Tax guide

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Introduction
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BLANK PAGE
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OVERVIEW
The Tax Guide is designed to give the reader an overview of the tax structure of both state and local
governments of North Carolina. In the Guide the reader will find a concise summary of North Carolina tax
laws and pertinent statistics, including the growth and distribution of tax collections and a comparison of tax
burdens. Further, whenever possible, comparisons of tax laws governing specific taxes in North Carolina
with those of other states are presented.
The Tax Guide consists of seven sections. Part I is the Introduction. The overall scope of the Guide is
discussed in this section along with an explanation of two important concepts-- tax elasticity and tax burden.
Summaries of the tax laws governing North Carolina's General Fund, Highway Fund, Highway Trust Fund,
and local government taxes follow in Parts II, III, IV and V. Also included in these sections is a brief
history of individual tax collections, statement of the tax calendar, measurement of tax elasticity, and
whenever possible, compare the rate and base of each tax with those of other states.
A summary of the tax legislation that was enacted since the publication of the last Guide is presented in Part
VI. This summary includes the action of the 1996, 1997, 1998 and 1999 Sessions of the General Assembly.
A brief summary of the legal changes affecting each tax along with an estimate of their fiscal impact is
given.
In the last section, Part VII, an analysis is given of the total state and local tax burden in North Carolina in
comparison to those of other states. Tax burdens are evaluated on a per capita and percentage of personal
income basis. Special emphasis is made to compare North Carolina with the southern states and the eleven
most populated states. Further, the relative distribution of taxes is presented.
TWO TAX CONCEPTS: TAX ELASTICITY AND TAX BURDEN
In order to fully comprehend the impact a tax has on economic behavior, two concepts must be understood:
tax elasticity and tax burden. Tax elasticity is a measurement of the revenue productivity of a tax. That is, it
measures the responsiveness of changes in tax collections to changes in economic conditions. Tax burden
measures the impact of a tax on the purchasing power of an individual or a business. An understanding of
tax burden is important in evaluating who pays a tax, how much is paid, and in comparing tax efforts among
different states.
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Tax Elasticity. Growth in the level of specific tax collections is influenced by many factors. For instance,
sales tax collections are influenced by retail sales, individual income tax collections by wage and salary
disbursements and the level in employment, and corporate income tax collections by corporate profits. A
key variable that influences most tax collections, either directly or indirectly, is personal income. A growth
in personal income will cause retail sales to increase and is usually associated with a rise in corporate
profits.
To measure the elasticity of a tax, changes in tax collections are related to changes in personal income. The
statistic personal income is used as the key determining variable for two reasons: first, it is a widely-recognized
and understood statistic; and second, most tax collections are directly, or at least indirectly,
influenced by it. By relating the growth of tax collections to one variable-- personal income-- uniform
comparisons can be drawn. Personal income can increase for several reasons. First, purchasing power can
increase ( real growth); second, dollar income can increase while purchasing power remains the same
( inflation); and third, both events can occur simultaneously.
Tax elasticity measures the responsiveness of an increase or decrease in tax collections to a given increase
or decrease in the level of personal income. Specifically, it is measured by the ratio of the percent change in
tax collections divided by the percent change in gross state personal income. For example, if gross state
personal income increases at an average annual rate of 10% while individual income tax collections
increase at an annual average rate of 12%, the tax elasticity is determined as follows:
Average Annual Percent Change in Tax Collections = 12 = 1.20
Average Annual Percent Change in Gross State Personal Income 10
For the purpose of this Guide, a tax will be considered income elastic ( highly responsive to changes in gross
state personal income) if the tax elasticity as measured by this calculation is equal to or greater than 1.10 ( as
in the example above), moderately elastic if it is between 0.90 and 1.09, and inelastic ( relatively
unresponsive) if it is less than 0.90. All North Carolina taxes demonstrate some degree of elasticity.
Whenever possible, as part of the description of each tax, the elasticity is estimated.
Estimates of the income elasticity of tax collections are obtained by regression analysis, which measures
how much of a change in the dependent variable ( tax collections) is explained by changes in the
independent variable or variables ( personal income). The measurement is given by the value of the " R2."
For example, if R2 = 0.92, then 92% of the change in the dependent variable can be explained by changes in
the independent variables.
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Tax Burden. Tax burden is the amount of sacrifice individuals make when paying their taxes. In its simplest
form, tax burden can be measured in terms of the number of dollars of an individual's income that must be
dedicated to tax payments. The more dollars an individual must sacrifice the greater the tax burden.
Two common measures of tax burden are per capita tax payments and taxes paid as a percentage of
personal income. The per capita tax payment is the average amount of taxes paid by each individual. It is
found by dividing total state and local tax payments of a state by the population of the state. For instance,
suppose there are 100 people in State A who pay a total of $ 50,000 in state and local taxes, while there are
75 citizens in State B who pay $ 30,000. The per capita tax payments in each state is determined as follows:
Per Capita Tax Payments ( State A) = Total State and Local Taxes Paid = $ 50,000 = $ 5,000
Total State Population 100
Per Capita Tax Payments ( State B) = Total State and Local Taxes Paid = $ 30,000 = $ 4,000
Total State Population 75
Taxes paid as a percentage of personal income are found by dividing the total amount of state and local
taxes paid by the total state personal income. For instance, suppose the citizens of State A have a total
income of $ 1,000,000 while the citizens of State B have a total income of $ 400,000. Taxes paid as a
percentage of personal income are found as shown below:
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $ 50,000 = 5%
Personal Income ( State A) Gross State Personal Income $ 1,000,000
Taxes Paid as a Percentage of = Total State and Local Taxes Paid = $ 40,000 = 10%
Personal Income ( State B) Gross State Personal Income $ 400,000
Taxes paid as a percentage of personal income are a better measure of tax burden than per capita tax
payments. In the above example, the average citizen in State A paid more taxes than the average citizen in
State B. Citizens in State A had a higher per capita tax burden. However, since the average income of
citizens in State A was much higher than that of State B, they sacrificed a smaller portion of their income in
tax payments. Obviously, their tax burden in terms of real sacrifice ( amount of private consumption given
up to pay taxes) was less. The concept of tax burden is frequently used in Part VII to analyze the tax effort
of citizens of North Carolina compared to the tax burden of citizens of other states.
State Taxes
70%
Local Taxes
30%
CHART 1
TAX COLLECTIONS RECEIVED BY NORTH CAROLINA
GOVERNMENTS
( 1998- 99)
State Taxes $ 13,915,678,473
Local Taxes 6,035,951,738
----------------------
Total State and Local Taxes $ 19,951,630,211
General Fund
86%
Highway Fund
8%
Highway Trust Fund
6%
CHART 2
NORTH CAROLINA STATE TAX COLLECTIONS
( 1998- 99)
General Fund $ 11,966,224,754
Highway Fund 1,114,947,096
Highway Trust Fund 834,506,623
-----------------------
Total State Tax Revenue $ 13,915,678,473
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General
Fund
Taxes
Individual Income
56%
Coporate Income
7%
Sales and Use
28%
Franchise
3%
Other
6%
CHART 3
NORTH CAROLINA GENERAL FUND TAX COLLECTIONS
( 1998- 99)
Individual Income $ 6,606,500,278
Corporate Income 848,509,669
Sales and Use 3,376,206,664
Franchise 409,558,340
Other 725,449,803
----------------------
Total $ 11,966,224,754
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ALCOHOLIC BEVERAGE TAX
NORTH CAROLINA STATUTES
105- 113.68 to 105- 113.104; 18B- 902
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 163,188,783 1.3 1.7
1995- 96 145,517,853 ( 1) - 10.8 1.5
1996- 97 150,208,567 3.2 1.5
1997- 98 153,723,510 2.3 1.4
1998- 99 158,026,529 2.8 1.3
( 1) In lieu of an annual fixed appropriation, the General Assembly restored the earmarking of a portion of
the tax to local governments.
BASE AND RATE
Annual license fees are imposed on the manufacturing, bottling, or selling of beer and wine. Excise taxes
are levied on beer, wine, and spirituous liquors. Resident wholesalers and importers pay excise taxes on
wine and beer, and local alcoholic beverage control boards pay excise taxes on liquor.
An applicant for a permit issued by the North Carolina Alcoholic Beverage Control Board must pay the
following fees: ( 1) $ 400 to sell either malt beverages, fortified wine, or unfortified wine on premises; ( 2)
$ 400 to sell either malt beverages, fortified wine, or unfortified wine off premises; ( 3) $ 400 brown bagging
permit for an establishment seating 50 or more, and $ 200 for an establishment seating less than 50; ( 4) $ 400
for a special occasion permit, and $ 50 for a limited special occasion permit; ( 5) $ 1,000 for a mixed
beverage, or guest room cabinet permit; ( 6) $ 200 for a culinary, winery special event, or mixed beverage
catering permit; ( 7) $ 300 for a unfortified winery, fortified winery, limited winery, brewery, distillery, wine
importer, wine wholesaler, malt beverage importer, malt beverage wholesaler, or bottler permit; ( 8) $ 100
for a fuel alcohol permit; ( 9) $ 100 for a salesman; ( 10) $ 50 for a vendor representative permit, or certain
special one- time permits; ( 11) $ 100 for a nonresident malt beverage vendor or nonresident wine vendor
permit; and ( 12) $ 500 for a liquor importer/ bottler permit.
