GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

S	1 

SENATE BILL 36

Short Title: Uniform Tax on Piped Natural Gas.  	(Public)

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Sponsors: Senators Kerr, Cochrane, Cooper, Shaw of Cumberland, Soles; Foxx and Hoyle.

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Referred to:  Finance.

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February 3, 1997

A BILL TO BE ENTITLED
AN ACT TO ESTABLISH A UNIFORM TAX ON PIPED NATURAL GAS BY CONVERTING THE SALES TAX AND GROSS RECEIPTS TAX ON PIPED NATURAL GAS INTO A TAX BASED ON VOLUME OF THERMS.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-116 reads as rewritten:
"§ 105-116.  Franchise or privilege tax on electric power, water, and sewerage companies.
(a)	Tax. – An annual franchise or privilege tax is imposed on a person, firm, or corporation, other than a municipal corporation, that is:
(1)	An electric power company engaged in the business of furnishing electricity, electric lights, current, or power.
	(3)	A water company engaged in owning or operating a water system subject to regulation by the North Carolina Utilities Commission.
(4)	A public sewerage company engaged in owning or operating a public sewerage system.
The tax on an electric power company is three and twenty-two hundredths percent (3.22%) of the company's taxable gross receipts from the business of furnishing electricity, electric lights, current, or power. The tax on a water company is four percent (4%) of the company's taxable gross receipts from owning or operating a water system subject to regulation by the North Carolina Utilities Commission. The tax on a public sewerage company is six percent (6%) of the company's taxable gross receipts from owning or operating a public sewerage company. A company's taxable gross receipts are its gross receipts from business inside the State less the amount of gross receipts from sales reported under subdivision (b)(2). A company that engages in more than one business taxed under this section shall pay tax on each business. A company is allowed a credit against the tax imposed by this section for the company's investments in certain entities in accordance with Division V of Article 4 of this Chapter.
(b)	Report and Payment. – The tax imposed by this section is payable monthly or quarterly as specified in this subsection. A report is due quarterly. An electric power company shall pay tax monthly. A monthly tax payment is due by the last day of the month that follows the month in which the tax accrues, except the payment for tax that accrues in May. The payment for tax that accrues in May is due by June 25. An electric power company is not subject to interest on or penalties for an underpayment of a monthly amount due if the company timely pays at least ninety-five percent (95%) of the amount due and includes the underpayment with the next report the company files. A water company or a public sewerage company shall pay tax quarterly when filing a report.
A quarterly report covers a calendar quarter and is due by the last day of the month that follows the quarter covered by the report. A company shall submit a report on a form provided by the Secretary. The report shall include the company's gross receipts from all property it owned or operated during the reporting period in connection with its business taxed under this section and shall contain the following information:
(1)	The company's gross receipts for the reporting period from business inside and outside this State, stated separately.
(2)	The company's gross receipts from commodities or services described in subsection (a) that are sold to a vendee subject to the tax levied by this section or to a joint agency established under Chapter 159B of the General Statutes or a municipality having an ownership share in a project established under that Chapter.
(3)	The amount of and price paid by the company for commodities or services described in subsection (a) that are purchased from others engaged in business in this State and the name of each vendor.
(4)	For an electric power company, the company's gross receipts from the sale  within each municipality of the commodities and services described in subsection (a).
A company shall report its gross receipts on an accrual basis.
			(d)	Distribution. – For the purpose of this subsection, the term 'distribution amount' means three and nine hundredths percent (3.09%) of the taxable gross receipts derived during a period by an electric power company from sales within a municipality of the commodities and services described in subsection (a) of this section.  The Secretary shall distribute to each municipality the distribution amount for that municipality for the preceding calendar quarter less the 'holdback amount' for the municipality.  The 'holdback amount' for a municipality equals one-fourth of the excess of the electric power distribution amount for that municipality for the period April 1, 1994, to March 31, 1995, over the electric power distribution amount for that municipality for the period April 1, 1990, to March 31, 1991, as certified by the Secretary.  The Secretary shall distribute the revenue within 75 days after the end of each quarter.  If a company's report does not state the company's taxable gross receipts derived within a municipality, the Secretary shall determine a practical method of allocating part of the company's taxable gross receipts to the municipality.
