A BILL TO BE ENTITLED
AN ACT to require the revenue laws study committee to study special provisions in the north carolina tax code.
The General Assembly of North Carolina enacts:
SECTION 1.  The Revenue Laws Study Committee may study issues relating to the effects on State revenues of government‑enacted tax incentives, exemptions, credits, refunds, and exclusion, including a repeal or modification of any of the following tax provisions:
(1)	Tax incentive provisions:
a.	Article 3A. Tax Incentives For New And Expanding Businesses.
b.	Article 3B. Business And Energy Tax Credits.
c.	Article 3C. Tax Incentives For Recycling Facilities.
d.	Article 3D. Historic Rehabilitation Tax Credits.
e.	Article 3E. Low‑Income Housing Tax Credits.
f.	Article 3F. Research and Development.
g.	Article 3G. Tax Incentives for Major Manufacturing Facilities.
h.	Article 3H. Mill Rehabilitation Tax Credit.
i.	Article 3J. Tax Credits for Growing Businesses.
j.	Article 3K. Tax Incentives for Railroad Intermodal Facilities.
k.	Article 5F. Manufacturing Fuel and Certain Machinery and Equipment.
(2)	Corporate income tax liability provisions:
a.	G.S. 105‑130.8. Net economic loss.
b.	G.S. 105‑130.9. Contributions.
c.	G.S. 105‑130.22. Tax credit for construction of dwelling units for handicapped persons.
d.	G.S. 105‑130.25. Credit against corporate income tax for construction of cogenerating power plants.
e.	G.S. 105‑130.34. Credit for certain real property donations.
f.	G.S. 105‑130.36. Credit for conservation tillage equipment.
g.	G.S. 105‑130.37. Credit for gleaned crop.
h.	G.S. 105‑130.39. Credit for certain telephone subscriber line charges.
i.	G.S. 105‑130.41. Credit for North Carolina State Ports Authority wharfage, handling, and throughput charges.
j.	G.S. 105‑130.43. Credit for savings and loan supervisory fees.
k.	G.S. 105‑130.44. Credit for construction of poultry composting facility.
l.	G.S. 105‑130.45. Credit for manufacturing cigarettes for exportation.
m.	G.S. 105‑130.46. Credit for manufacturing cigarettes for exportation while increasing employment and utilizing State Ports.
n.	G.S. 105‑130.47. Credit for qualifying expenses of a production company.
o.	G.S. 105‑130.48. Credit for recycling oyster shells.
(3)	Rewriting G.S. 105‑130.5, adjustments to federal taxable income in determining State net income for corporate income tax purposes, as provided in section 2 of this act.
(4)	Personal income tax liability provisions:
a.	G.S. 105‑151.1. Credit for construction of dwelling units for handicapped persons.
b.	G.S. 105‑151.11. Credit for child care and certain employment‑related expenses.
c.	G.S. 105‑151.12. Credit for certain real property donations.
d.	G.S. 105‑151.13. Credit for conservation tillage equipment.
e.	G.S. 105‑151.14. Credit for gleaned crop.
f.	G.S. 105‑151.18. Credit for the disabled.
g.	G.S. 105‑151.20. Credit or partial refund for tax paid on certain federal retirement benefits.
h.	G.S. 105‑151.21. Credit for property taxes paid on farm machinery.
i.	G.S. 105‑151.22. Credit for North Carolina State Ports Authority wharfage, handling, and throughput charges.
j.	G.S. 105‑151.24. Credit for children.
k.	G.S. 105‑151.25. Credit for construction of a poultry composting facility.
l.	G.S. 105‑151.26. Credit for charitable contributions by nonitemizers.
m.	G.S. 105‑151.28. Credit for premiums paid on long‑term care insurance.
n.	G.S. 105‑151.29. Credit for qualifying expenses of a production company.
o.	G.S. 105‑151.30. Credit for recycling oyster shells.
p.	G.S. 105‑151.31. Earned income tax credit.
q.	G.S. 105‑151.32. Credit for adoption expenses.
r.	Part 5 of Article 4 of Chapter 105 of the General Statutes.
(5)	Rewriting G.S. 105‑134.6, adjustments to taxable income for individual income tax purposes, as provided in section 3 of this act.
(6)	Sales and use tax liability provisions:
a.	G.S. 105‑164.13A. Service charges on food, beverages, or meals.
b.	G.S. 105‑164.13B. Food exempt from tax.
c.	G.S. 105‑164.13C. Sales and use tax holiday.
d.	G.S. 105‑164.13D. Sales and use tax holiday for Energy Star qualified products.
e.	G.S. 105‑164.14. Certain refunds authorized.
(7)	Rewriting G.S. 105‑164.13, exemptions from retail sales and use taxes, as provided in section 4 of this act.