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By authorization of local elections, liquor " by the drink" may be sold by qualified restaurants and clubs. An
additional tax of $ 20 per gallon is levied on liquor purchased by restaurants or clubs for sale by the drink.
Of this levy, $ 9 remains with local governments along with various mixed beverages permit fees. For more
information see " Liquor by- the- Drink Tax" in the Local Government Section.
In addition to the above levies, the following excise taxes are imposed: ( 1) beer is taxed at a rate of 53.177
cents per gallon ( this is equivalent to 5 cents per can); ( 2) unfortified wine is taxed at 21 cents per liter; ( 3)
fortified wine is taxed at 24 cents per liter; and ( 4) spirituous liquor is taxed at 28% of retail price by the
state. An additional 3.5% levy on the retail price is allocated as part of ordinary profits of the ABC store to
the respective localities where the ABC store is located. Similarly, an add- on tax of 5 cents per bottle of
liquor sold in ABC stores is levied, with the revenue distributed to local governments in the same manner as
profits from the ABC stores.
DISTRIBUTION
The state earmarks 23.75% of the excise tax on malt beverages, 62% of the excise tax on unfortified wine,
and 22% of the excise tax on fortified wine to local jurisdictions in which such sales are allowed. The
remaining revenue is deposited in the General Fund. Revenue deposited in the General Fund is used for
general purposes except for 94% of the excise tax on unfortified wines and 95% of the excise tax on
fortified wine bottled in North Carolina, up to a maximum of $ 175,000 per fiscal year. This revenue is
allocated to the Department of Agriculture for the promotion of N. C. grapes. Of the $ 20 per four liters levy
on alcohol used for liquor by- the- drink sales, $ 10 goes to the General Fund, $ 1 to the Department of Human
Resources and $ 9 to the local governments where the sales took place. In addition, 5 cents per bottle " add-on"
tax on any alcohol sold in Alcoholic Beverage Control ( ABC) stores goes to county commissioners for
rehabilitation of alcoholics. An additional 3.5% levy above the state excise tax of 28% on the retail price of
alcohol sold in ABC stores is also allocated to local governments in localities where such stores are located
as part of the profits of the ABC stores. A 5 cents per bottle add- on of liquor sold in ABC stores is levied.
The revenue is used by counties and municipalities in the same manner as profits from local ABC stores.
Effective July 1, 1995. Only General Fund revenue is shown above.
TAX CALENDAR
Wholesalers and importers of beer and fortified and unfortified wine and ABC Boards must file returns
including monthly tax payments by the fifteenth day of the month for the previous month's activities.
TAX ELASTICITY
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The consumption of alcoholic beverages is influenced by the price of the product, social habits,
demographics, and purchasing power as reflected by personal income. Tax collections are moderately
related to personal income ( R2 = 0.84). Consumption has increased slightly in recent years, but has lagged
behind the growth in personal income, and has an estimated elasticity of 0.24. That is, for every 10%
increase in personal income, tax collections increase by 2.4%.
COMPARISON WITH OTHER STATES
Fifty states have alcoholic beverage taxes, with 18 states, including North Carolina, having state licensed
stores. Tax rates vary considerably as each state enacts different tax rates on beer, wine, and spirituous
liquors. Because of the wide variety of laws, it is difficult to make an exact comparison of North Carolina's
laws with those of other states. However, the following comparison will give the reader a good
approximation of the relative tax burdens. The latest complete survey on the taxation of alcoholic beverages
is for the calendar year 1998, and consists of the combined revenue per wine gallon from all state and local
taxes, fees, and levies on alcoholic beverages.
Taxes on beer ranged from $ 0.11 per gallon in Oregon to $ 1.76 in Florida. The median overall tax rate for
the nation was $ 0.83 per gallon, while the median rate for the 12 southeastern states stood at $ 0.92, and the
median for the 11 most populated states was $ 1.01. North Carolina's rate was $ 1.04 per gallon. North
Carolina is the 13th highest combined tax rate in the nation, while standing 5th in the Southeast, and 5th
among the 11 most populated states.
Taxes on wine ranged from $ 0.69 per gallon in Oregon to $ 7.38 in Utah. The median overall tax rate for the
nation was $ 2.41 per gallon, while the median rate for the 12 southeastern states stood at $ 3.08, and the
median for the 11 most states was $ 2.79. North Carolina's rate was $ 2.90 per gallon. North Carolina had the
20th highest tax rate in the nation, while standing 8th in the Southeast, and the 4th highest among the 11
most populated states.
Taxes on distilled spirits ranged from $ 3.74 per gallon in Delaware to $ 27.23 in Washington. The median
overall tax rate for the nation was $ 11.99 per gallon, while the median rate for the 12 southeastern states
stood at $ 13.97, and the median for the 11 largest states was $ 14.05. North Carolina's rate was $ 18.60 per
gallon. North Carolina had the 9th highest combined tax rate in the nation, while standing 2nd in the
Southeast, and 4th among the 11 most populated states.
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REVENUE PER GALLON FROM COMBINED STATE AND LOCAL COLLECTIONS,
ON BEER, WINE, AND DISTILLED SPIRITS, FOR NORTH CAROLINA
AND SURROUNDING STATES IN 1998
STATES BEER WINE SPIRITS
United States ( Median) $ 0.83 $ 2.41 $ 11.99
Southeast ( Median) 0.92 3.08 13.97
Eleven Largest States ( Median) 1.01 2.79 14.05
Surrounding States
Georgia 1.63 3.29 10.52
Kentucky 0.74 1.87 8.47
North Carolina 1.04 2.90 18.60
South Carolina 1.23 2.41 14.68
Tennessee 0.88 3.65 13.25
Virginia 0.87 2.93 18.07
Source: Information is obtained from " Public Revenues from Alcohol Beverages, 1998," Distilled Spirits
Council of the United States, Inc., Washington, D. C., January 2000, Table 11.
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CIGARETTE/ TOBACCO TAX
NORTH CAROLINA STATUTES
105- 113.2 to 105- 113.40
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 44,635,750 17.7 0.5
1995- 96 46,697,736 4.6 0.5
1996- 97 46,677,349 - 0.04 0.5
1997- 98 47,177,218 1.1 0.4
1998- 99 44,852,542 - 4.9 0.4
BASE AND RATE
A five cents tax per package of 20 cigarettes is levied on distributors. A distributor license fee of $ 25 is
levied on any place where a distributor receives or stores non- tax- paid cigarettes.
A 2% wholesale excise tax is levied on tobacco products other than cigarettes. In addition, a $ 25 license
fee is levied on wholesale dealers, and a $ 10 license fee is levied on retail dealers for each place where a
wholesale or retail dealer makes tobacco products other than cigarettes, or receives or stores other such non-tax-
paid tobacco products.
A 4% discount is allowed for timely payments.
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DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
Cigarette distributors as well as other tobacco product wholesaler and retail dealers file monthly returns
with payment of tax by the twentieth of each month for the previous month's activity.
TAX ELASTICITY
The sales of cigarettes and other tobacco sales have been stagnant for several years. Since consumption is
partially habitual there is only a modest relationship between tax collections and personal income ( R2 =
0.58). Sales have lagged significantly behind personal income, thereby generating an elasticity of 0.27. That
is, for every 10% increase in personal income, sales have increased by 2.7%.
COMPARISON WITH OTHER STATES
All states levy cigarette taxes. Rates ranged from 2.5 cents per pack in Virginia to $ 1.00 in Alaska and
Hawaii. The median tax for the nation was 33 cents per pack. North Carolina had the second lowest rate in
the nation at 5 cents per pack. A distribution of cigarette tax rates is shown below.
DISTRIBUTION OF STATE CIGARETTE TAX RATES,
AS OF JULY 1, 1995
Cents Per Pack Number of States
Below 10 cents 4
10 cents to 19 cents 9
20 cents to 29 cents 8
30 cents to 39 cents 8
40 cents to 49 cents 4
50 cents to 59 cents 6
50 cents to 79 cents 6
Above 80 cents 5
Source: State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois, December 1998.