As used in this subsection, the term 'municipality' includes an urban service district defined by the governing board of a consolidated city-county.  The amount due an urban service district shall be distributed to the governing board of the consolidated city-county.
(e)	Local Tax. – So long as there is a distribution to municipalities of the amount herein provided from the tax imposed by this section, no municipality shall impose or collect any greater franchise, privilege or license taxes, in the aggregate, on the businesses taxed under this section, than was imposed and collected on or before January 1, 1947.  If any municipality shall have collected any privilege, license or franchise tax between January 1, 1947, and April 1, 1949, in excess of the tax collected by it prior to January 1, 1947, then upon distribution of the taxes imposed by this section to municipalities, the amount distributable to any municipality shall be credited with such excess payment."
Section 2.  G.S. 105-164.3(25) reads as rewritten:
"(25)	'Utility' means an electric power company or a telephone company that is subject to a privilege tax based on gross receipts under G.S. 105-116 or 105-120, a business entity that provides local, toll, or private telecommunications service as defined by G.S. 105-120(e), or a municipality that sells electric power, other than a municipality whose only wholesale supplier of electric power is a federal agency and who is required by a contract with that federal agency to make payments in lieu of taxes."
Section 3.  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 four percent (4%).
(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.  The maximum tax is three hundred dollars ($300.00) per article.  Each section of a manufactured home that is transported separately to the site where it is to be erected is a separate article.
(1b)	The rate of three percent (3%) applies to the sales price of each aircraft, boat, railway car, or locomotive sold at retail, including all accessories attached to the item when it is delivered to the purchaser.  The maximum tax is one thousand five hundred dollars ($1,500) per article.
(1c)	The rate of one percent (1%) applies to the sales price of the following articles:
a.	Horses or mules by whomsoever sold.
b.	Semen to be used in the artificial insemination of animals.
c.	Sales of fuel, other than electricity, to farmers to be used by them for any farm purposes other than preparing food, heating dwellings, and other household purposes. The quantity of fuel purchased or used at any one time shall not in any manner be a determinative factor as to whether any sale or use of fuel is or is not subject to the one percent (1%) rate of tax imposed by this subdivision.
d.	Sales of fuel, other than electricity, to manufacturing industries and manufacturing plants for use in connection with the operation of such industries and plants other than sales of fuels to be used for residential heating purposes.  The quantity of fuel purchased or used at any one time shall not in any manner be a determinative factor as to whether any sale or use of fuel is or is not subject to the rate of tax provided in this subdivision.
e.	Sales of fuel, other than electricity, to commercial laundries or to pressing and dry-cleaning establishments for use in machinery used in the direct performance of the laundering or the pressing and cleaning service.
f.	Sales to freezer locker plants of wrapping paper, cartons and supplies consumed directly in the operation of such plant.
(1d)	The rate of one percent (1%) applies to the sales price of the following articles. The maximum tax is eighty dollars ($80.00) per article.
a.	Sales to a farmer of machines and machinery, and parts and accessories for these machines and machinery, for use by the farmer in the planting, cultivating, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals. A 'farmer' includes a dairy operator, a poultry farmer, an egg producer, a livestock farmer, a farmer of crops, and a farmer of an aquatic species, as defined in G.S. 106-758. Items that are exempt from tax under G.S. 105-164.13(4c) are not subject to tax under this section.
		The term 'machines and machinery' as used in this subdivision is defined as follows:
		The term shall include all vehicular implements, designed and sold for any use defined in this subdivision, which are operated, drawn or propelled by motor or animal power, but shall not include vehicular implements which are operated wholly by hand, and shall not include any motor vehicles required to be registered under Chapter 20 of the General Statutes.
		The term shall include all nonvehicular implements and mechanical devices designed and sold for any use defined in this subdivision, which have moving parts, or which require the use of any motor or animal power, fuel, or electricity in their operation but shall not include nonvehicular implements which have no moving parts and are operated wholly by hand.
		The term shall also include metal flues sold for use in curing tobacco, whether such flues are attached to handfired furnaces or used in connection with mechanical burners.
b.	Sales of mill machinery or mill machinery parts and accessories to manufacturing industries and plants, and sales to contractors and subcontractors purchasing mill machinery or mill machinery parts and accessories for use by them in the performance of contracts with manufacturing industries and plants, and sales to subcontractors purchasing mill machinery or mill machinery parts and accessories for use by them in the performance of contracts with general contractors who have contracts with manufacturing industries and plants. As used in this paragraph, the term 'manufacturing industries and plants' does not include delicatessens, cafes, cafeterias, restaurants, and other similar retailers that are principally engaged in the retail sale of foods prepared by them for consumption on or off their premises.
