A BILL TO BE ENTITLED
AN ACT TO CORRECT PROBLEMS THAT PREVENT THE RESEARCH AND DEVELOPMENT TAX CREDIT FROM APPLYING CONSISTENTLY TO TAXPAYERS INCREASING THEIR RESEARCH AND DEVELOPMENT IN THIS STATE.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 105‑129.10 reads as rewritten:
"§ 105‑129.10.  (See Editor's note for repeal) Credit for research and development.
(a)	General Credit. – A taxpayer is allowed a credit equal to the sum of the following:
(1)	Five percent (5%) of the excess, if any, of the taxpayer's qualified North Carolina research expenses for the taxable year over the North Carolina base amount.
(2)	Five percent (5%) of the taxpayer's North Carolina excess basic research payments.

(b)	Alternative Credit. – A taxpayer may elect as an alternative to the credit allowed in subsection (a) of this section a credit equal to the sum of the following:
(1)	Sixty‑six one‑hundredths percent (0.66%) of the amount of the qualified North Carolina research expenses for the taxable year that exceeds one percent (1%) of the North Carolina average gross receipts but does not exceed one and one‑half percent (1 1/2%) of the North Carolina average gross receipts.
(2)	Eight‑tenths percent (0.8%) of the amount of the qualified North Carolina research expenses for the taxable year that exceeds one and one‑half percent (1 1/2%) of the North Carolina average gross receipts but does not exceed two percent (2%) of the North Carolina average gross receipts.
(3)	Ninety‑four one‑hundredths percent (0.94%) of the amount of the qualified North Carolina research expenses for the taxable year that exceeds two percent (2%) of the North Carolina average gross receipts.
(c)	Definitions. –The definitions in section 41 of the Code apply in this section. In addition, the following definitions apply in this section:
(1)	North Carolina average gross receipts. – The average annual North Carolina gross receipts of the taxpayer for the four taxable years preceding the taxable year for which the credit is being determined.
(2)	North Carolina base amount. – A hypothetical base amount computed under section 41(c) of the Code using North Carolina gross receipts in place of gross receipts and qualified North Carolina research expenses in place of qualified research expenses.
(3)	North Carolina excess basic research payments. – The excess of the taxpayer's basic research payments for basic research performed in this State over the qualified organization North Carolina base period amount.
(4)	North Carolina gross receipts. – The taxpayer's gross receipts as determined under section 41 of the Code allocated and apportioned to this State pursuant to G.S. 105‑130.4.
(5)	Qualified North Carolina research expenses. – Qualified research expenses for research performed in this State.
(6)	Qualified organization North Carolina base period amount. – A hypothetical qualified organization base period amount calculated under section 41(e)(3) of the Code taking into account only research performed in this State.

(d)	Administration. – To the extent practicable consistent with the definitions provided in this section, this section shall be administered and interpreted in accordance with section 41 of the Code. Unless in direct conflict with the provisions of this Article, the provisions of section 41 of the Code apply to this section except that only North Carolina research is taken into account consistent with the definitions in this section. An election to take the alternative credit instead of the general credit applies to all subsequent taxable years unless revoked with the consent of the Secretary."
SECTION 2.  G.S. 105‑129.4(a) reads as rewritten:
"(a)	Type of Business. – This subsection does not apply to the credit for research and development in G.S. 105‑129.10 or the credit for development zone projects in 
G.S. 105‑129.12. The following conditions apply in determining a taxpayer's eligibility for the remaining credits in this Article:
(1)	Central office or aircraft facility. – A taxpayer is eligible for the credits allowed by this Article if it operates a central office or aircraft facility that creates at least 40 new jobs and the jobs, investment, and activity with respect to which a credit is claimed are used in that office or facility.
(2)	Single business. – A taxpayer is eligible for the credits allowed by this Article if the primary business of the taxpayer is one of the following types of businesses and the jobs, investment, and activity with respect to which a credit is claimed are used in that business:
a.	Air courier services.
b.	Data processing.
(3)	Multiple business. – A taxpayer is eligible for the credits allowed by this Article if the primary business of the taxpayer is one of the following types of businesses and the jobs, investment, and activity with respect to which a credit is claimed are used in any of the following types of businesses:
a.	Manufacturing.
b.	Warehousing.
c.	Wholesale trade.
(4)	Single establishment. – A taxpayer is eligible for the credits allowed by this Article if the primary business of the taxpayer or the primary activity of an establishment of the taxpayer is one of the following types of businesses and the jobs, investment, and activity with respect to which a credit is claimed are used in that business:
a.	Computer services.
b.	An electronic mail order house that creates at least 250 new jobs and is located in an enterprise tier one, two, or three area.
(5)	Customer service center. – A taxpayer is eligible for the credits allowed by this Article if all of the following conditions are met:
a.	The taxpayer's primary business is as a telecommunications or financial services company, as defined by NAICS.
b.	The primary activity of an establishment of the taxpayer is a customer service center located in an enterprise tier one, two, or three area.
c.	The jobs, investment, and activity with respect to which a credit is claimed are used in that activity.
(6)	Warehousing. – A taxpayer is eligible for the credits allowed by this Article if all of the following conditions are met:
a.	The primary activity of an establishment of the taxpayer is in warehousing.
b.	The warehousing establishment is located in an enterprise tier one, two, or three area and serves 25 or more establishments of the taxpayer in at least five different counties in one or more states.
c.	The jobs, investment, and activity with respect to which a credit is claimed are used in the warehousing establishment."
SECTION 3.  This act becomes effective for taxable years beginning on or after January 1, 2004.