(8)	Miscellaneous tax liability provisions:
a.	G.S. 105‑40. Amusements – Certain exhibitions, performances, and entertainments exempt from tax.
b.	G.S. 105‑113.21. Discount; refund.
c.	G.S. 105‑113.39. Discount; refund.
d.	G.S. 105‑113.81. Exemptions.
e.	G.S. 105‑113.85. Discount.
f.	G.S. 105‑113.87. Refund for excise tax paid on sacramental wine.
g.	G.S. 105‑122.1. Credit for additional annual report fees paid by limited liability companies subject to franchise tax.
h.	G.S. 105‑125. Exempt corporations.
i.	G.S. 105‑228.5A. Credit against gross premium tax for assessments paid to the Insurance Guaranty Association and the Life and Health Insurance Guaranty Association.
(9)	Any other tax provision reducing tax liability.
SECTION 2.  Pursuant to section 1(3) of this act, the study includes a proposed rewrite of G.S. 105‑130.5 to read:
"§ 105‑130.5.  Adjustments to federal taxable income in determining State net income.
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(b)	The following deductions from federal taxable income shall be made in determining State net income:
(1)	Interest upon the obligations of the United States or its possessions, to the extent included in federal taxable income: Provided, interest upon the obligations of the United States shall not be an allowable deduction unless interest upon obligations of the State of North Carolina or any of its political subdivisions is exempt from income taxes imposed by the United States.
				(3)	Repealed by Session Laws 2003‑349, s. 1.1, effective January 1, 2003.
								(10)	Repealed by Session Laws 1987, c. 778, s. 2.
															(14)	The amount by which the basis of a depreciable asset is required to be reduced under the Code for federal tax purposes because of a tax credit allowed against the corporation's federal income tax liability. This deduction may be claimed only in the year in which the Code requires that the asset's basis be reduced. In computing gain or loss on the asset's disposition, this deduction shall be considered as depreciation.
								(20)	Royalty payments received from a related member who added the payments to income under G.S. 105‑130.7A for the same taxable year.
(21)	In each of the taxpayer's first five taxable years beginning on or after January 1, 2005, an amount equal to twenty percent (20%) of the amount added to taxable income in a previous year as accelerated depreciation under subdivision (a)(15) of this section.
(21a)	(Effective for taxable years beginning on or after January 1, 2008) In each of the taxpayer's first five taxable years beginning on or after January 1, 2009, an amount equal to twenty percent (20%) of the amount added to taxable income in taxable year 2008 as accelerated depreciation under subdivision (a)(15a) of this section.
	(23)	A dividend received from a captive REIT, as defined in G.S. 105‑130.12.
(24)	(Effective for taxable years beginning on or after January 1, 2008, and expiring for taxable years beginning on or after January 1, 2015) Five percent (5%) of the gross purchase price of a qualified sale of a manufactured home community. A qualified sale is a transfer of land comprising a manufactured home community in a single purchase to a group composed of a majority of the manufactured home community leaseholders or to a nonprofit organization that represents such a group. To be eligible for this deduction, a taxpayer must give notice of the sale to the North Carolina Housing Finance Agency under G.S. 42‑14.3.
(c)	The following other adjustments to federal taxable income shall be made in determining State net income:
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	(d)	Repealed by Session Laws 1987, c. 778, s. 3.
(e)	Notwithstanding any other provision of this section, any recapture of depreciation required under the Code must be included in a corporation's State net income to the extent required for federal income tax purposes.
(f)	Expired."
SECTION 3.  Pursuant to section 1(5) of this act, the study includes a proposed rewrite of G.S. 105‑134.5 to read:
"§ 105‑134.6.  Adjustments to taxable income.
(a)	S Corporations. – Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in this section.
(b)	Deductions. – The following deductions from taxable income shall be made in calculating North Carolina taxable income, to the extent each item is included in taxable income:
(1)	Interest upon the obligations of 	the United States or its possessions.
				(4)	Repealed by Session Laws 1989 (Reg. Sess., 1990), c. 1002, s. 2.
(5)	Refunds of state, local, and foreign income taxes included in the taxpayer's gross income.
(5a)	Reserved.
(5b)	The amount received during the taxable year from one or more State, local, or federal government retirement plans to the extent the amount is exempt from tax under this Part pursuant to a court order in settlement of the following cases: Bailey v. State, 92 CVS 10221, 94 CVS 6904, 95 CVS 6625, 95 CVS 8230; Emory v. State, 98 CVS 0738; and Patton v. State, 95 CVS 04346. Amounts deducted under this subdivision may not also be deducted under subdivision (6) of this subsection.
					(7)	Recodified as G.S. 105‑134.6(d)(1).
