A BILL TO BE ENTITLED
AN ACT to reduce the individual and corporate income tax rates to be competitive with our neighboring states, to replace the franchise tax with a lower business privilege license tax that applies to all limited liability companies, to reduce the state sales tax rate, and to create a more stable general fund revenue tax base by broadening the income and sales tax bases.
The General Assembly of North Carolina enacts:

PART I. REDUCE INDIVIDUAL INCOME TAX RATES
SECTION 1.(a)  G.S. 105‑134.2 reads as rewritten:
"§ 105‑134.2.  Individual income tax imposed.
(a)	A tax is imposed upon the North Carolina taxable income of every individual. The tax shall be levied, collected, and paid annually and shall be computed at the following percentages of the taxpayer's North Carolina taxable income.
(1)	For married individuals who file a joint return under G.S. 105‑152 and for surviving spouses, as defined in section 2(a) of the Code:
	Over	Up To	Rate
	‑0‑	$25,000	6%
	$25,000	NA	7%
			
(2)	For heads of households, as defined in section 2(b) of the Code:
	Over	Up To	Rate
	‑0‑	$20,000	6%
	$20,000	NA	7%
			
(3)	For unmarried individuals other than surviving spouses and heads of households:
	Over	Up To	Rate
	‑0‑	$12,500	6%
	$12,500	NA	7%
			
(4)	For married individuals who do not file a joint return under G.S. 105‑152:
	Over	Up To	Rate
	‑0‑	$12,500	6%
	$12,500	NA	7%
			
(b)	In lieu of the tax imposed by subsection (a) of this section, there is imposed for each taxable year upon the North Carolina taxable income of every individual a tax determined under tables, applicable to the taxable year, which may be prescribed by the Secretary. The amounts of the tax determined under the tables shall be computed on the basis of the rates prescribed by subsection (a) of this section. This subsection does not apply to an individual making a return under section 443(a)(1) of the Code for a period of less than 12 months on account of a change in the individual's annual accounting period, or to an estate or trust. The tax imposed by this subsection shall be treated as the tax imposed by subsection (a) of this section."
SECTION 1.(b)  G.S. 105‑134.6(b)(11) and (b)(22) are repealed.
SECTION 1.(c)  G.S. 105‑151.12 and G.S. 105‑151.26 are repealed.
SECTION 1.(d)  This section is effective for taxable years beginning on or after January 1, 2013.

PART II. REDUCE Corporate income tax rate
SECTION 2.(a)  G.S. 105‑130.3 reads as rewritten:
"§ 105‑130.3.  Corporations.
A tax at the rate of six and four‑tenths percent (6.4%) is imposed on the State net income of every C Corporation doing business in this State. An S Corporation is not subject to the tax levied in this section.																							"
SECTION 2.(b)  G.S. 105‑130.34 is repealed.
SECTION 2.(c)  G.S. 105‑130.3, as amended by subsection (a) of this section, reads as rewritten:
"§ 105‑130.3.  Corporations.
A tax at the rate of five and nine‑tenths percent (5.9%) is imposed on the State net income of every C Corporation doing business in this State. An S Corporation is not subject to the tax levied in this section."
SECTION 2.(d)  Subsections (a) and (b) of this section are effective for table years beginning on or after January 1, 2014. Subsection (c) of this section is effective for taxable years beginning on or after January 1, 2015. The remainder of this section is effective when it becomes law.

PART III. REPLACE FRANCHISE TAX WITH A lower BUSINESS PRIVILEGE TAX THAT INCLUDES ALL LIMITED LIABILITY ENTITIES
SECTION 3.1.(a)  The title of Article 3 of Chapter 105 of the General Statutes reads as rewritten:
"Article 3.
Business Privilege Tax."
SECTION 3.1.(b)  G.S. 105‑114, 105‑114.1, 105‑120.2, 105‑121.1, 105‑122, 105‑122.1, 105‑125, 105‑127, 105‑128, and 105‑129 are repealed.
