A BILL TO BE ENTITLED
AN ACT to reform the corporate income tax and reduce the corporate income tax rate by moving to single sales factor apportionment and eliminating corporate tax expenditures.
The General Assembly of North Carolina enacts:
SECTION 1.  Effective for taxable years beginning on or after January 1, 2014, G.S. 105‑130.3 reads as rewritten:
"§ 105‑130.3.  Corporations.
A tax 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. The tax is a percentage of the taxpayer's State net income computed as follows:
Income Years Beginning	Tax
				
In 2013	6.9%
In 2014	6.5%
In 2015	6.25%
After 2015	6%."
SECTION 2.(a)  Effective for taxable years beginning on or after January 1, 2014, G.S. 105‑130.4(i) reads as rewritten:
"(i)	All apportionable income of corporations other than public utilities, excluded corporations, and qualified capital intensive corporations shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus three times the sales factor, and the denominator of which is five. If the sales factor does not exist, the denominator of the fraction is the number of existing factors and if the sales factor exists but the payroll factor or the property factor does not exist, the denominator of the fraction is the number of existing factors plus two."
SECTION 2.(b)  Effective for taxable years beginning on or after January 1, 2015, G.S. 105‑130.4(i), as amended by subsection (a) of this section, reads as rewritten:
"(i)	All apportionable income of corporations other than public utilities, excluded corporations, and qualified capital intensive corporations shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus five times the sales factor, and the denominator of which is seven. If the sales factor does not exist, the denominator of the fraction is the number of existing factors and if the sales factor exists but the payroll factor or the property factor does not exist, the denominator of the fraction is the number of existing factors plus four."
SECTION 2.(c)  Effective for taxable years beginning on or after January 1, 2016, G.S. 105‑130.4(i), as amended by subsection (b) of this section reads as rewritten:
"(i)	All apportionable income of corporations other than public utilities shall be apportioned to this State by multiplying the income by the sales factor as determined under subsection (l) of this section."
SECTION 2.(d)  Effective for taxable years beginning on or after January 1, 2016, G.S. 105‑130.4(a)(4), (r), and (s1) are repealed.
SECTION 3.  Effective for taxable years beginning on or after January 1, 2014, G.S. 105‑130.5, as amended by S.L. 2013‑10, reads as rewritten:
"§ 105‑130.5.  Adjustments to federal taxable income in determining State net income.
(a)	The following additions to federal taxable income shall be made in determining State net income:
(1)	Taxes based on or measured by net income by whatever name called and excess profits taxes.
(2)	Interest paid in connection with income exempt from taxation under this Part.
(3)	The contributions deduction allowed by the Code.
(4)	Interest income earned on bonds and other obligations of other states or their political subdivisions, less allowable amortization on any bond acquired on or after January 1, 1963.
(5)	The amount by which gains have been offset by the capital loss carryover allowed under the Code. All gains recognized on the sale or other disposition of assets must be included in determining State net income or loss in the year of disposition.
	