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CORPORATE INCOME TAX
NORTH CAROLINA STATUTES
105- 130.0 to 150- 132.0 and 105- 163.25 to 105- 163.37
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 649,389,838 33.1 6.9
1995- 96 673,837,774 3.8 7.1
1996- 97 717,750,574 6.5 7.0
1997- 98 696,338,557 - 3.0 6.3
1998- 99 848,509,669 21.9 7.1
BASE AND RATE
North Carolina's definition of income basically follows the federal statutes. A 6.9% corporation income tax
is levied on corporate net income derived from all business conducted in the state. Multi- state corporations
are required to use a specific formula to obtain the percentage of income earned in North Carolina, which is
then applied to total net income in order to compute the net income subject to the North Carolina income
tax. The basic formula used in North Carolina is a three- factor formula with a double weighting of the sales
factor. The factors are: ( 1) the value ( original cost) of real and tangible property owned or rented by the
company in this state to total value of such property; ( 2) the level of payrolls in this state to total payrolls;
and ( 3) the level of sales to customers in this state to total sales. Separate formulas are available for
railroads, telephone, telegraph, and motor carrier companies. Alternative methods may be authorized by the
North Carolina Tax Review Board. A one- factor formula based on the sales ratio is used by building
contractors, security dealers, loan companies, or corporations receiving more than 50% of their ordinary
gross income from investments and/ or dealings in intangible property.
The following corporations are exempt from the North Carolina corporate income tax: ( 1) cooperative
banks without capital stock organized for mutual purposes and without profits; ( 2) credit unions; ( 3)
insurance companies subject to the tax on gross premiums; ( 4) telephone membership and electric
membership corporations; ( 5) business development corporations; and ( 6) nonprofit corporations.
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North Carolina provides many tax credits. Several credits are designed to encourage economic development
especially in economically depressed counties. The credits may vary between counties, and certain
corporations may not qualify. The credits often apply to a portion of expenditures, and are subject to
maximum allowable amounts. Companies must meet various criteria to qualify for the individual credits. If
the criteria is met the credits are for: 1) hiring additional full time employees; 2) certain expenditures
incurred for providing training of five or more eligible employees; 3) amount spent on depreciable
machinery and equipment of manufacturers, processors, wharehousers, distributors, data processors, central
administrative offices, and companies engaged in motion picture production. These credits sometimes
extend to leased machinery and equipment that is depreciable for federal tax purposes; 4) 4.5% of the first
$ 100,000 of depreciable property purchased and placed in service in the state; 5) the amount invested in the
North Carolina Enterprise Corporation up to a maximum of $ 750,000; 6) taxpayers who claim the federal
income tax credit for increased research activities; 7) cost of machinery and equipment of major recycling
facilities; 8) manufacturers who export cigarettes to foreign nations; 9) machinery and equipment used in
production based on technology licensed from a state research institution; 11) corporations using the ports
of Wilmington and Morehead City; 12) 25% of contributions or investments in a nonprofit organization in a
development zone; 13) additional incentives for establishments located in development zones; 14) cost of
renewable energy property used in residential and nonresidential structures; 15) use of recycled newsprint in
newspapers and magazines; 16) construction of ethanol fuel distillery; 17) electric cogenrator plants; 18)
distilleries for the production of gasohol; 19) qualified rehabilitation expenditures with respect to a certified
historic structures; 20) construction of dwellings for the handicapped; 21) construction and rehabilitation of
low income housing; 22) market value of donated property to the government used for recreational access
or conservation purposes; 23) allowed against property taxes paid on farm machinery by S- Corporations;
24) peat products manufacturing facilities; 25) corporations that provide telephone service to low income
subscribers at reduced rates; and 26) corporate farms for gleaning crops.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for 2/ 31st of each previous quarter's
collection, which is placed in the Public School Capital Funds. Earmarks of a portion of collections to
reimburse local government for the state- mandated elimination of the business inventory tax, exemption
from sales taxes of purchases made with food stamps, repeal of the intangibles tax, and partial
reimbursement for the homestead exemption. Only General Fund revenue is shown above.
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TAX CALENDAR
Calendar year corporations must file a tax return including tax payments by March 15 of each year for the
previous year's activity. Corporations whose fiscal year does not correspond with the calendar year must file
by the 15th day of the third month following the ending of its fiscal year. Declarations of estimated tax
liability are due by the fifteenth day of the fourth, sixth, ninth, and twelfth month of the taxable year.
TAX ELASTICITY
Corporate tax collections are dependent on the level of corporate profits. The relationship between state
corporate profits and state personal income was strong in recent years, and has resulted in an R2 = 0.93.
Corporate profits have been very buoyant during this expansion. Further, there has been a shift in the share
of income towards non wage income. Thus, the income elasticity of corporate income tax collection is quite
strong, equal to 1.61. That is, for every 10% increase in state personal income, corporate income tax
collections increases by 16.1%.
COMPARISON WITH OTHER STATES
Forty- five states levy corporate income taxes. Michigan levies a single business tax. Most states followed
the federal definition of income. Of the 45 states levying corporate income taxes, 27 states had a higher
marginal rate than North Carolina, while 17 states had a lower marginal rate.
DISTRIBUTION OF STATE CORPORATE INCOME TAXES
HIGHEST MARGINAL
RATE NUMBER OF STATES
Below 5.0% 1
5.0% to 5.9% 6
6.0% to 6.9% 11
7.0% to 7.9% 8
8.0% to 8.9% 9
9.0% to 9.9% 6
10.0% and above 4
Source: State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois,
December 1998.
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FRANCHISE TAX
NORTH CAROLINA STATUTES
105- 114 to 105- 129.1
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 458,058,989 4.3 4.9
1995- 96 355,918,036 - 23.3 3.8
1996- 97 387,811,674 9.0 3.8
1997- 98 407,256,555 5.0 3.7
1998- 99 409,558,340 0.6 3.4
BASE AND RATE
Franchise taxes include taxes on electric power companies; gas and other similar utility companies;
telegraph companies; telephone companies; mutual burial associations; business corporations, and
cooperative organizations.
There is levied on each utility an annual charge to defray the cost of regulation. The regulatory rate is
0.09% of each public utility's North Carolina jurisdictional income.
Gas(*), Power and Light, Water, Sewerage, and Other Similar Public Service Companies. A 3.22% tax
rate is applied to the total gross receipts in the state, minus authorized exemptions and deductions of gas,
power and light, and all other utilities not otherwise taxed under a separate section, except privately owned
water companies and public sewerage companies. The former is taxed at 4.0% and the latter at 6.0%. In
addition, usage of gas, power and light, and other utilities services are also subject to a 3% sales tax. ( See
" Sales and Use Tax" in this section.)
(*) Effective July 1, 1999, a separate schedule for piped natural gas is created based on the monthly volume
of natural gas received by the final user. The tax per therm is as follows: first 200, $ 0.047; 201 to 15,000,
$ 0.035; 15,001 to 60,000, $ 0.024; 60,001 to 500,000 $ 0.015; and over 500,00, $ 0.003.
Street Bus Companies or Similar Transportation Systems for Passengers. A flat fee of $ 35 per year is
charged.
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Telegraph Companies. A 6% tax is levied on total gross receipts, which both originate and terminate in the
state.
Telephone Companies. A 3.22% tax is levied on total gross receipts from all rentals and other similar
charges derived from local telecommunication services. In addition, local telecommunication service
revenue is subject to a 3% sales tax, while toll communication services and private telecommunication
service revenues are subject to a 6.5% intra- state sales tax. ( See " Sales and Use Tax" in this section for
additional information.)
Mutual Burial Associations. A $ 15 levy is applied to associations with memberships of less than 3,000; $ 20
for 3,001 to 5,000; $ 25 for 5,001 to 10,000; $ 30 for 10,001 to 15,000; $ 35 for 15,001 to 20,000; $ 40 for
20,001 to 25,000; $ 45 for 25,001 to 30,000; and $ 50 for 30,001 or more.
Business Corporations and Cooperative Organizations. A tax rate of $ 1.50 per $ 1,000 of value of the largest
of the following is applied:
1. The sum of capital stock, surplus, and undivided profits apportioned to North Carolina.
2. Fifty- five percent of the appraised value of real estate and tangible personal property in North
Carolina plus the assessed value of intangibles.
3. Net book value of real and tangible personal property in North Carolina.
As in the case of the corporation income tax, business corporations operating in states other than North
Carolina use a specified formula to determine the amount of the value of capital stock, surplus, and
undivided profits subject to this tax. The basic formula is based on the average of three ratios, with a double
weighting of the sales ratio. The ratios are: ( 1) property ratio, ( 2) payroll ratio, and ( 3) sales ratio. ( See
" Corporate Income Tax" in this section for additional information.) There is a minimum annual filing
charge of $ 35.
(*) Effective July 1, 1999, natural gas excise tax returns are due quarterly by the last day of the month that
follows the quarter. This will be done under a separate excise tax on natural gas schedule.
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DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for revenue from the regulatory fee.