SECTION 3.1.(c)  Article 3 of Chapter 105 of the General Statutes is amended by adding the following new sections to read:
"§ 105‑114.2.  Definitions.
The following definitions apply in this Article:
(1)	Affiliate. – A business entity under common ownership with another business entity.
(2)	Affiliated group. – Defined in section 1504 of the Code.(3)	Business entity. – Any of the following:
a.	A domestic corporation organized under Chapter 55 of the General Statutes or a foreign corporation that has received a certificate of authority under that Chapter authorizing it to do business in this State.
b.	An electric membership corporation organized under Chapter 117 of the General Statutes.
c.	A domestic limited liability company formed under Chapter 57C of the General Statutes or a foreign limited liability company that has received a certificate of authority under that Chapter authorizing it to do business in this State.
d.	A domestic limited partnership formed under Article 5 of Chapter 59 of the General Statutes or a foreign limited partnership that has received a certificate of authority under that Article authorizing it to do business in this State.
e.	A domestic limited liability partnership registered under Article 3B of Chapter 59 of the General Statutes or a foreign limited liability partnership registered under Article 4A of that Chapter.
f.	A domestic or foreign limited liability limited partnership registered under G.S. 59‑210.
g.	Any other business whose form of organization confers limited liability on one or more of its owners.
(4)	Capital interest. – The right of a business entity that is not a corporation to receive a percentage of the business entity's assets upon dissolution after payments to creditors.
(5)	City. – Defined in G.S. 105‑228.90.
(6)	Code. – Defined in G.S. 105‑228.90.
(7)	Doing business. – Each and every act, power, or privilege exercised or enjoyed in this State, as an incident to or by virtue of the powers and privileges granted by the laws of this State.
(8)	Holding company. – A business entity that satisfies at least one of the following conditions:
a.	It has no assets other than ownership interests in business entities in which it owns, directly or indirectly, more than fifty percent (50%) of the outstanding voting stock or voting capital interests.
b.	It receives during its taxable year more than eighty percent (80%) of its gross income from business entities in which it owns directly or indirectly more than fifty percent (50%) of the outstanding voting stock or voting capital interests.
(9)	Ownership. – The direct or indirect control of more than fifty percent (50%) of the outstanding voting stock or voting capital interests of a business entity. Ownership of voting stock is determined by reference to the constructive ownership rules for stock under section 318 of the Code. Ownership of capital interests is determined by reference to the constructive ownership rules for partnerships, estates, and trusts in section 318(a)(2)(A) and (B) of the Code with the following modifications:
a.	The term "capital interest" is substituted for "stock" each place it appears.
b.	A noncorporate limited liability company and any noncorporate entity other than a partnership, estate, or trust is treated as a partnership. A noncorporate entity does not include a human being. A noncorporate limited liability company is a limited liability company that does not elect to be taxed as a corporation under the Code.
c.	The operating rule of section 318(a)(5) of the Code applies without regard to section 318(a)(5)(C).
(10)	Parent. – A business entity that has ownership of another business entity.
(11)	Secretary. – Defined in G.S. 105‑228.90.
(12)	Subsidiary. – A business entity under the ownership of another business entity.
(13)	Taxable year. – Defined in section 341(b) of the Code.
"§ 105‑114.3.  Nature of tax.
This Article imposes a privilege tax on a business entity for the privilege of doing business in this State in an organizational form that confers limited liability on one or more owners of the entity. The tax is an accrued tax and is imposed for the exercise of this privilege during the period covered by a tax return. Payment of the tax imposed by this Article is a condition precedent to the right to do business in this State and, for a business entity that is organized or formed in this State, to the right to continue in the entity's organizational form. When a noncorporate business entity is doing business in this State, each owner of the noncorporate business entity is doing business in this State.
"§ 105‑114.4.  Business privilege tax imposed.