(8)	Recodified as G.S. 105‑134.6(d)(2).
(9)	Income that is (i) earned or received by an enrolled member of a federally recognized Indian tribe and (ii) derived from activities on a federally recognized Indian reservation while the member resides on the reservation. Income from intangibles having a situs on the reservation and retirement income associated with activities on the reservation are considered income derived from activities on the reservation.
(10)	The amount by which the basis of property under this Article exceeds the basis of the property under the Code, in the year the taxpayer disposes of the property.
	
(12)	Repealed by Session Laws 1998‑171, s. 2, effective October 1, 1998.
(13)	Repealed by Session Laws 2002‑126, s. 30C.4, effective for taxable years beginning on or after January 1, 2002.
						(17)	In each of the taxpayer's first five taxable years beginning on or after January 1, 2005, an amount equal to twenty percent (20%) of the amount added to taxable income in a previous year as accelerated depreciation under subdivision (c)(8) of this section.
(17a)	(Effective for taxable years beginning on or after January 1, 2008) In each of the taxpayer's first five taxable years beginning on or after January 1, 2009, an amount equal to twenty percent (20%) of the amount added to taxable income in taxable year 2008 as accelerated depreciation under subdivision (c)(8a) of this section.
	(19)	(Effective for taxable years beginning on or after January 1, 2008 and expires for taxable years beginning on or after January 1, 2015) Five percent (5%) of the gross purchase price of a qualified sale of a manufactured home community. A qualified sale is a transfer of land comprising a manufactured home community in a single purchase to a group composed of a majority of the manufactured home community leaseholders or to a nonprofit organization that represents such a group. To be eligible for this deduction, a taxpayer must give notice of the sale to the North Carolina Housing Finance Agency under G.S. 42‑14.3.
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(d)	Other Adjustments. – The following adjustments to taxable income shall be made in calculating North Carolina taxable income:
(1)	The amount of inheritance or estate tax attributable to an item of income in respect of a decedent required to be included in gross income under the Code, adjusted as provided in G.S. 105‑134.5, 105‑134.6, and 105‑134.7, may be deducted in the year the item of income is included. The amount of inheritance or estate tax attributable to an item of income in respect of a decedent is (i) the amount by which the inheritance or estate tax paid under Article 1 or 1A of this Chapter on property transferred to a beneficiary by a decedent exceeds the amount of the tax that would have been payable by the beneficiary if the item of income in respect of a decedent had not been included in the property transferred to the beneficiary by the decedent, (ii) multiplied by a fraction, the numerator of which is the amount required to be included in gross income for the taxable year under the Code, adjusted as provided in G.S. 105‑134.5, 105‑134.6, and 105‑134.7, and the denominator of which is the total amount of income in respect of a decedent transferred to the beneficiary by the decedent. For an estate or trust, the deduction allowed by this subdivision shall be computed by excluding from the gross income of the estate or trust the portion, if any, of the items of income in respect of a decedent that are properly paid, credited, or to be distributed to the beneficiaries during the taxable year.
The Secretary may provide to a beneficiary of an item of income in respect of a decedent any information contained on an inheritance or estate tax return that the beneficiary needs to compute the deduction allowed by this subdivision.
	(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 Part but, due to differences between the Code and this Part, 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 Part, did not reduce the amount of the taxpayer's tax imposed by this Part.
											"
SECTION 4.  Pursuant to section 1(7) of this act, the study includes a proposed rewrite of G.S. 105‑164.13 to read:
"§ 105‑164.13.  Retail sales and use tax.
The sale at retail and the use, storage, or consumption in this State of the following tangible personal property and services are specifically exempted from the tax imposed by this Article:
																																			Industrial Group.
(5)	Manufactured products produced and sold by manufacturers or producers to other manufacturers, producers, or registered retailers or wholesale merchants, for the purpose of resale except as modified by G.S. 105‑164.3(51). This exemption does not extend to or include retail sales to users or consumers not for resale.
						(8)	Sales to a manufacturer of tangible personal property that enters into or becomes an ingredient or component part of tangible personal property that is manufactured. This exemption does not apply to sales of electricity.
					(10)	Sales to commercial laundries or to pressing and dry cleaning 	establishments of articles or materials used for the identification of garments being laundered or dry cleaned, wrapping paper, bags, hangers, starch, soaps, detergents, cleaning fluids and other compounds or chemicals applied directly to the garments in the direct performance of the laundering or the pressing and cleaning service.
		Motor Fuels Group.
					(11)	Any of the following fuel:
a.	Motor fuel, as defined in G.S. 105‑449.60, except motor fuel for which a refund of the per gallon excise tax is allowed under  G.S. 105‑449.105A or G.S. 105‑449.107.
b.	Alternative fuel taxed under Article 36D of this Chapter, unless a refund of that tax is allowed under G.S. 105‑449.107.