(7)	Repealed by Session Laws 2001‑327, s. 3(a), effective for taxable years beginning on or after January 1, 2001.
(8)	Repealed by Session Laws 1987, c. 778, s. 2.
(9)	Payments to or charges by a parent, subsidiary or affiliated corporation in excess of fair compensation in all intercompany transactions of any kind whatsoever pursuant to the Revenue Laws of this State.
(10)	The total amounts allowed under this Chapter during the taxable year as a credit against the taxpayer's income tax. This subdivision does not apply to a credit allowed under G.S. 105‑130.47. A corporation that apportions part of its income to this State shall make the addition required by this subdivision after it determines the amount of its income that is apportioned and allocated to this State and shall not apply to a credit taken under this Chapter the apportionment factor used by it in determining the amount of its apportioned income.
(11)	The amount by which the percentage depletion allowance allowed by sections 613 and 613A of the Code for mines, oil and gas wells, and other natural deposits exceeds the cost depletion allowance for these items under the Code, except as otherwise provided herein. This subdivision does not apply to depletion deductions for clay, gravel, phosphate rock, lime, shells, stone, sand, feldspar, gemstones, mica, talc, lithium compounds, tungsten, coal, peat, olivine, pyrophyllite, and other solid minerals or rare earths extracted from the soil or waters of this State. Corporations required to apportion income to North Carolina shall first add to federal taxable income the amount of all percentage depletion in excess of cost depletion that was subtracted from the corporation's gross income in computing its federal income taxes and shall then subtract from the taxable income apportioned to North Carolina the amount by which the percentage depletion allowance allowed by sections 613 and 613A of the Code for solid minerals or rare earths extracted from the soil or waters of this State exceeds the cost depletion allowance for these items.
(12)	The amount allowed under the Code for depreciation or as an expense in lieu of depreciation for a utility plant acquired by a natural gas local distribution company, to the extent the plant is included in the company's rate base at zero cost in accordance with G.S. 62‑158.
(13)	Repealed by Session Laws 2001‑427, s. 4(b), effective for taxable years beginning on or after January 1, 2002.
(14)	Royalty payments and interest expenses required to be added by G.S. 105‑130.7A, to the extent deducted in calculating federal taxable income.
												
(16)	The amount excluded from gross income under Subchapter R of Chapter 1 of the Code.
(17)	The amount excluded from gross income under section 199 of the Code.
(18)	Repealed by Session Laws 2006‑220, s. 1, effective for taxable years beginning on and after January 1, 2007.
(19)	The dividend paid deduction allowed under the Code to a captive REIT, as defined in G.S. 105‑130.12.
(20)	The amount of a donation made to a nonprofit organization or a unit of State or local government for which a credit is claimed under G.S. 105‑129.16H.
(21)	The amount of income deferred under section 108(i)(1) of the Code from the discharge of indebtedness in connection with a reacquisition of an applicable debt instrument.
(22)	The amount allowed as a deduction under section 163(e)(5)(F) of the Code for an original issue discount on an applicable high yield discount obligation.
		
(24)	The amount required to be added under G.S. 105‑130.5B when the State decouples from federal accelerated depreciation and expensing.
(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.
(1a)	Interest upon the obligations of any of the following, net of related expenses, to the extent included in federal taxable income:
a.	This State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State.
b.	A nonprofit educational institution organized or chartered under the laws of this State.
(2)	Payments received from a parent, subsidiary or affiliated corporation in excess of fair compensation in intercompany transactions which in the determination of the net income or net loss of such corporation were not allowed as a deduction under the Revenue Laws of this State.
(3)	Repealed by Session Laws 2003‑349, s. 1.1, effective January 1, 2003.
(3a)	Dividends treated as received from sources outside the United States as determined under section 862 of the Code, net of related expenses, to the extent included in federal taxable income. Notwithstanding the proviso in subdivision (c)(3) of this section, the netting of related expenses shall be calculated in accordance with subdivision (c)(3) of this section and G.S. 105‑130.6A.
(3b)	Any amount included in federal taxable income under section 78 or section 951 of the Code, net of related expenses.

(9)	With respect to a shareholder of a regulated investment company, the portion of undistributed capital gains of such regulated investment company included in such shareholder's federal taxable income and on which the federal tax paid by the regulated investment company is allowed as a credit or refund to the shareholder under section 852 of the Code.
(10)	Repealed by Session Laws 1987, c. 778, s. 2.
(11)	If a deduction for an ordinary and necessary business expense was required to be reduced or was not allowed under the Code because the corporation claimed a federal tax credit against its federal income tax liability for the income year in lieu of a deduction, the amount by which the deduction was reduced and the amount of the deduction that was disallowed. This deduction is allowed only to the extent that a similar credit is not allowed by this Chapter for the amount.
														
(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 or because of a grant allowed under section 1603 of the American Recovery and Reinvestment Tax Act of 2009, P.L. 111‑3. 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.
	(16)	The amount of natural gas expansion surcharges collected by a natural gas local distribution company under G.S. 62‑158.
(17)	To the extent included in federal taxable income, 911 charges imposed under G.S. 62A‑43 and remitted to the 911 Fund under that section.
					