It should be noted that the General Assembly appropriates to local government, on an annual basis,
approximately 96% of the gross receipts from business operations within cities by telephone companies and
public utilities. Effective July 1, 1999, within 75 days after the end of each calendar quarter, the Secretary
must distribute to the cities ( which resell natural piped gas) one half the amount of collections attributed to
that city. This will be done under the new excise tax on natural gas schedule.
TAX CALENDAR
Franchise taxes are due on the following dates: 1) gas(*), power and light companies, and telephone
companies with a tax liability of $ 3,000 or more per month, file and remit payment on the last day of the
month, except for June, when payment is due by the twenty- fifth. Telephone companies with a tax liability
of less than $ 3,000 per month may file and pay quarterly; 2) water, sewerage, and other similar public
service companies file and remit payment quarterly by the thirty- first of January, April, July, and October
for the prior three months' economic activity; 4) street bus companies and similar transportation companies
for passengers must file and remit payment by June 1 for the privilege of doing business in the next fiscal
year beginning July 1; 5) telegraph companies must file and remit payment by August 1 for taxes due on
gross receipts earned during the previous calendar year; 6) mutual burial associations must file and remit
payment by April 1 each year for membership as of March 30; and 7) business corporations and cooperative
organizations must file and remit payment by the fifteenth day of the third month following the end of their
income year for the amounts shown on their books for said income year.
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TAX ELASTICITY
The franchise tax schedule includes several tax components. The largest components of the franchise tax are
the excise tax on utility services and the corporate franchise tax. These collections depend on the level of
economic activity, income, price, weather, and the value of property. Although state personal income is not
the most direct determinant of these collections, it is a good proxy, as it reflects the general state of the
economy. A strong relationship between personal income and franchise tax collections was found ( R2 =
0.97). The franchise tax is moderately responsive to economic growth, and had an estimated income
elasticity of 0.99. That is, for every 10% change in personal income, franchise tax collection change by
9.9%.
COMPARISON WITH OTHER STATES
All states levy at least one or more of the components of North Carolina's franchise tax. Over 98.0 percent
of the state's total franchise tax collections is made up by the three largest components of the tax: 1)
corporate franchise tax, 2) gross receipts tax on gas, power and light companies, and 3) gross receipts tax on
telephone companies.
Every state levies a tax on corporate franchises. These levies are in the form of flat charges or graduated
rates. Seventeen states levy only a flat filing charge, while all other states levy both a flat filing charge and a
graduated tax. Graduated taxes are typically based on the number of shares outstanding or the net worth of
the corporation. Because of various tax bases of corporate franchise taxes, it is difficult to make a national
comparison. However, it appears that North Carolina's corporate franchise tax is higher than the national
average. ( Source: State Tax Handbook, 1999, Commerce Clearing House, Inc., Chicago, Illinois,
December 1998.)
North Carolina citizens pay a 3.22% gross receipts tax on power and light, and telecommunication
companies. ( Note: effective July 1, 1999, there is a new excise tax on piped natural gas schedule.) Several
other states also levy franchise taxes on telephone and power companies using various tax bases which
include gross receipts, profits, gross income, miles of service, and kilowatt hours. It appears that 33 states
levy some type of percentage tax on gas, power and light, and telecommunication services. ( Source: State
Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois, December 1998.)
24
FREIGHT CAR TAX
NORTH CAROLINA STATUTES
105- 228.1 to 105- 228.2
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 435,745 28.9 0.01
1995- 96 422,026 - 3.2 0.00
1996- 97 495,433 17.4 0.00
1997- 98 477,655 - 3.6 0.00
1998- 99 469,302 - 1.8 0.00
BASE AND RATE
A 3% levy is placed on the gross earnings of freight line companies, derived from operating or leasing
freight cars, for transporting freight over any railroad lines in the state. This tax is in lieu of ad valorem
taxes.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
Taxes are due by April 30 for gross earnings of the previous calendar year.
TAX ELASTICITY
The relationship between personal income and collections from the excise tax on freight cars was too weak
to warrant estimating an income elasticity.
25
COMPARISON WITH OTHER STATES
Fifteen three states levy specific and separate taxes on freight car lines. The levies are typically based on
gross receipts ranging from 1% to 6%. North Carolina's rate is 3%. Some states, however, levy taxes
based on net earnings or on a per mile basis. ( Source: State Tax Handbook, 1999, Commerce Clearing
House, Chicago, Illinois, December, 1998.)
26
GIFT TAX
NORTH CAROLINA STATUTES
105- 188 to 105- 197
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 8,591,847 - 34.7 0.1
1995- 96 11,036,783 24.5 0.1
1996- 97 12,560,940 13.8 0.1
1997- 98 20,640,224 64.3 0.2
1998- 99 19,334,909 - 6.3 0.2
BASE AND RATE
The tax is levied on the donor against all property transferred as gifts in excess of $ 10,000 under the
jurisdiction of the state, whether real or personal during a calendar. Taxes are only levied on nonresidents
when they give property, which the state has, jurisdiction.
Gifts to a spouse are exempt from taxation. The first $ 10,000 in gifts per year given to each donee other
than gifts of future interest in property, is exempt from taxes. A donor, with permission of the other spouse,
may use some or all of the spouse's $ 10,000 annual exclusion. In addition to the $ 10,000 annual exclusion,
there is a $ 100,000 per donor lifetime exemption to be deducted from gifts made to a Class A donee. Gifts
to state or political subdivisions or nonprofit charitable, religious, or educational corporations within the
state are exempt. There are four classifications of donees: 1) Spouse; 2) Class A, which includes lineal
issues or ancestors, stepchildren, or adopted children; 3) Class B, which includes brothers, sisters, issues of
either, or blood aunts, or uncles; and 4) Class C, which includes other relatives or unrelated persons.
27
RATE/ BRACKET SCHEDULE
( APPLIES TO PORTIONS IN EXCESS OF EXEMPTION)
Rate for Rate for Rate for
Tax Brackets Class A Donee Class B Donee Class C Donee
$ 0 - 5,000 1 4 8
5,001 - 10,000 1 5 8
10,001 - 25,000 2 6 9
25,001 - 50,000 3 7 10
50,001 - 100,000 4 8 11
100,001 - 200,000 5 10 12
200,001 - 250,000 6 10 12
250,001 - 500,000 6 11 13
500,001 - 1,000,000 7 12 14
1,000,001 - 1,500,000 8 13 15
1,500,001 - 2,000,000 9 14 16
2,000,001 - 2,500,000 10 15 16
2,500,001 - 3,000,000 11 15 17
Above 3,000,000 12 16 17
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
Taxes are due by April 15 for gifts made during the prior calendar year.
TAX ELASTICITY
Gift tax collections are dependent on the net wealth, estate planning, and generosity of the donors. There is
not a significant statistical relationship between collections and state personal income.
COMPARISON WITH OTHER STATES
Five states have gift taxes. There are wide variations in exemptions, rates, and recipient categories. ( Source:
State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois, December, 1998.)
28
INDIVIDUAL INCOME TAX
NORTH CAROLINA STATUTES
105- 133 to 105- 159.1, 105- 163.01 to 105- 163.09, and 105- 163.1 to 105- 163.25
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 4,665,474,733 9.7 49.8
1995- 96 4,800,034,948 2.9 50.8
1996- 97 5,329,990,261 11.0 52.6
1997- 98 6,028,870,217 13.1 54.4
1998- 99 6,606,500,278 9.6 55.2
BASE AND RATE
The state conforms closely to the federal tax code. The following are some of the additions to the federal
definition of taxable income: 1) interest from state and local government obligations other than those of
North Carolina and its subdivisions; 2) any amount allowed as a deduction from gross income that is taxed
by a separate tax under the Internal Revenue Code ( IRC) such as lump sum distributions of certain
employees' retirement plans; 3) state, local, and foreign income taxes allowed on federal returns only if total
deductions exceed the allowed federal standard deduction; and 4) standard deduction and personal
exemption inflation adjustments allowed under the IRC are not automatically authorized under North
Carolina law. The following items are not included in North Carolina taxable income: 1) interest from
obligations of the United States, North Carolina, or its subdivisions; 2) gain from the disposition of
obligations issued before July 1, 1995, to the extent the gain is exempt under North Carolina law; 3)
benefits under Title II of the Social Security Act and retirement benefits under the Railroad Retirement Act
of 1937; 4) refunds of state, local, and foreign income taxes; 5) maximum of $ 4,000 in retirement benefits
from one or more federal, state, or local retirement plans if the retiree had less than five years of service as
of August 12, 1989, and all retirement benefits excluded if the retiree had more than five years service; and
6) up to $ 2,000 in one or more private retirement plans.
29
Each personal exemption is $ 2,500 for a taxpayer whose federal adjusted gross income ( AGI) is less than
the amounts shown below, and $ 2,000 if more than theses amounts.