(a)	Rate. – An annual privilege tax is imposed on a business entity doing business in this State at the rate of one dollar and twenty‑five cents ($1.25) per one thousand dollars ($1,000) of the higher of the business entity's adjusted net worth tax base, determined in accordance with G.S. 105‑114.5 and the business entity's investment tax base, determined in accordance with G.S. 105‑114.6. The tax payable by a business entity may not be less than two hundred dollars ($200.00). The tax payable by a holding company may not be more than seventy‑five thousand dollars ($75,000).
After the end of the taxable year in which a business entity is dissolved, the entity is no longer subject to the tax levied in this Article unless the Secretary finds that the entity has engaged in business activities in this State not appropriate to winding up and liquidating its business.
"§ 105‑114.5.  Adjusted net worth tax base.
The net worth of a business entity is the entity's total assets less its total liabilities, computed in accordance with generally accepted accounting principles as of the end of the entity's taxable year. If the entity does not maintain its books and records in accordance with generally accepted accounting principles, then its net worth is computed in accordance with the accounting method used by the entity for federal tax purposes so long as the method fairly reflects the entity's net worth for purposes of the tax levied by this section. A business entity's net worth is subject to the following adjustments:
(1)	A deduction for accumulated depreciation and amortization is determined in accordance with the method used for federal tax purposes.
(2)	An addition for indebtedness the business entity owes to a parent, a subsidiary, or an affiliate. The amount added back to the business entity's net worth may be further adjusted as follows:
a.	If part of the capital of the creditor business entity is capital borrowed from a source other than a parent, a subsidiary, or an affiliate, the debtor business entity may deduct a proportionate part of the indebtedness based on the ratio of the borrowed capital of the creditor business entity to the total assets of the creditor business entity.
b.	If part of the capital of the creditor business entity consists of indebtedness owed to a parent, a subsidiary, or an affiliate that is directly traceable to capital borrowed from a source other than a parent, a subsidiary, or an affiliate, the debtor business entity may deduct a proportionate part of the indebtedness based on the ratio of the borrowed capital of the creditor business entity to the total assets of the creditor business entity.
c.	If the creditor business entity is taxable under this Article, the creditor business entity may deduct the indebtedness from its net worth to the extent the debtor business entity was not allowed to deduct the indebtedness.
(3)	A corporation may deduct the cost of treasury stock.
"§ 105‑114.6.  Investment tax base.
The investment tax base of a business entity is the entity's investment in real and tangible personal property in this State as of the end of the entity's taxable year. A business entity's investment in property is the original purchase price of or consideration for the property subject to the following adjustments:
(1)	A deduction for depreciation or amortization is determined in accordance with the method used for federal tax purposes.
(2)	The addition of improvements to the property.
(3)	A deduction for indebtedness on the property or on an improvement to the property.
(4)	For a business entity allowed a tax credit under Article 3E of this Chapter, a deduction for the value of the property for which the credit is allowed.
"§ 105‑114.7.  Exclusions in calculating tax.
(a)	Disregarded LLC. – A single member limited liability company whose single member is a corporation is disregarded under this Article if it is disregarded for federal income tax purposes. The corporation that is the single member of the disregarded limited liability company must include the net worth and property of the disregarded limited liability company in the corporation's tax base.
(b)	No Tax Tiering. – A noncorporate business entity's ownership interest in another noncorporate business entity that is taxable under this Article is excluded in determining the owner's net worth under G.S. 105‑114.5.
(c)	Investment Companies. – The following exclusions apply to investment companies in determining their tax liability under this Article:
(1)	A regulated investment company may deduct the value of its investments in stocks, bonds, debentures, or other securities or evidences of debt. A regulated investment company is an entity that qualifies as a regulated investment company under section 851 of the Code.
(2)	A REIT may deduct the value of its investments in real property, unless the REIT is a captive REIT. The terms "REIT" and "captive REIT" have the same meanings as defined in G.S. 105‑130.12.
(3)	A venture capital company may deduct the value of its capital under management. A venture capital company is an entity whose purpose is to provide financing for start‑up businesses and that obtains the capital it uses to provide financing only from investors who are accredited investors under 17 C.F.R. § 230.215 or are institutional investors.