c.	Sales of central office equipment and switchboard and private branch exchange equipment to telephone companies regularly engaged in providing telephone service to subscribers on a commercial basis, and sales to these companies of prewritten computer programs used in providing telephone service to their subscribers.
d.	Sales to commercial laundries or to pressing and dry cleaning establishments of machinery used in the direct performance of the laundering or the pressing and cleaning service and of parts and accessories thereto.
e.	Sales to freezer locker plants of machinery used in the direct operation of said freezer locker plant and of parts and accessories thereto.
f.	Sales of broadcasting equipment and parts and accessories thereto and towers to commercial radio and television companies which are under the regulation and supervision of the Federal Communications Commission.
g.	Sales to farmers of bulk tobacco barns and racks and all parts and accessories thereto and similar apparatus used for the curing and drying of any farm produce.
h.	Sales to farmers of grain, feed or soybean storage facilities and accessories thereto, whether or not dryers are attached, and all similar apparatus and accessories thereto for the storage of grain, feed or soybeans.
i.	Sales of containers to farmers or producers for use in the planting, producing, harvesting, curing, marketing, packaging, sale, or transporting or delivery of their products when such containers do not go with and become part of the sale of their products at wholesale or retail.
(1e)	The rate of three percent (3%) applies to the sales price of each mobile classroom or mobile office sold at retail, including all accessories attached to the mobile classroom or mobile office when it is delivered to the purchaser. The maximum tax is one thousand five hundred dollars ($1,500) per article. Each section of a mobile classroom or mobile office that is transported separately to the site where it is to be placed is a separate article.
(1f)	The rate of two and eighty-three-hundredths percent (2.83%) applies to the sales price of electricity described in this subdivision and measured by a separate meter or another separate device:
a.	Sales of electricity to farmers to be used by them for any farm purposes other than preparing food, heating dwellings, and other household purposes. The quantity of electricity or gas purchased or used at any one time shall not be a determinative factor as to whether its sale or use is or is not subject to the rate of tax provided in this subdivision.
b.	Sales of electricity to manufacturing industries and manufacturing plants for use in connection with the operation of the industries and plants other than sales of electricity to be used for residential heating purposes. The quantity of electricity purchased or used at any one time shall not be a determinative factor as to whether its sale or use is or is not subject to the rate of tax provided in this subdivision.
c.	Sales of electricity to commercial laundries or to pressing and dry-cleaning establishments for use in machinery used in the direct performance of the laundering or the pressing and cleaning service.
(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 these retailers 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 engaged in the business of operating a dry cleaning, pressing, or hat-blocking establishment, a laundry, or any similar business, 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 linen rental business for any of these businesses, is considered a retailer under 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. The tax imposed by this subdivision does not apply to receipts derived from coin or token-operated washing machines, extractors, and dryers.  The tax imposed by this subdivision does not apply to gross receipts derived from services performed for resale by a retailer that pays the tax on the total gross receipts derived from the services.
(4a)	The rate of three percent (3%) applies to the gross receipts derived by a utility from sales of electricity or local telecommunications service as defined by G.S. 105-120(e), other than sales of electricity subject to tax under another subdivision in this section. 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 the person's 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)	(Effective July 1, 1997) The rate of three percent (3%) applies to the sales price of food that is not otherwise exempt pursuant to G.S. 105-164.13 but would be exempt pursuant to G.S. 105-164.13 if it were purchased with coupons issued under the Food Stamp Program, 7 U.S.C. § 51."
Section 4.  G.S. 105-164.13 is amended by adding a new subdivision to read:
"(43)	Piped natural gas.  This item is exempt because it is taxed under Article 5D of this Chapter."
Section 5.  G.S. 105-164.20 reads as rewritten:
"§ 105-164.20. Cash or accrual basis of reporting.
Any retailer, except a utility, may report sales on either the cash or accrual basis of accounting upon making application to the Secretary for permission to use the basis selected.  Permission granted by the Secretary to report on a selected basis continues in effect until revoked by the Secretary or the taxpayer receives permission from the Secretary to change the basis selected.  A utility must report its sales on an accrual basis. A sale by a utility of electricity or intrastate telephone service is considered to accrue when the utility bills its customer for the sale."