Federal
Filing Status Adjusted Gross Income
Married Filing Joint $ 100,000
Head of Household 80,000
Single 60,000
Married Filing separate 50,000
In addition, an exemption up to $ 35,000 in severance pay is granted as a result of the taxpayer’s involuntary
termination through no fault of the taxpayer. The standard deduction is as follows: 1) married filing joint--
$ 5,000; 2) married filing separate--$ 2,500; 3) head of household with dependent--$ 4,400; and 4) single--
$ 3,000. After allowing for personal exemptions and deductions, the following rate/ bracket schedule applies:
RATE/ BRACKET STRUCTURE
Married Married
Rate Filing Joint Filing Separate Head of Household Single
6.0% $ 0 - 21,250 $ 0 - 10,625 $ 0 - 17,000 $ 0 - 12,750
7.0% 21,251 - 100,000 10,626 - 50,000 17,001 - 80,000 12,751 - 60,000
7.75% 100,001 and Above 50,001 and Above 80,001 and Above 60,001 and Above
The following tax credits are allowed: 1) a progressive dependent care credit for qualified expenditures up
to a maximum of $ 2,400 of expenditures for one dependent and $ 4,800 for more than one dependents; 2)
$ 60 credit for each dependent child; 3) a credit for child health insurance premiums; 4) a credit for taxes
paid on certain federal retirement benefits; 5) a credit of 1/ 3 the amount allowed by federal government for
an individual who is totally and permanently disabled; 6) a credit for taxpayer's share of S- corporation
income taxes paid in another state that taxes the corporation rather than the shareholder; 7) a tax credit to
farmers who permit their crops to be gleaned; 8) a tax credit is for donating an interest in real property to
the state, local government, or other qualifying organization for certain land conservation purposes; 9) a
25%, credit up to a maximum of $ 50,000, for the amount invested in equity securities of a qualified
business; 10) a tax credit for qualified rehabilitation expenditures with respect to a certified historic
structure; 11) and a partial credit for individuals and corporations using the ports at Wilmington and
30
Morehead City; 12) a tax credit for taxes paid to another state or country; 13) a tax credit up to maximum of
$ 550 for the construction of each dwelling for the handicapped that conforms to the North Carolina
Building Code; 14) a credit up to a maximum of $ 1,000 for property taxes paid on farm machinery; 15) a
7% tax credit for charitable contributions in excess of 2% of adjusted gross income; 16) a 15% tax credit up
to $ 350 for the premium cost on a qualified long- term care policy; 17) a partial tax credit for the
construction of a poultry composting facility; and 18) a 35% tax credit for the cost of renewable energy
property up to a maximum of $ 20,000 for nonresidential property and $ 10,500 for residential property. In
addition various tax credits are granted for: a) construction of a solar energy system, b) cost of conversion
of an industrial boiler, c) hydroelectric generator, d) solar heat in a manufacturing process, e) wind energy
device, f) cost of construction or installation of methane gas facility, and g) certain tillage equipment used
for conservation. Further, selected credits are granted for: a) creating jobs in selected industries, b)
investing in machinery and equipment, c) research and development expenditures, d) worker training,
e) investing in central administrative office property, e) contributions to development zone projects, f)
investing in certain business property, and g) investing in low income housing.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
Returns and tax payments are due by April 15 for income earned during the previous calendar year.
Employers who withhold an average of less than $ 500 per month are required to file and remit tax payments
quarterly. Payments are due on the last day of the first month following the end of the calendar quarter for
withholdings of the previous quarter. Every employer required to deduct and withhold an average of
between $ 500 and $ 2,000 in income taxes per month, and all employers engaged in any business which is
seasonal or temporary in nature, shall make returns and payments of such withholdings by the fifteenth day
of the month following the month in which such amounts were withheld, except amounts withheld in
December which are due on January 31. Employers who withhold an average of over $ 2,000 per month are
required to remit payments in accordance with the federal withholding payment schedule. Other employers
not mentioned above who are required to deduct and withhold income taxes from wages and salaries shall
make returns and payments quarterly. Payments are due on the last day of the first month following the end
of the calendar quarter for withholdings of the previous quarter.
Estimated income tax payments are required if the taxpayer expects his net estimated tax after withholding
and tax credits to be more than $ 1,000. Estimated tax payments are due in four installments for the
estimated current year's income by April 15, June 15, September 15, and January 15 ( for the last quarter of
the preceding year).
31
TAX ELASTICITY
Individual income tax collections are dependent on the level of state personal income, having an R2 = 0.96.
That is, 96% of the changes in personal income tax collections are associated with changes in state personal
income. Further, personal income is responsive to changes in state personal income, with an estimated
income elasticity of 1.14. That is, for every 10% increase in state personal income, individual income tax
collections increase by 11.4%.
COMPARISON WITH OTHER STATES
Forty- three states levy individual income taxes with tax rates, deductions, and exemptions varying widely.
North Carolina relies more heavily on the individual income tax than most other states, obtaining 29.9% of
its state and local taxes from the individual income tax in 1995- 96, as compared to 21.3% for the nation,
16.9% for the 12 Southern states, and 20.4 for the 10 most populated states. Ten states have a higher
marginal rate than North Carolina, while 32 have a lower marginal rate. On a national basis, 2.4% of state
personal income was devoted to state individual income tax payments. North Carolina citizens devoted
3.2% of their income to individual income tax payments, while taxpayers in the Southeast devoted 1.8%,
and those in the eleven largest states 2.3%. In terms of per capita income the average taxpayer in the nation
paid $ 554 in individual income tax payments, while North Carolina taxpayers paid $ 673, and those in the
Southeast and the eleven largest state $ 364 and $ 553 respectively. ( Source: Governmental Finances: 1995-
96, Bureau of the Census, U. S. Department of Commerce, Washington, D. C., 1999, and State Tax
Handbook, 2000, Commerce Clearing House, Chicago, Illinois, 1999.)
32
INHERITANCE TAX/ ESTATE TAX
NORTH CAROLINA STATUTES
105.2 to 105.32 ( repealed)
105- 32.1 to105.32.5 ( Estate Tax)
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 109,865,447 3.1 1.2
1995- 96 112,912,290 2.8 1.2
1996- 97 132,068,325 17.0 1.3
1997- 98 138,124,663 4.6 1.2
1998- 99 169,935,220 20.0 1.4
BASE AND RATE
The Inheritance tax was repealed effective January 1, 1999. The state estate tax, which is equal to the state
death tax credit allowed by the Federal Estate Tax Act remains in effect.
The inheritance tax was applicable to all property located within the state which is transferred at the time of
death by residents of North Carolina to their heirs and beneficiaries, and by non residents owning real and
tangible personal property in North Carolina. Heirs and beneficiaries were classified in four categories:
Spouse, Class A, Class B, and Class C. ( See " Gift Tax" in this section for additional information.) Spouses
are exempt from the inheritance tax. A tax credit of $ 33,150 ( equivalent to a $ 600,000 exemption) was
shared by the Class A beneficiaries.
Property passing to charitable, educational, religious institutions, or governmental jurisdictions were
exempt. Out- of- state charitable and educational bequests are exempt if a reciprocal arrangement was agreed
to by the corresponding state.
Deductions included: 1) taxes accrued and unpaid at the time of death; 2) drainage and street assessments;
3) reasonable funeral and burial expenses; 4) debts of decedent; 5) estate or inheritance taxes paid to other
33
states or foreign countries; 6) expenses for monuments up to $ 2,500; and 7) payment for executors,
administrators, and legal fees; 8) cost of administration ( includes interest paid on federal estate and North
Carolina inheritance taxes).
The following rate schedule applied:
RATE/ BRACKET SCHEDULE
( APPLIES TO PORTIONS IN EXCESS OF EXEMPTION)
Rate for Rate for Rate for
Tax Brackets Class A Donee Class B Donee Class C Donee
$ 0 - 5,000 1 4 8
5,001 - 10,000 1 5 8
10,001 - 25,000 2 6 9
25,001 - 50,000 3 7 10
50,001 - 100,000 4 8 11
100,001 - 200,000 5 10 12
200,001 - 250,000 6 10 12
250,001 - 500,000 6 11 13
500,001 - 1,000,000 7 12 14
1,000,001 - 1,500,000 8 13 15
1,500,001 - 2,000,000 9 14 16
2,000,001 - 2,500,000 10 15 16
2,500,001 - 3,000,000 11 15 17
Above 3,000,000 12 16 17
DISTRIBUTION
Revenue was deposited in the General Fund for general purposes.
TAX CALENDAR
Reports must be filed within nine months after the appointment of an executor or administrator. Tax
payments were due at time of death of decedent, but a nine month extension is granted for payments without
interest or penalty. Interest accrued on any unpaid tax beginning nine months after the date of death. When
all the beneficiaries are Class A and/ or the spouse, the threshold for filing was $ 6,010,000.