(d)	Short Year Adjustment. – A business entity that changes its taxable year and files a "short period" income tax return may deduct from its tax liability computed on an annual basis the amount of tax previously paid that is applicable to the period subsequent to the beginning of the new taxable year.
"§ 105‑114.8.  Determination of ownership after certain transfers.
(a)	Transfers by Corporations. – Ownership of the capital interests in a noncorporate business entity is determined as of the last day of the business entity's taxable year. If a noncorporate business entity and a corporation or an affiliated group have engaged in a pattern of transferring assets between them with the result that each did not own the capital interest on the last day of its taxable year, the ownership of the capital interests in the noncorporate business entity must be determined as of the last day of the corporation's or group of corporations' taxable year.
(b)	Tax‑Free Distribution. – If a noncorporate business entity receives from a person a tax‑free contribution of assets under section 721 of the Code within 120 days after making a tax‑free distribution of assets to that person under section 732 of the Code with the result that the business entity did not own the capital interests on the last day of its taxable year, the assets that were distributed tax‑free are considered owned by the business entity as of the last day of its taxable year.
"§ 105‑114.9.  Apportionment by multistate business entities.
A business entity that is doing business in this State and in one or more other states must apportion its net worth to this State. A corporation that is subject to income tax under Article 4 of this Chapter must use the fraction it applies in apportioning its income under that Article. A business entity that is not subject to income tax under Article 4 of this Chapter must apportion its net worth by using the fraction it would be required to apply in apportioning its income if it were subject to that Article. A business entity that believes this apportionment method subjects a greater portion of its net worth to tax under this section than is attributable to its business in this State may make a written request to the Secretary for permission to use an alternative method of apportionment, in the same manner as provided in G.S. 105‑130.4(t1).
"§ 105‑114.10.  Return and payment.
The tax imposed by G.S. 105‑114.4 is due when a return is due. A return is due on or before the 15th day of the fourth month following the end of the business entity's income year. A taxpayer may ask the Secretary for an extension of time to file a return under G.S. 105‑263. A business entity must file a return under affirmation with the Secretary at the place and in the manner prescribed by the Secretary. The return must be signed by the president, vice president, treasurer, or chief financial officer of the business entity.
…
"§ 105‑116.2. Distribution in lieu of local privilege license tax.
(a)	Findings. – The General Assembly finds that the authority formerly given to cities to levy local privilege license taxes led to inequities in taxation among entities engaged in the same business in different locations as well as among entities engaged in different types of business in the same location. The General Assembly further finds that numerous cities rely on local privilege license tax revenue. This section replaces local privilege license tax revenue with a portion of the State business privilege tax.
(b)	Distribution. – Each fiscal year the Secretary must distribute to cities the net proceeds of tax collected in the preceding calendar year under G.S. 105‑114.4 at the rate of ten cents ($0.10) per one thousand dollars ($1,000). The Secretary must distribute one‑fourth of this amount within 75 days after the end of each calendar quarter. The Secretary must distribute the amount on a per capita basis according to the most recent annual population estimates certified by the State Budget Officer. The share of each city is its proportionate per capita share of the amount set in the following table for the city's population category.
City Population	Share of Net Proceeds
Up to 100,000	10%
Over 100,000 but less than 200,000	18%
Over 200,000	72%
(c)	Local Revenue. – The General Assembly finds that the revenue distributed under this section is local revenue, not a State expenditure, for the purpose of Section 5(3) of Article III of the North Carolina Constitution. Therefore, the Governor may not reduce or withhold the distribution.
"§ 105‑116.3.  Compensating privilege tax on seller that is not a registered retailer.
(a)	Tax. – An annual privilege tax is imposed on a person who sells tangible personal property, digital property, or services at retail to a consumer, as defined in G.S. 105‑164.3, and who meets both of the following descriptions:
(1)	The person is not registered as a retailer under Article 5 of this Chapter.