(20)	Royalty payments and interest expenses received from a related member who added the payments to income under G.S. 105‑130.7A for the same taxable year.

(23)	A dividend received from a captive REIT, as defined in G.S. 105‑130.12.
	
(25)	The amount added to federal taxable income as deferred income under section 108(i)(1) of the Code. This deduction applies to taxable years beginning on or after January 1, 2014.
		
(27)	The amount allowed as a deduction under G.S. 105‑130.5B as a result of an add‑back for federal accelerated depreciation and expensing.
(c)	The following other adjustments to federal taxable income shall be made in determining State net income:
(1)	In determining State net income, no deduction shall be allowed for annual amortization of bond premiums applicable to any bond acquired prior to January 1, 1963. The amount of premium paid on any such bond shall be deductible only in the year of sale or other disposition.
(2)	Federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property which has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes prior to the effective date of this Part.
(3)	No deduction is allowed for any direct or indirect expenses related to income not taxed under this Part; provided, no adjustment shall be made under this subsection for adjustments addressed in G.S. 105‑130.5(a) and (b).
(4)	The taxpayer shall add to federal taxable income the amount of any recovery during the taxable year not included in federal 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 federal taxable income the amount of any recovery during the taxable year included in federal 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.
(5)	A savings and loan association may deduct interest earned on deposits at the Federal Home Loan Bank of Atlanta, or its successor, to the extent included in federal taxable income.
(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 4.  Effective for taxable years beginning on or after January 1, 2014, Part 1 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105‑130.5B.  Adjustments when State decouples from federal accelerated depreciation and expensing.
(a)	Special Accelerated Depreciation. – A taxpayer who places property in service during a taxable year listed in the table below and who takes a special accelerated depreciation deduction for that property under section 168(k) or 168(n) of the Code must add to the taxpayer's federal taxable income eighty‑five percent (85%) of the amount taken for that year under those Code provisions.
A taxpayer is allowed to deduct twenty percent (20%) of the add‑back in each of the first five taxable years following the year the taxpayer is required to include the add‑back in income. The table below indicates the applicable five‑year period.
Taxable Year of	Five Taxable Years of
85% Add‑Back	20% Deduction
2010	2011 through 2015
2011	2012 through 2016
2012	2013 through 2017
2013	2014 through 2018
(b)	2009 Depreciation Exception. – A taxpayer who placed property in service during the 2009 taxable year and whose North Carolina taxable income for the 2009 taxable year reflected a special accelerated depreciation deduction allowed for the property under section 168(k) of the Code must add eighty‑five percent (85%) of the amount of the special accelerated depreciation deduction to its federal taxable income for the 2010 taxable year. A taxpayer is allowed to deduct this add‑back under subsection (a) of this section as if it were for property placed in service in 2010.
(c)	Section 179 Expense. – For purposes of this subdivision, the definition of section 179 property has the same meaning as under section 179 of the Code as of January 1, 2011. A taxpayer who places section 179 property in service during a taxable year in subsection (a) of this section must add to the taxpayer's federal taxable income eighty‑five percent (85%) of the amount by which the taxpayer's expense deduction under section 179 of the Code exceeds the amount that would have been allowed for that taxable year under section 179 of the Code as of May 1, 2010.
A taxpayer is allowed to deduct twenty percent (20%) of the add‑back in each of the first five taxable years following the year the taxpayer is required to include the add‑back in income. The table in subsection (a) of this section indicates the applicable five‑year period.
(d)	Asset Basis. – The adjustments made in this section do not result in a difference in basis of the affected assets for State and federal income tax purposes."
SECTION 5.  Effective for taxable years beginning on or after January 1, 2014, G.S. 105‑130.7A reads as rewritten:
"§ 105‑130.7A.  Royalty income and interest expense reporting options.
