does not include the amount of any allowance given for a motor vehicle taken in trade as a partial payment on the lease or rental price. The maximum tax in G.S. 105-187.3(a) applies to a continuous lease or rental of a motor vehicle to the same person.
(c)	Method. – A retailer who elects to pay tax on the gross receipts of the lease or rental of a motor vehicle shall make this election when applying for a certificate of title for the vehicle. To make the election, the retailer shall complete a form provided by the Division giving information needed to collect the alternate tax based on gross receipts. Once made, an election is irrevocable.
(d)	Administration. – The Division shall notify the Secretary of Revenue of a retailer who makes the election under this section. A retailer who makes this election shall report and remit to the Secretary the tax on the gross receipts of the lease or rental of the motor vehicle. The Secretary shall administer the tax imposed by this section on gross receipts in the same manner as the tax levied under G.S. 105-164.4(a)(2). The administrative provisions and powers of the Secretary that apply to the tax levied under G.S. 105-164.4(a)(2) apply to the tax imposed by this section. In addition, the Division may request the Secretary to audit a retailer who elects to pay tax on gross receipts under this section. When the Secretary conducts an audit at the request of the Division, the Division shall reimburse the Secretary for the cost of the audit, as determined by the Secretary. In conducting an audit of a retailer under this section, the Secretary may audit any sales of motor vehicles made by the retailer. 
"§ 105-187.6.  Exemptions from highway use tax.
(a)	Full Exemptions. – The tax imposed by this Article does not apply when a certificate of title is issued as the result of a transfer of a motor vehicle:
(1)	To the insurer of the motor vehicle under G.S. 20-109.1 because the vehicle is a salvage vehicle.
(2)	To either a manufacturer, as defined in G.S. 20-286, or a motor vehicle retailer for the purpose of resale.
(3)	That is not a sale. 
			(7)	To a handicapped person from the Department of Human Resources after the vehicle has been equipped by the Department for use by the handicapped.
(8)	To a local board of education for use in the driver education program of a public school when the motor vehicle is transferred:
a.	By a retailer and is to be transferred back to the retailer within 300 days after the transfer to the local board.
b.	By a local board of education.
(b)	Partial Exemptions. – A maximum tax of forty dollars ($40.00) applies when a certificate of title is issued as the result of a transfer of a motor vehicle:
(1)	To a secured party who has a perfected security interest in the motor vehicle. 
(2)	To a partnership or corporation as an incident to the formation of the partnership or corporation and no gain or loss arises on the transfer under section 351 or section 721 of the Internal Revenue Code, or to a corporation by merger or consolidation in accordance with G.S. 55-11-06. 
			"§ 105-187.8.  Refund for return of purchased motor vehicle.
When a purchaser of a motor vehicle returns the motor vehicle to the seller of the motor vehicle within 90 days after the purchase and receives a vehicle replacement for the returned vehicle or a refund of the price paid the seller, whether from the seller or the manufacturer of the vehicle, the purchaser may obtain a refund of the privilege tax paid on the certificate of title issued for the returned motor vehicle.
To obtain a refund, the purchaser must apply to the Division for a refund within 30 days after receiving the replacement vehicle or refund of the purchase price. The application must be made on a form prescribed by the Commission and must be supported by documentation from the seller of the returned vehicle.
"§ 105-187.9.  Disposition of tax proceeds.
Taxes collected under this Article at the rate of eight percent (8%) shall be credited to the General Fund.  Taxes collected under this Article at the rate of three percent (3%) shall be credited to the North Carolina Highway Trust Fund.  In each fiscal year the State Treasurer shall transfer the sum of one hundred seventy million dollars ($170,000,000) of the taxes deposited in the Trust Fund to the General Fund.  The transfer of funds authorized by this section may be made by transferring one-fourth of the amount at the end of each quarter in the fiscal year or by transferring the full amount annually on July 1 of each fiscal year, subject to the availability of revenue.
"§ 105-187.10.  Penalties and remedies.
(a)	Penalties.  The penalty for bad checks in G.S. 105-236(1) applies to a check offered in payment of the tax imposed by this Article.  In addition, if a check offered to the Division in payment of the tax imposed by this Article is returned unpaid and the tax for which the check was offered, plus the penalty imposed under G.S. 105-236(1), is not paid within 30 days after the Commissioner demands its payment, the Commissioner may revoke the registration plate of the vehicle for which a certificate of title was issued when the check was offered.
(b)	Unpaid Taxes.  The remedies for collection of taxes in G.S. 20-99 apply to the taxes levied by this Article and collected by the Commissioner.
	"§ 105-187.11.  Transition from sales tax to highway use tax for lessors and renters of motor vehicles. 
A tax at the rate set in G.S. 105-187.5(b)	is levied on the gross receipts derived by a retailer from the lease or rental of a motor vehicle owned by the retailer before October 1, 1989, and leased or rented on or after that date.  A retailer subject to this tax may elect to pay highway use tax at the rate set in G.S. 105-187.3(a) on a motor vehicle owned by the retailer before October 1, 1989, and leased or rented on or after that date.  The retail value of a motor vehicle for which a retailer makes an election under this section is the value of the motor vehicle that would apply under G.S. 105-187.3(b) if the retailer received the vehicle because of a reason other than the sale of the motor vehicle on the date the retailer makes the election.
To make the election allowed by this section, a retailer shall complete a form provided by the Division, pay the tax due, and pay the fee set in G.S. 20-85(a)(9).  A retailer who makes this election may not receive credit for any tax paid on the motor vehicle under Article 5 of this Chapter or for any tax on gross receipts paid under this Article.  The Division shall notify the Secretary of Revenue of a retailer who makes an election under this section.  Notwithstanding G.S. 105-187.9, the taxes collected under this section shall be credited to the General Fund.”
Section 2.  This act becomes effective January 1, 1998, and applies to certificates of title issued on or after that date.