34
ESTATE TAX
A tax in addition to the inheritance tax is imposed when the inheritance tax is less than the maximum state
death tax credit allowed by the Federal Estate Tax Act. The estate tax is equal to the difference between the
federal state tax credit and the North Carolina inheritance tax.
TAX ELASTICITY
Inheritance tax collections are dependent on the net wealth of decedents at the time of death. Although these
events can be quite random, there appears to be a strong statistical relationship between collections and
state personal income ( R2 = 0.97). Over the past decade, collections have increased faster than state
personal income. It is estimated that inheritance tax collections have an income elasticity of 1.42. That is,
for every 10% change in personal income, inheritance tax collections change by 14.2%.
COMPARISON WITH OTHER STATES
All 50 states levy death taxes. Fifteen states levy an inheritance tax and an estate tax. The estate taxes are
equal to the state death tax credit allowed by the Federal Estate Tax Act. One state, Texas, levies only an
inheritance tax. The remaining 34 states levy only an estate tax. ( Source: State Tax Handbook, 1999,
Commerce Clearing House, Chicago, Illinois, December, 1998.)
35
INSURANCE TAX
NORTH CAROLINA STATUTES
105- 228.3 to 105- 228.10, and 58- 33- 125
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 236,215,989 7.6 2.5
1995- 96 242,652,553 2.7 2.6
1996- 97 258,503,720 6.5 2.5
1997- 98 283,763,234 9.8 2.6
1998- 99 291,230,879 2.6 2.4
BASE AND RATE
There are three levies against insurance companies-- a gross premium tax, a regulatory charge, and license
fees. The gross premium tax makes up over 98% of collections. There are two gross premium tax rates that
are applied to both domestic and foreign insurance companies. A tax rate of 2.5% is levied on the gross
premiums of worker's compensation policies. A tax rate of 1.9% is applied to the gross premiums of all
other insurance policies. An additional 1.33% is applied to the gross premiums of fire and lightning policies
( except on marine and automobiles) of which 75% remains with the General Fund and 25% is dedicated for
special purposes. Further, an additional 0.5% is applied to the gross premiums of fire and lightning policies
which is dedicated for special purposes. A 0.5% gross premium tax is applied to gross premiums of hospital
and dental service corporations. Retaliatory provisions exist.
There is a regulatory charge paid by insurance companies, which is a percent of their premium tax liability.
The current rate is 7%. The revenue is deposited in a special fund for the Department of Insurance in the
state treasury.
Their respective North Carolina Guaranty Association covers life insurance and casualty insurance
companies. Assessments are levied to cover the cost of insolvency and liquidations. A tax credit against
36
premium tax payments equal to the amount of the assessment is allowed. The credit is taken over a five- year
period in equal annual amounts.
Various registration, examination, and license fees apply to insurance companies, insurance agents, and
insurance adjusters.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except revenue collected from the
regulatory fees, and 25% of the additional 1.33% tax, and 100% of the additional 0.5% tax which are
deposited in a special fund in the State Treasury. Only General Fund revenue is shown above.
TAX CALENDAR
Gross premium taxes are due by March 15 for the previous calendar year's activities, except for insurance
companies with a premium tax liability of $ 10,000 or more for business done in North Carolina during the
immediate preceding year. Such companies must pay 33 1/ 3% of the premium tax liability for the previous
taxable year in three installments on or before the fifteenth of April, June, and October. Regulatory fees are
due at the time the gross premium tax is due. Annual company registration fees are due by March 1 and are
effective July 1. Annual registration fees for brokers, agents, and adjusters are due annually by April 1.
TAX ELASTICITY
Insurance tax collections are closely related to economic activity, and thus, to changes in state personal
income. It has been estimated that R2 = 0.91. That is, 91% of the change in insurance tax collections is
statistically related to changes in personal income. There has been a decline in the responsiveness of
insurance tax collection to the growth in state personal income in recent years as a result of credits taken
against assessments of the North Carolina Guarantee Associations. The level of insolencies and liquidations
has declined, which will result in a smaller level of credits. It has been estimated that insurance tax
collections have an income elasticity of 0.75. That is, for every 10% change in personal income, insurance
tax collections change by 7.5%.
37
COMPARISON WITH OTHER STATES
Every state levies an insurance premium tax, which is paid in lieu of other taxes. The most typical premium
tax rate is approximately 2%. It is difficult to compare rates between states because premium taxes vary
depending on the type of policy and other special provisions apply. However, it appears that North
Carolina's premium taxes are typical in comparison to other states. Two states had higher rates for foreign
companies. Further, only two state did not have retaliatory taxes, in case other states had higher rates for
foreign companies. ( Source: State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois,
December 1998.)
38
PRIVILEGE LICENSE TAX
NORTH CAROLINA STATUTES
105- 33 to 105- 113.1
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 64,661,218 70.4 0.7
1995- 96 42,009,251 - 35.0 0.4
1996- 97 43,353,475 3.2 0.4
1997- 98 36,648,113(*) - 15.5 0.3
1998- 99 27,588,260(*) - 24.7 0.2
(*) The General Assembly has removed many businesses from the tax base.
BASE AND RATE
Various business license taxes are levied on persons, firms, or corporations engaging in certain businesses
or professions. A 3% gross receipts tax is levied on the receipts of certain athletic, entertainment, and
exhibition events. A 1% gross rceipts tax is levied on the operation of motion picture shows. Individual
engages in various professions including physicians, attorneys, engineers, and so forth pay a $ 50 annual
license fee. Privilege license taxes are also levied on banks, installment paper dealers, loan agencies, and
publishers of newsprint publications.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes.
TAX CALENDAR
Taxes are due annually by July 1 for the upcoming fiscal year.
39
TAX ELASTICITY
As a result of changes in the tax base an elasticity was not estimated.
COMPARISON WITH OTHER STATES
All states have occupational or business license taxes or fees. The occupations upon which the levies are
placed and the individual rates vary significantly within and between states. ( Source: State Tax Handbook,
1999, Commerce Clearing House, Chicago, Illinois, December 1998.)
40
SALES AND USE TAX
NORTH CAROLINA STATUTES
105- 164.1 to 105- 164.44A
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1994- 95 2,781,683,390 7.9 29.7
1995- 96 2,958,132,813 6.4 31.3
1996- 97 3,127,673,443 5.7 30.6
1997- 98 3,255,372,048 4.1 29.3
1998- 99 3,376,206,664 3.7 28.2
BASE AND RATE
A 4% state tax is imposed on retail sales, leases, or rentals to consumers of tangible personal property not
specifically exempt or subject to taxation at a reduced rate. Certain services such as rental of
accommodations to transients, cleaning services provided by dry cleaners, laundries and similar type
businesses, and charges for burial are subject to the 4% rate of state tax. All items that are subject to the 4%
state sales tax are also subject to all local option sales taxes, which are presently at a 2% rate, except in
Mecklenburg County which has a 2.5% rate. Many items such as prescription medicine, certain medical
devices, commercial feed, fertilizers, and certain items used in manufacturing, processing, distributing and
other business activities are exempt from the tax. The stated list of exempt items is not all inclusive.
The gross receipts derived by a utility from the sale of electricity and local telecommunication services are
subject to the 3% rate of state sales tax, in addition to the 3.22% rate of tax imposed under the franchise tax
schedule. The gross receipts derived from providing intrastate toll or private telecommunication services are
subject to a 6.5% state sales tax.
A 3% rate of state tax is levied on the retail sales price of new and used airplanes, boats, locomotives,
railroad cars, mobile offices, and mobile classrooms with a maximum levy of $ 1,500. Revenue from the
long- term rental or leases of motor vehicles is subject to the 3% alternate highway use tax.
41
The sales of electricity to farmers, manufacturers, and coin laundries are taxed at 2.83%.
Manufactured housing is taxed at a 2% rate with a $ 300 ceiling per article.
Short term leases of motor vehicle ( less than 365 continuous days) are subject to the 8% alternate highway
use tax, and accounted for under the General Fund.
Sales of coal, coke, fuel oil, and other combustibles, other than electricity or piped natural gas, to
manufacturing industries or manufacturing plants are subject to the 1% rate, provided such combustibles are
not used for residential heating purposes. These same combustibles are subject to the 1% rate of tax when
sold to farmers for use by them for any farm purpose, including aqua- farming, other than preparing food,
heating a dwelling, or other household purposes. The 1% rate also applies to mill machinery, mill
machinery parts, and accessories thereof when sold to manufacturing industries and plants for use in the
manufacturing process, with a maximum tax of $ 80 per article. Certain similar articles are exempt when
purchased by an air courier hub, or a major recycling facility. Sales to farmers of machines, and machinery
and parts, or accessories for use in planting, cultivating, harvesting, or curing farm crops, or in the
production of dairy products, eggs, or animals are subject to the 1% rate of tax with the $ 80 maximum per
article.