(2)	The person reported gross sales of at least five million dollars ($5,000,000) on its most recent federal income tax return.
(b)	Rate and Scope. – The tax is a percentage of the retailer's gross receipts derived from sales within this State. The percentage rate of the tax is the same as the combined rate under G.S. 105‑164.3. This tax is in addition to the tax imposed by G.S. 105‑114.4. The tax is payable in the same manner as provided in G.S. 105‑114.10.
(c)	Noncompliance. – A debt owed to a person that does not comply with this section is not collectible and is not subject to execution under Article 28 of Chapter 1 of the General Statutes or any other provision of law. An assignment of a debt is subject to the collection restrictions imposed by this subsection.
"§ 105‑116.4.  Compensating privilege tax on unregulated electric power producer.
(a)	Tax. – An annual privilege tax is imposed on a person that meets all of the following descriptions:
(1)	Produces electric power by using the public waters of this State and sells the electric power it produces.
(2)	Is not subject to regulation by the North Carolina Utilities Commission.
(3)	Received at least five million dollars ($5,000,000) in gross receipts during the preceding calendar year from its sales of electric power.
(b)	Rate. – The tax is a percentage of the person's gross receipts derived from sales of electric power produced by use of the State's public waters. The percentage rate of the tax is the same as the combined rate under G.S. 105‑164.3. This tax is in addition to the tax imposed by G.S. 105‑114.4. The tax is payable in the same manner as provided in G.S. 105‑114.10.
"§ 105‑125.1.  Exempt business entities.
A business entity listed in this section is exempt from the privilege tax imposed by G.S. 105‑114.4. Upon request of the Secretary, an exempt business entity must establish its claim for exemption in writing. The exempt entities are:
(1)	A business entity exempt from federal income tax under section 501 of the Code.
(2)	An insurance company subject to tax under Article 8B of this Chapter.
(3)	A single member limited liability company that is disregarded for federal income tax purposes if the single member is a corporation and the disregarded limited liability company's net worth and property is included in that of its single member.
(4)	A real estate mortgage investment conduit, as defined in section 860D of the Code."
SECTION 3.1.(d)  Notwithstanding G.S. 105‑116.2, as enacted by this section, for fiscal year 2014‑2015, the Secretary must distribute forty‑five million dollars ($45,000,000) to cities in accordance with the distribution formula in that statute.
SECTION 3.1.(e)  This section is effective for taxable years beginning on or after January 1, 2015, and applies to taxes due in that year or a subsequent year.
SECTION 3.2.(a)  G.S. 55‑1‑22 reads as rewritten:
"§ 55‑1‑22.  Filing, service, and copying fees.
(a)	The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary for filing:
	Document	Fee
…
(23)	Annual report	No fee
			…
(b)	The Secretary of State shall collect a fee of ten dollars ($10.00) each time process is served on the Secretary under this Chapter. The party to a proceeding causing service of process is entitled to recover this fee as costs if the party prevails in the proceeding.
(c)	The Secretary of State shall collect the following fees for copying, comparing, and certifying a copy of any filed document relating to a domestic or foreign corporation:
(1)	One dollar ($1.00) a page for copying or comparing a copy to the original.
(2)	Fifteen dollars ($15.00) for a paper certificate.
(3)	Ten dollars ($10.00) for an electronic certificate.
	"
SECTION 3.2.(b)  G.S. 55‑16‑22 reads as rewritten:
"§ 55‑16‑22.  Annual report.
(a)	Requirement. – The following businesses must file an annual report with the Secretary of State on a form prescribed by the Secretary and in the manner required by the Secretary:
(1)	A corporation that is incorporated under this Chapter.(2)	A corporation that has received a certificate of authority under this Chapter authorizing the corporation to transact business in this State.
(3)	A company that is an insurance company regulated under Chapter 58 of the General Statutes.