(a)	Purpose. – Royalty payments received for the use of intangible property in this State are income derived from doing business in this State. This section provides taxpayers with an option concerning the method by which royalties and interest expenses can be reported for taxation when the recipient and the payer are related members. As provided in this section, royalty payments and interest expenses can be either (i) deducted by the payer and included in the income of the recipient, or (ii) added back to the income of the payer and excluded from the income of the recipient.
(b)	Definitions. – The following definitions apply in this section:
…
(1b)	Interest expense. – An amount directly or indirectly allowed as a deduction under section 163 of the Code.
…
(c)	Election. – For the purpose of computing its State net income, a taxpayer must add royalty payments and interest expenses made to, or in connection with transactions with, a related member during the taxable year. This addition is not required for an amount of royalty payments or interest expenses that meets any of the following conditions:
(1)	The related member includes the amount as income on a return filed under this Part for the same taxable year that the amount is deducted by the taxpayer, and the related member does not elect to deduct the amount pursuant to G.S. 105‑130.5(b)(20).
(2)	The taxpayer can establish that the related member during the same taxable year directly or indirectly paid, accrued, or incurred the amount to a person who is not a related member.
(3)	The taxpayer can establish that the related member to whom the amount was paid is organized under the laws of a country other than the United States, the country has a comprehensive income tax treaty with the United States, and the country imposes a tax on the royalty income of the related member at a rate that equals or exceeds the rate set in G.S. 105‑130.3.
(d)	Indirect Transactions. – For the purpose of this section, an indirect transaction or relationship has the same effect as if it were direct."
SECTION 6.(a)  Article 3C (Tax Incentives for Recycling Facilities) and Article 3K (Tax Incentives for Railroad Intermodal Facilities) of Chapter 105 of the General Statutes are repealed.
SECTION 6.(b)  The following statutes are repealed:
G.S. 105‑130.6A	(Adjustments for expenses related to dividends)
G.S. 105‑130.8	(Net economic loss)
G.S. 105‑130.9	(Contributions)
G.S. 105‑130.10	(Amortization of air‑cleaning devices, waste treatment facilities, and recycling facilities)
G.S. 105‑130.10A	(Amortization of equipment mandated by OSHA)
G.S. 105‑130.22	(Tax credit for construction of dwelling units for handicapped person)
G.S. 105‑151.1
G.S. 105‑130.25	(Credit against corporate income tax for construction of cogenerating power plants)
G.S. 105‑130.34	(Credit for certain real property donations)
G.S. 105‑151.12
G.S. 105‑130.36	(Credit for conservation tillage equipment)
G.S. 105‑151.13
G.S. 105‑130.37	(Credit for gleaned crop)
G.S. 105‑151.14
G.S. 105‑130.39	(Credit for certain telephone subscriber line charges)
G.S. 105‑130.43	(Credit for savings and loan supervisory fees)
G.S. 105‑130.44	(Credit for construction of poultry composting facility)
G.S. 105‑151.25
SECTION 6.(c)  This section is effective for taxable years beginning on or after January 1, 2014.
SECTION 7.(a)  G.S. 105‑259(b)(24), (37), and (38) are repealed.
SECTION 7.(b)  Article 10 of Chapter 143B of the General Statutes is amended by adding a new section to read:
"§ 143B‑437.08A.  Wage, health insurance, and other standards applicable to economic development incentives.
(a)	Wage. – The Department must annually determine the average weekly wage for a calendar year for all insured private employers in each county and in the State and must publish the following wage standards applicable to economic development incentives:
(1)	General wage standard. – A job meets the general wage standard if it pays an average weekly wage that is at least equal to the lesser of one hundred ten percent (110%) of the average wage for all insured private employers in the State and ninety percent (90%) of the average wage for all insured private employers in the county.
(2)	Zone wage standard. – A job that is located within an urban progress zone or an agrarian growth zone in a development tier two or tier three area satisfies the wage standard if it pays an average weekly wage that is at least equal to ninety percent (90%) of the lesser of the average wage for all insured private employers in the State and the average wage for all insured private employers in the county.