Food items sold for home consumption are exempt from the state sales tax base. However, these items are
still subject to the 2% local government sales tax.
The federal government and the North Carolina Department of Transportation are exempt from state and
local sales and use taxes. Exemptions also apply to railroad companies purchase of diesel fuel used by
locomotives and railroad cars. State government agencies receive a refund of local sales and use taxes paid
on their direct purchases for use. Certain governmental entities as defined by statute, as well as hospitals,
educational institutions, churches, orphanages, and charitable and religious institutions not operating for a
profit, and certain homes for the aged, sick, or infirm may obtain refunds of sales taxes paid. Refunds apply
for certain items purchased by an air courier hub or a major recycling facility.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for a small dedication to the
Wildlife Resource Fund. In addition to the state sales tax, county governments levy a 2% tax on items,
which the state taxes at the 4% rate, except Mecklenburg County, which has a 2.5% levy. The local tax base
also includes food items sold for home consumption ( See " Sales and Use Tax: Local Government" in the
local government section for more information.) Only General Fund revenue is shown above.
42
TAX CALENDAR
For smaller merchants, taxes are due monthly by the fifteenth of each month on sales that took place the
previous month. Businesses with monthly sales and use liabilities of $ 20,000 or more are required to file
sales and use tax returns and remit taxes due for the first 15 days of the month by the twenty- fifth, and taxes
due for the last half of the month by the tenth of the following month. Persons who consistently owe sales or
use taxes of less than $ 100 per month may file reports quarterly within 15 days after the end of the calendar
year quarter.
TAX ELASTICITY
Sales tax collections are directly related to the level of retail sales. Since state personal income is the major
determinant of retail sales, there is a close statistical relationship between income and revenue ( R2 = 0.98).
That is 98% of the changes in sales and use tax collections are related to changes in state personal income.
Sales and use tax collections do not fluctuate as much as personal income. It is estimated that the sales and
use tax is moderately responsive to changes in personal income with an income elasticity of 0.91. That is,
for every 10% change in personal income, sales and use tax collections change by 9.1%.
COMPARISON WITH OTHER STATES
Forty- five states levy sales and use taxes. State sales tax rates range from 3% in Colorado to 7% in
Mississippi and Rhode Island, with a median rate of 5%. The basic state sales tax rate for North Carolina is
4%. Two states have a lower state sales tax rate, nine the same ( including North Carolina) a 4% rate, and 32
higher state rate. ( Source: State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois,
December 1998.)
Additional local sales and use taxes are levied in 32 states including North Carolina. Information was found
on 27 states. For the largest city in these states, tax rates ranged from 0.5% to 5.31%, with a median of 2%.
Ten states had a lower local sales tax, three states including North Carolina had a 2% rate, and 13 states had
a higher tax rate. ( Source: Tax Rates and Tax Burdens in the District of Columbia— A National
Comparison, July 1998.)
Eighteen states levy a state sales tax on food consumed at home. Two of those states levy a lower tax on
food purchases. It should be noted that although North Carolina does not levy a state sales tax on food
consumed at home, there is a 2% local sales tax on those purchases. ( Source: State Tax Handbook, 1999,
Commerce Clearing House, Chicago, Illinois, December 1998.)
43
45
Highway
Fund
Taxes
Motor Fuels
69%
Truck Plates
5%
Staggered Registration
12%
Driver License
6%
IRP
5%
Other
3%
CHART 4
NORTH CAROLINA HIGHWAY FUND TAX COLLECTIONS
( 1998- 99)
Motor Fuels $ 775,542,096
Truck Plate 56,781,624
Staggered Registration 137,887,521
Driver License 62,278,971
International Registration
Plan ( IRP) 50,791,801
Other Licenses and Fees 31,665,083
----------------------
Total $ 1,114,947,096
47
DEALER AND MANUFACTURER LICENSES
NORTH CAROLINA STATUTES
20- 285 through 20- 289
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 1,071,510 19.5 0.1
1995- 96 1,157,249 8.0 0.1
1996- 97 1,133,250 - 2.1 0.1
1997- 98 1,163,695 7.7 0.1
1998- 99 1,204,073 3.5 0.1
BASE AND RATE
Annual license fees are levied on motor vehicle manufacturers, dealers, distributors, distributor branches,
wholesalers, and salesmen at the following rates: 1) motor vehicle dealers, distributors, distributor branches
and wholesalers--$ 50 for each principle place of business; 2) manufacturers--$ 100, and for each factory
branch in this state--$ 70; and 3) motor vehicle sales representatives, factory representatives, or distributor
representatives--$ 10, and a change of employers--$ 5; The following license holders may operate as a motor
vehicle dealer without obtaining a motor vehicle dealer's license or paying an additional fee: manufacturer,
factory branch, distributor, and distributor branch. Any of these license holders who operate as a motor
vehicle dealer may sell motor vehicles at retail only at an established salesroom.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Licenses expire on June 30, and applications and fees must be received prior to that date.
48
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
49
DRIVERS LICENSES
NORTH CAROLINA STATUTES
20- 7, 11, 14, 26, 37.7
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 58,017,462 11.0 5.9
1995- 96 68,439,883 18.0 6.7
1996- 97 68,124,912 - 0.4 6.4
1997- 98 70,094,961 2.9 6.4
1998- 99 62,278,971 - 11.2 5.6
BASE AND RATE
There are several bases and corresponding rates for the issuance or reissuance of operator licenses. These
include: 1) the basic operator’s license ( Class C) which can be issued for a period of four to eight years at a
cost of $ 2.50 per year; 2) operator licenses for large vehicles restricted to intrastate usage ( Class A or B)
which can be effective for four to eight years at a cost of $ 3.75 per year; 3) a limited learner’s permit and a
limited provisional license for persons less than 18 years old for a fee of $ 10. The following fees are levied
for Commercial Driver Licenses ( CDL): 1) Class A, B, or C with an issuance period ranging from four to
eight years for a fee of $ 10 per year; 2) application fee, $ 20; 3) endorsement fees, $ 125 per endorsement
per year ( this also includes a motorcycle endorsement for either regular or CDL licenses). After registration,
Class A, B, and C driver license holders are placed on a five year renewal cycle. In addition the following
fees apply: 1) duplicate license, $ 10; 2) copy of license record for period up to three years, $ 5; 3) a seven-year
extract copy of a driver license record, $ 5; 4) a certified true copy of complete license record, $ 7; 5) a
fee of $ 10 for a nonoperator's identification card which is effective for a period of four to eight years; 6) a
restoration fee of $ 25 to restore a license revoked, suspended, or canceled for motor vehicle law violations,
and $ 50 if revoked for driving under the influence; and 7) a $ 50 charge when a licensee fails to surrender a
driver's license that is revoked.
50
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes, except $ 25 of the $ 50 fee if a license is
revoked for driving under the influence, which is deposited in the General Fund.
TAX CALENDAR
License fees and other charges are due at the time of purchase of the license or service.
TAX ELASTICITY
Collections are related to the size, composition and growth of population. During the past decade
collections have increased at about one- third the rate of personal income. However, as a result of the phase-in
of renewals from four to five years, there is not a significant statistical relationship between collections
and personal income.
COMPARISON WITH OTHER STATES
North Carolina's driver's license tax is a multifaceted levy consisting of several components. Comparative
information was only obtained on operator's license fees. All 50 states levied operator's license fees.
Operator's licenses are typically for a four- year period, with only a handful of states ( including North
Carolina) having a different license period. Converting these license fees to an annual basis, it was found
that rates ranged from $ 1.00 to $ 10.75. Information was found for 48 states, although the other two states
did issue driver’s licenses. The average fee in the nation is $ 4.14. North Carolina's levy converts to an
annual fee of $ 2.50. Thirty- nine states had a higher levy then North Carolina, seven the same, five lower,
and two unknown.
DISTRIBUTION OF DRIVERS' LICENSE FEES: 1997
Fees Number of States
$ 1.00 - $ 1.99 4
2.00 - 2.99 9
3.00 - 3.99 15
4.00 - 4.99 6
5.00 and Above 14
Unknown 2
Source: Highway Statistics, 1997, Federal Highway Administration, Washington, D. C., March 1999
51
FINANCIAL SECURITY RESTORATION FEE
NORTH CAROLINA STATUTES
20- 309, 20- 7( i)
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 5,366,328 3.4 0.6
1995- 96 5,916,500 10.3 0.6
1996- 97 5,311,473 - 10.2 0.5
1997- 98 5,720,651 7.7 0.5
1998- 99 7,003,646 22.4 0.6
BASE AND RATE
A $ 50 civil penalty fee is charged to maintain a license plate when there has been a lapse of insurance coverage,
provided action is taken within 10 days. If no action is taken and the plate is revoked, a $ 50 restoration fee is
charged when the vehicle is relicensed after a 30- day plate surrender period.