															Transactions Group.
(15)	Accounts of purchasers, representing taxable sales, on which the tax imposed by this Article has been paid, that are found to be worthless and actually charged off for income tax purposes may, at corresponding periods, be deducted from gross sales. In the case of a municipality that sells electricity, the account may be deducted if it meets all the conditions for charge‑off that would apply if the municipality were subject to income tax. Any accounts deducted pursuant to this subdivision must be added to gross sales if afterwards collected.
(16)	Sales of an article repossessed by the vendor if tax was paid on the sales price of the article.
Exempt Status Group.
(17)	Sales which a state would be without power to tax under the limitations of the Constitution or laws of the United States or under the Constitution of this State.
Unclassified Group.
					(22a)	Sales of audiovisual masters made or used by a production company in making visual and audio images for first generation reproduction. For the purpose of this subdivision, an "audiovisual master" is an audio or video film, tape, or disk or another audio or video storage device from which all other copies are made.
				(25)	Sales by merchants on the Cherokee Indian Reservation when such merchants are authorized to do business on the Reservation and are paying the tribal gross receipts levy to the Tribal Council.
											(32)	Sales of motor vehicles, the sale of a motor vehicle body to be mounted on a motor vehicle chassis when a certificate of title has not been issued for the chassis, and the sale of a motor vehicle body mounted on a motor vehicle chassis that temporarily enters the State so the manufacturer of the body can mount the body on the chassis.
(33)	Tangible personal property purchased solely for the purpose of export to a foreign country for exclusive use or consumption in that or some other foreign country, either in the direct performance or rendition of professional or commercial services, or in the direct conduct or operation of a trade or business, all of which purposes are actually consummated, or purchased by the government of a foreign country for export which purpose is actually consummated. "Export" shall include the acts of possessing and marshalling such property, by either the seller or the purchaser, for transportation to a foreign country, but shall not include devoting such property to any other use in North Carolina or the United States. "Foreign country" shall not include any territory or possession of the United States.
In order to qualify for this exemption, an affidavit of export indicating compliance with the terms and conditions of this exemption, as prescribed by the Secretary of Revenue, must be submitted by the purchaser to the seller, and retained by the seller to evidence qualification for the exemption.
If the purposes qualifying the property for exemption are not consummated, the purchaser shall be liable for the tax which was avoided by the execution of the aforesaid affidavit as well as for applicable penalties and interest and the affidavit shall contain express provision that the purchaser has recognized and assumed such liability.
The principal purpose of this exemption is to encourage the flow of commerce through North Carolina ports that is now moving through out‑of‑state ports. However, it is not intended that property acquired for personal use or consumption by the purchaser, including gifts, shall be exempt hereunder.
(33a)	Tangible personal property sold by a retailer to a purchaser within or without this State, when the property is delivered in this State to a common carrier or to the United States Postal Service for delivery to the purchaser or the purchaser's designees outside this State and the purchaser does not subsequently use the property in this State.
							(38)	Food and other items lawfully purchased under the Food Stamp Program, 7 U.S.C. § 2011, and supplemental foods lawfully purchased with a food instrument issued under the Special Supplemental Food Program, 42 U.S.C. § 1786, and supplemental foods purchased for direct distribution by the Special Supplemental Food Program.
	(40)	Sales to the Department of Transportation.
	(42)	Tangible personal property that is purchased by a retailer for resale or is manufactured or purchased by a wholesale merchant for resale and then withdrawn from inventory and donated by the retailer or wholesale merchant to either a governmental entity or a nonprofit organization, contributions to which are deductible as charitable contributions for federal income tax purposes.
		(44)	Piped natural gas. – This item is exempt because it is taxed under Article 5E of this Chapter.
														(52)	Items subject to sales and use tax under G.S. 105‑164.4, other than electricity, telecommunications service, and ancillary service as defined in G.S. 105‑164.4, if all of the following conditions are met:
a.	The items are purchased by a State agency for its own use and in accordance with G.S. 105‑164.29A.
b.	The items are purchased pursuant to a valid purchase order issued by the State agency that contains the exemption number of the agency and a description of the property purchased, or the items purchased are paid for with a State‑issued check, electronic deposit, credit card, procurement card, or credit account of the State agency.
c.	For all purchases other than by an agency‑issued purchase order, the agency must provide to or have on file with the retailer the agency's exemption number.
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SECTION 5.  The Revenue Laws Study Committee may make an interim report to the 2010 Regular Session of the 2009 General Assembly and shall make its final report to the 2011 General Assembly.
SECTION 6.  This act is effective when it becomes law.