									(b)	Content. – An annual report must set out the information listed in this subsection. The information must be current as of the date the business completes the report. If the information set out in the business's most recent annual report has not changed, the business may certify on its annual report that the information has not changed in lieu of restating the information. A business may amend an annual report at any time to correct, update, or augment information included in a prior report.The following information must be included on the annual report of a business:
(1)	Its name.
(2)	The state or country under whose law it is incorporated or, if it is an insurance company and is not a corporation, the state or country under whose law it is organized.
(3)	The street address of its registered office in this State, the county in which the registered office is located, and the name of the registered agent at the registered office. If the registered office or registered agent differs from the registered office or registered agent listed on the preceding annual report, the report must indicate that the registered office or registered agent has changed. A change in registered office or registered agent that is indicated on an annual report is effective when the report is filed.
(4)	The mailing address of its registered office, if the street address of the office is not the mailing address.
(5)	The address and telephone number of its principal office.
(6)	The name, title, and business address of each of its principal officers.
(7)	A brief description of the nature of its business.
(c)	Due Date. – An annual report is due by the 15th day of the fourth month following the close of the fiscal year of the business filing the report. An annual report is delinquent if it is not filed within 120 days after it is due.(d)	Incomplete Report. – If the Secretary of State determines that an annual report filed with the Secretary does not contain the information required by this section, the Secretary must send a written notice to the business that the report is incomplete. An annual report that is corrected to contain the information and filed with the Secretary within 30 days of the date of the notice is considered timely filed.				"
SECTION 3.2.(c)  G.S. 57C‑1‑22(a)(25) reads as rewritten:
"(a)	The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary of State for filing:
	Document	Fee
…
(25)	Annual report 	No fee
…."
SECTION 3.2.(d)  G.S. 59‑35.2(a)(18) reads as rewritten:
"(a)	The Secretary of State shall collect the following fees when the documents described in this subsection are submitted by a partnership to the Secretary of State for filing:
	Document	Fee
…
(18)	Annual report 	No fee
…."
SECTION 3.2.(e)  G.S. 59‑1106(a)(22) reads as rewritten:
"(a)	The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to the Secretary of State for filing:
	Document	Fee
…
(22)	Annual report for a limited liability limited partnership 	No fee
…."
SECTION 3.2.(f)  G.S. 105‑122.1 is repealed.
SECTION 3.2.(g)  G.S. 105‑228.90(a) reads as rewritten:
"(a)	Scope. – This Article applies to Subchapters I, V, and VIII of this Chapter, to the primary forest product assessment levied under Article 12 of Chapter 113A of the General Statutes, and to inspection taxes levied under Article 3 of Chapter 119 of the General Statutes."
SECTION 3.2.(h)  G.S. 105‑256.1 is repealed.
SECTION 3.2.(i)  G.S. 105‑259(a) reads as rewritten:
"(a)	Definitions. – The following definitions apply in this section:
(1)	Employee or officer. – The term includes a former employee, a former officer, and a current or former member of a State board or commission.
(2)	Tax information. – Any information from any source concerning the liability of a taxpayer for a tax, as defined in G.S. 105‑228.90. The term includes the following:
a.	Information contained on a tax return, a tax report, or an application for a license for which a tax is imposed.
b.	Information obtained through an audit of a taxpayer or by correspondence with a taxpayer.
c.	Information on whether a taxpayer has filed a tax return or a tax report.
d.	A list or other compilation of the names, addresses, social security numbers, or similar information concerning taxpayers.
The term does not include statistics classified so that information about specific taxpayers cannot be identified or the amount of tax refunds paid to either a governmental entity listed in G.S. 105‑164.14(c) or a State agency."
SECTION 3.2.(j)  This section becomes effective January 1, 2015. Subsection (f) of this section applies to returns due on or after April 15, 2015, for taxable years beginning on or after January 1, 2015. The remaining sections apply to annual reports due on or after January 1, 2015.