(3)	Calculation. – In determining whether an employer meets a wage standard, the employer may include only full‑time jobs and must include any jobs that were filled for at least 1,600 hours during the calendar year even if the jobs are not filled at the time the employer applies for or claims an economic incentive benefit. An employer whose taxable year is not a calendar year must use the wage standard for the calendar year in which the taxable year begins. A full‑time job is a position that requires at least 1,600 hours of work per year and is intended to be held by one employee during the entire year. A full‑time employee is an employee who holds a full‑time job.
(b)	Health Insurance. – An employer meets the health insurance standard if the employer does all of the following:
(1)	Provides health insurance for all of its full‑time jobs. A full‑time job is a position that requires at least 1,600 hours of work per year and is intended to be held by one employee during the entire year.
(2)	Pays at least fifty percent (50%) of the premiums for health care coverage that equals or exceeds the minimum provisions of the basic health care plan of coverage recommended by the Small Employer Carrier Committee pursuant to G.S. 58‑50‑125.
(c)	Environmental Impact. – A person meets the environmental standard if the person has no pending administrative, civil, or criminal enforcement action based on alleged significant violations of any program implemented by an agency of the Department of Environment and Natural Resources and has had no final determination of responsibility for any significant administrative, civil, or criminal violation of any program implemented by an agency of the Department of Environment and Natural Resources within the last five years. A significant violation is a violation or alleged violation that does not satisfy any of the conditions of G.S. 143‑215.6B(d). The Secretary of Environment and Natural Resources must notify the Department of Commerce and the Department of Revenue annually of every person that currently has any of these pending actions and every person that has had any of these final determinations within the last five years.
(d)	Employee Safety and Health. – An employer meets the employee safety and health standard if the employer has no citations under the Occupational Safety and Health Act that have become a final order within the past three years for willful serious violations or for failing to abate serious violations. As used in this subsection, the term "serious violation" has the same meaning as in G.S. 95‑127. The Commissioner of Labor must notify the Department of Commerce and the Department of Revenue annually of every person that has had these citations become final orders within the past three years."
SECTION 7.(c)  G.S. 143B‑437.01(a) and (a1) read as rewritten:
"(a)	Creation and Purpose of Fund. – There is created in the Department of Commerce the Industrial Development Fund to provide funds to assist the local government units of the most economically distressed counties in the State in creating and retaining jobs in certain industries. The Department of Commerce shall adopt rules providing for the administration of the program. Those rules shall include the following provisions, which shall apply to each grant from the fund:
…
(6)	The funds shall not be used for any nonmanufacturing project that does not meet the general wage standard set out in G.S. 143B‑437.08A.
(a1)	Definitions. – The following definitions apply in this section:
(1)	Air courier services. – The furnishing of air delivery of individually addressed letters and packages for compensation, in interstate commerce, except by the United States Postal Service.
(2)	Repealed by Session Laws 2006‑252, s. 2.4, effective January 1, 2007.
(2a)	Company headquarters. – A corporate, subsidiary, or regional managing office, as defined by NAICS in United States industry 551114, that is responsible for strategic or organizational planning and decision making for the business on an international, national, or multistate regional basis.
…
(6)	Information technology and services. – An industry in one of the following:
a.	Internet service providers, Web search portals, and data processing subsector 518, as defined by NAICS.
b.	Software publishers industry group 5112, as defined by NAICS.
c.	Computer systems design and related services industry group 5415, as defined by NAICS.
…
(8)	Manufacturing. – An industry in manufacturing sectors 31 through 33, as defined by NAICS, but not including quick printing or retail bakeries.
(9)	NAICS. – Defined in G.S. 105‑228.90.
(10)	Warehousing. – An industry in warehousing and storage subsector 493, as defined by NAICS.
(11)	Wholesale trade. – An industry in wholesale trade sector 42, as defined by NAICS."
SECTION 7.(d)  This section becomes effective January 1, 2014.
SECTION 8.  Except as otherwise provided, this act becomes effective for taxable years beginning on or after January 1, 2014.