Section 6.  Chapter 105 of the General Statutes is amended by adding a new Article to read:
"ARTICLE 5D.
"Piped Natural Gas Tax.
"§ 105-187.30.  Definitions.
The definitions in G.S. 105-228.90 and the following definitions apply in this Article:
(1)	Local distribution company. – A natural gas company to whom the North Carolina Utilities Commission has issued a franchise under Chapter 62 of the General Statutes to serve an area of this State.
(2)	Sales customer. – An end-user whose piped natural gas is delivered by the seller of the gas.
(3)	Transportation customer. – An end-user whose piped natural gas is delivered by a person who is not the seller of the gas.
"§ 105-187.32.  Tax imposed on piped natural gas.
(a)	Scope. – An excise tax is imposed on piped natural gas consumed in this State.  This tax is imposed in lieu of a sales and use tax and a percentage gross receipts tax on piped natural gas.
(b)	Rate. – The tax rate is set in the table below and is based on monthly therm volumes of piped natural gas received by the consumer of the gas:
Volume of Therms Received	    Rate per Therm
During the Month
First 200	$.047
201 to 15,000	 .027
Over 15,000	 .022
"§ 105-187.34.  Liability for the tax.
The excise tax imposed by this section on piped natural gas is payable as follows:
(1)	For piped natural gas delivered by a local distribution company to a sales customer or a transportation customer, the tax is payable by the local distribution company.
(2)	For piped natural gas delivered to a sales customer by a city, the tax is payable by the city.
(3)	For piped natural gas received by a person directly from an interstate pipeline for consumption by that person, the tax is payable by that person.
"§ 105-187.36.  Payment of the tax.
(a)	Monthly Return. – The tax imposed by this Article is payable monthly to the Secretary.  A monthly tax payment is due by the last day of the month that follows the month in which the tax accrues.  The tax payable on piped natural gas delivered to a customer by a local distribution company or a city accrues when the gas is delivered.  The tax payable on piped natural gas to be consumed by a person who received the gas directly from an interstate pipeline accrues when the person receives the gas.
(b)	Small Underpayments. – A person is not subject to interest on or penalties for an underpayment of a monthly amount due if the person timely pays at least ninety-five percent (95%) of the amount due and includes the underpayment with the next return the person files.
"§ 105-187.38.  Distribution of part of tax proceeds to cities.
(a)	City Information. – A return filed under this Article must indicate the amount of tax attributable to the following:
(1)	Piped natural gas delivered during that month to sales or transportation customers in each city in the State.
(2)	Piped natural gas consumed during the month in each city in the State by the pipeline recipient of the gas.
If a tax return does not state this information, the Secretary must determine how much of the tax proceeds are to be attributed to each city.
(b)	Distribution. – Within 75 days after the end of each calendar quarter, the Secretary must distribute to the cities part of the tax proceeds collected under this Article during that quarter.  The amount to be distributed to a city is one-half of the amount of tax attributable to that city for that quarter under subsection (a) of this section, less the 'holdback amount' for that city.  The 'holdback amount' for a city is one-fourth of the amount certified by the Secretary as the increase in the amount of piped natural gas tax proceeds distributed to the city during the 12-month period beginning April 1, 1994, compared to the amount distributed during the 12-month period beginning April 1, 1990.
"§ 105-187.40. Information exchange and information returns.
(a)	Utilities Information. – The North Carolina Utilities Commission or the Public Staff of that Commission must give the Secretary a list of the entities that receive piped natural gas from an interstate pipeline and any other information available to the Commission that the Secretary asks for in administering the tax imposed by this Article.
(b)	Information Return. – The Secretary may require the operator of an interstate pipeline to report the amount of piped natural gas taken from the pipeline in this State, the persons that received the gas, and the volume received by each person.
"§ 105-187.42.  Records and audits.
(a)	Records. – A person who is required to file a return under this Article must keep a record of all documents used to determine information provided in the return.  The records must be kept for three years after the due date of the return to which the records apply.
(b)	Audits. – The Secretary may audit a person who is required to file a return under this Article."
Section 7.  G.S. 105-259(b) is amended by adding a new subdivision to read:
"(20)	To exchange information concerning the tax on piped natural gas imposed by Article 5D of this Chapter with the North Carolina Utilities Commission or the Public Staff of that Commission."
Section 8.  G.S. 160A-211 is amended by adding a new subsection to read:
"( c)	Piped Gas Restriction. – A city may not levy a privilege license tax on a person who is engaged in the business of supplying piped natural gas and is subject to tax under Article 5D of Chapter 105 of the General Statutes."
Section 9.  This act becomes effective January 1, 1998.