PART IV. REPLACE THE GROSS RECEIPTS PRIVILEGE TAX ON AMUSEMENTS AND MOVIES WITH THE STATE AND LOCAL SALES TAX
SECTION 4.(a)  G.S. 105‑37.1, 105‑38.1, and 105‑40 are repealed.
SECTION 4.(b)  G.S. 105‑164.4(a) is amended by adding the following new subdivision to read:
"§ 105‑164.4.  Tax imposed on retailers.
(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 and three‑quarters percent (4.75%).
…
(9)	The general rate of tax applies to admission charges to an entertainment activity listed in this subdivision. Offering any of these listed activities is a service. An admission charge includes a charge for a single ticket, a multioccasion ticket, a seasonal pass, an annual pass, a cover charge, and a charge for amenities. When an admission ticket is resold and the price of the admission ticket is printed on the face of the ticket, the tax does not apply to the face price. When an admission ticket is resold and the price of the admission ticket is not printed on the face of the ticket, the tax applies to the difference between the amount the reseller paid for the ticket and the amount the reseller charges for the ticket. Admission charges to the following entertainment activities are subject to tax:
a.	A live performance or other live event of any kind.
b.	A movie or other audiovisual work.
c.	A museum, a cultural site, a garden, an exhibit, a show, or a similar attraction or a guided tour at any of these attractions."
SECTION 4.(c)  G.S. 105‑164.13 is amended by adding the following subdivision 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, digital property, and services are specifically exempted from the tax imposed by this Article:
…
(60)	Admission charges to any of the following recreational or entertainment activities:
a.	An event that is held at an elementary or secondary school and is sponsored by the school.
b.	A commercial agricultural fair that meets the requirements of G.S. 106‑520.1, as determined by the Commissioner of Agriculture.
c.	A festival or other recreational or entertainment activity that lasts no more than seven consecutive days and is sponsored by a nonprofit entity that is exempt from tax under Article 4 of this Chapter and uses the entire proceeds of the activity exclusively for the entity's nonprofit purposes. This exemption applies to no more than two activities sponsored by the entity during a calendar year."
SECTION 4.(d)  This section becomes effective July 1, 2014, and applies to sales made on or after that date and to gross receipts received on or after July 1, 2014, from admissions purchased on or after that date. Gross receipts received on or after July 1, 2014, from admissions purchased before that date are taxable under G.S. 105‑37.1 or G.S. 105‑38.1, as appropriate.

PART V. REPEAL SPECIAL INTEREST EXEMPTIONS AND PREFERENTIAL RATES IN SALES TAX and EXPAND SALES TAX BASE TO INCLUDE SERVICE CONTRACTS
SECTION 5.(a)  G.S. 105‑164.3 is amended by adding a new subdivision to read:
"§ 105‑164.3.  Definitions.
The following definitions apply in this Article:
…
(1c)	Alteration, repair, maintenance, cleaning, and installation services. – The term includes the activities listed in this subdivision:
a.	Altering tangible personal property by tailoring, monogramming, engraving, or making similar changes to the property.
b.	Repairing tangible personal property to restore it to proper working order.
c.	Maintaining tangible personal property to keep the property in working order, to avoid breakdown, or to prevent unnecessary repairs.
d.	Cleaning tangible personal property.
e.	Installing tangible personal property.
…
(38b)	Service contract. – A warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property.
(38c)	Short‑term lease or rental. – Defined in G.S. 105‑187.1."
SECTION 5.(b)  G.S. 105‑164.4(a), as amended by Section 3 of this act, reads as rewritten:
"§ 105‑164.4.  Tax imposed on retailers.
(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 and three‑quarters percent (4.75%).
…
(4a)	The general rate of tax applies to the gross receipts derived from sales of electricity to a residential property. As used in this subdivision, the term "residential property" means property where the predominant use is for residential purposes.
…
(10)	The general rate of tax applies to the any of the following tangible personal property services:
a.	A service contract.
b.	Alteration, repair, maintenance, cleaning, and installation services.
c.	Short‑term lease or rental of any of the following:
1.	A mini‑warehouse or other secure self‑storage space.
2.	Storage for furs and other clothing not held for sale.
3.	Docking or storage for a boat or other watercraft.
4.	Storage for an aircraft.
…."
