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North Carolina Budget Bill Phases in Single Sales Factor and Lowers Rates

North Carolina Governor Pat McCrory on September 18, 2015 signed the 2015 Appropriations Act.  This makes several major changes to corporate income tax.  These changes include:

  1. A corporate income tax rate reduction from 5% to 4% effective January 1, 2016 with the potential for further reduction under certain circumstances;
  2. Phasing in single sales factor apportionment over 3 years;
  3. Requiring an informational report for taxpayers using market-based sourcing;
  4. Requiring an addback for net interest expenses for related members;
  5. Repealing several corporate income tax adjustments; and
  6. Changes to the franchise tax

In addition, the bank privilege tax is repealed effective July 1, 2016 and the sales tax base now includes repair, maintenance, and installation services effective March 1, 2016.

Regarding the phase in of single sales factor apportionment, effective for taxable years beginning on or after January 1, 2016, the numerator of the apportionment factor is the property factor plus the payroll factor plus 3 times the sales factor and the denominator is 5.  Effective for taxable years beginning on or after January 1, 2017, the numerator of the apportionment factor is the property factor plus the payroll factor plus 4 times the sales factor and the denominator is 6. Finally, effective for taxable years beginning on or after January 1, 2018 income is apportioned by a single sales factor.

Effective for taxes due on or after January 1, 2015 the definition of “total assets” with regards to the franchise tax base now includes all cash, investments, furniture, fixtures, equipment, receivables, intangibles, and any other items of value owned by a person or business entity.  In addition, the franchise tax rate minimum and maximum for taxes due on or after January 1, 2017 has been increased to $200 and $150,000 respectively (originally $35 and $75,000).  For more information on these changes and other changes please click here.

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