SECTION 5.(c)  G.S. 105‑164.13 is amended by adding a new subdivision 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, digital property, and services are specifically exempted from the tax imposed by this Article:
…
(61)	Any of the following provided for tangible personal property that is exempt from tax under this Article, other than an item exempt from tax under G.S. 105‑164.13(32):
a.	A service contract.
b.	Alteration, repair, maintenance, cleaning, or installation services."
SECTION 5.(d)  G.S. 105‑164.13(11a), (13c), (27), (28), (30), (49), and (50) are repealed.
SECTION 5.(e)  G.S. 105‑164.13C and G.S. 105‑164.13D are repealed.
SECTION 5.(f)  G.S. 105‑467(b) reads as rewritten:
"(b)	Exemptions and Refunds. – The State exemptions and exclusions contained in G.S. 105‑164.13 and the State refund provisions contained in G.S. 105‑164.14 through G.S. 105‑164.14B apply to the local sales and use tax authorized to be levied and imposed under this Article. Except as provided in this subsection, a taxing county may not allow an exemption, exclusion, or refund that is not allowed under the State sales and use tax. A local school administrative unit and a joint agency created by interlocal agreement among local school administrative units pursuant to G.S. 160A‑462 to jointly purchase food service‑related materials, supplies, and equipment on their behalf is allowed an annual refund of sales and use taxes paid by it under this Article on direct purchases of tangible personal property and services, other than electricity, telecommunications service, and ancillary service. Sales and use tax liability indirectly incurred by the entity on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure that is owned or leased by the entity and is being erected, altered, or repaired for use by the entity is considered a sales or use tax liability incurred on direct purchases by the entity for the purpose of this subsection. A request for a refund shall be in writing and shall include any information and documentation required by the Secretary. A request for a refund is due within six months after the end of the entity's fiscal year. Refunds applied for more than three years after the due date are barred."
SECTION 5.(g)  This section becomes effective July 1, 2014, and applies to sales made on or after that date.

PART VI. REDUCE STATE SALES TAX RATE FROM 4.75% TO 4.25% OVER TWO YEARS
SECTION 6.(a)  G.S. 105‑164.4(a), as amended by Sections 3 and 4 of this act, reads as rewritten:
"§ 105‑164.4.  Tax imposed on retailers.
(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 and one‑half percent (4.5%).
…."
SECTION 6.(b)  G.S. 105‑164.4(a), as amended by subsection (a) of this section, reads as rewritten:
"§ 105‑164.4.  Tax imposed on retailers.
(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 and one‑fourth percent (4.25%).
…."
SECTION 6.(c)  Subsection (a) of this section becomes effective July 1, 2014, and applies to sales made on or after that date. Subsection (b) of this section becomes effective July 1, 2015, and applies to sales made on or after that date. The remainder of this section is effective when it becomes law.

PART VII. TRANSITIONAL PROVISION, SAVINGS CLAUSE, AND EFFECTIVE DATE
SECTION 7.(a)  G.S. 105‑237.1(a) reads as rewritten:
"(a)	Authority. – The Secretary may compromise a taxpayer's liability for a tax that is collectible under G.S. 105‑241.22 when the Secretary determines that the compromise is in the best interest of the State and makes one or more of the following findings:
…
(6)	The taxpayer is a retailer or a consumer under Article 5 of this Chapter, the assessment is for sales or use tax the retailer failed to collect or the consumer failed to pay on an item that first became taxable under that Article on or after July 1, 2014, and the retailer or consumer made a good faith effort to comply with the sales and use tax laws. This subdivision expires on July 1, 2024."
SECTION 7.(b)  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 the effective date of its amendment or repeal, nor does it affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal.
SECTION 7.(c)  Except as otherwise provided, this act is effective when it becomes law.