DISTRIBUTION
Revenue deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payment is made at the time of purchase.
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
52
GASOLINE INSPECTION TAX
NORTH CAROLINA STATUTES
119- 4 to 119- 22
ADMINISTERED BY
Department of Revenue
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 11,227,469 4.5 1.2
1995- 96 11,689,883 4.1 1.1
1996- 97 11,676,667 - 0.1 1.1
1997- 98 11,804,079 1.1 1.1
1998- 99 12,491,183 5.8 1.1
BASE AND RATE
A tax of 1/ 4 cent per gallon levied on all petroleum products used as motor fuel is deposited in the Highway
Fund. A similar tax levied on aviation gasoline, jet fuel, and nonhighway use motor fuels goes into the
General Fund.
DISTRIBUTION
This revenue is deposited in both the Highway and General Funds. Inspection taxes on fuels used on the
highways are deposited into the Highway Fund. After deducting funds to administer and enforce the
provisions of the inspection laws and the cost of collection, the balance of the revenue is credited in equal
amounts to the Commercial Leaking Petroleum Underground Storage Cleanup Fund and the Non-commercial
Leaking Underground Petroleum Storage Tank Cleanup Fund. Even though these funds are
earmarked to Funds outside the Highway Fund, for accounting purposes, they are considered Highway Fund
revenue. Approximately 50% of Highway Fund revenue from the inspection fee is so earmarked. Further,
inspection taxes levied on fuels not used on the highways are deposited in the General Fund. Only Highway
Fund revenue is shown above.
53
TAX CALENDAR
Taxes are paid by wholesale distributors of motor fuel ( gasoline and diesel) to the major oil companies at
the terminal rack. Taxes are paid by wholesale distributors of alternative fuels ( propane and compressed
natural gas-- CCNG) directly to the Department of Revenue. Taxes on motor fuels are due by the twenty-second
of the month for motor fuels and by the twenty- fifth of the month for alternative fuels for the
previous month’s activity.
TAX ELASTICITY
The gasoline inspection tax is relatively unresponsive to changes in personal income. For further
information see " Motor Fuel Tax" in the Highway Fund section.
COMPARISON WITH OTHER STATES
As of January 1998, 16 states levied gasoline inspection taxes with rates ranging from 0.0008 cent per
gallon in Indiana to three cents per gallon in Wisconsin. Two states have higher fees than North Carolina,
one the same, twelve lower, and one unknown. ( Source: Highway Taxes and Fees, 1998, Federal Highway
Administration, Washington, D. C., 1999.)
54
INTERNATIONAL REGISTRATION PLAN
NORTH CAROLINA STATUTES
20- 86.1, 20- 87.1, and 20- 85
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 38,346,814 5.3 3.9
1995- 96 42,255,511 15.4 4.3
1996- 97 41,479,027 - 6.3 3.9
1997- 98 41,890,137 1.0 3.8
1998- 99 50,791,801 21.3 4.6
BASE AND RATE
Operators of vehicles engaging in interstate traffic find it advantageous to enter the International
Registration Plan ( IRP). Vehicles licensed under the IRP are taxed according to the regulations governing
the plan and are not taxed under the other vehicle categories. Under the IRP, each North Carolina based
vehicle is taxed according to the following formula:
Fees = A x C
B
where: A = total mileage driven in North Carolina plus total mileage driven in non- IRP states
B = total mileage driven
C = the appropriate levy computed from the weight and rate schedule
In addition, each vehicle registered in another IRP state and apportioned into North Carolina is taxed
according to the same formula, except " A" now represents only the total mileage driven in North Carolina.
The weight and rate schedule under this plan follows:
55
SCHEDULE OF WEIGHTS AND RATES
( Per 100 lbs. of Gross Weight)
Weight Rate Per lb.
Up to 4,000 lbs. $ 0.46
4,001 to 9,00 lbs. 0.63
9,001 to 13,000 lbs. 0.78
13,001 to 17,000 lbs. 1.06
Over 17,000 lbs. 1.20
Vehicles in the " over 17,000" pound category pay an additional tax of $ 3.00. Replacement plates for all
vehicles are $ 9.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
The annual renewal period for the purchase of plates is between January 1 and February 15 for the current
calendar year.
TAX ELASTICITY
IRP collections depend on the number of registered trucks, which are related to economic conditions.
Although personal income is a good proxy the statistic relationship was not strong. Collections were very
volatile recently as a result of administrative difficulties in other states. An elasticity was not estimated.
COMPARISON WITH OTHER STATES
In 1999, there were 48 states and three Canadian provinces participating in the International Registration
Plan ( IRP). Of the 48 states that are in the IRP ( for five axle tractor trailers) the registration fee ranges from
$ 120 to $ 2,892, and had a national average of $ 1,237. North Carolina's tax rate was $ 973, and ranked 36th
out of the 48 states. ( Source: International Registration Plan Section, North Carolina Department of
Transportation, Raleigh, 1999; and Highway Fees and Taxes, 1998, Federal Highway Administration, U. S.
Department of Transportation, Washington, D. C., 1999.)
56
MOTOR FUEL TAX
NORTH CAROLINA STATUTES
105- 430 to 105- 449.01, 105- 449.60 to 105- 449.139
ADMINISTERED BY
Department of Revenue
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 669,096,603 0.5 68.5
1995- 96 697,048,503 4.2 67.7
1996- 97 730,926,335 4.9 68.8
1997- 98 762,551,945 4.4 69.3
1998- 99 762,888,007 0.2 69.6
BASE AND RATE
As of January 1, 2000, an excise tax of 22 cents per gallon is levied on all motor fuel sold, distributed or
used in the state. The tax is composed of a 17.5 cents per gallon levy, plus 7% of the average wholesale
price of motor fuels. The wholesale tax is adjusted every six months, and cannot fall below 3.5 cents per
gallon tax. It should be noted that in addition to these levies a 1/ 4 cent per gallon inspection tax is in effect.
These revenues are recorded under a separate schedule. See " Gasoline Inspection Tax" in this section.
Fuel sold to the U. S. Government, state government agencies, or used in public school transportation
( including fuel for automobiles owned by school boards) is exempt from the tax. A refund of the excise tax
less one cent per gallon is given to counties, municipal corporations, volunteer fire departments, sheltered
workshops recognized and approved by the Department of Human Resources, volunteer rescue squads,
purchases of fuel not used on the highway, taxicabs transporting fare- paying passengers, and private
nonprofit organizations operating motor vehicles under contract or at the express designation of a unit of
local government, and off- highway use of special mobile equipment. Further, there is a refund of 33 1/ 3%
of the average tax paid less one cent per gallon for the tax year on fuel used in concrete mixing vehicles,
solid waste compacting vehicles, and certain agricultural and tank delivery vehicles.
57
DISTRIBUTION
Of these collections 1/ 2 cent per gallon is dedicated as follows: 1) Commercial Leaking Petroleum
Underground Storage Tank Cleanup Fund-- 19/ 32; 2) Noncommercial Leaking Petroleum Underground
Storage Tank Cleanup Fund-- 3/ 32; and 3) Water and Air Quality Account-- 10/ 32. Only Highway Fund
revenue is shown above.
TAX CALENDAR
Taxes are paid by wholesale distributors of motor fuel ( gasoline and diesel) to the major oil companies at
the terminal rack. Taxes are paid by wholesale distributors of alternative fuels ( propane and compressed
natural gas-- CCNG) directly to the Department of Revenue. Taxes are due by the twenty- second of the
month for motor fuels, and by the twenty- fifth of the month for alternative fuels for the previous month’s
activity.
TAX ELASTICITY
Motor fuel tax collections are related to fuel consumption and the price of motor fuels. Fuel consumption
depends on the number of vehicle miles driven and vehicle efficiency. Motor fuel prices have declined in
recent years. There is a relatively strong relationship between collections and state personal income ( R2 =
0.92). That is, 92% of the change in motor fuel tax collections is related to changes in state personal
income. Because the tax is predominately a per- unit levy, and as a result of the decline in motor fuel prices,
collection growth lags behind the growth of personal income. It is estimated that the motor fuel collections
have an income elasticity of 0.34. That is, for every 10% increase in personal income, motor fuel tax
collections increase by 3.4%.
COMPARISON WITH OTHER STATES
All states levy motor fuel taxes on gasoline, diesel fuel, and gasohol. In addition, several states have
different levies on jet and other fuels. Sales taxes are applied on motor fuels, in addition to the excise tax in
nine states, and separate local motor fuel taxes are applied in selected jurisdictions in nine states.
As of July 1, 1999, state excise taxes on gasoline ranged from 7.5 cents per gallon in Alabama to 32 cents
per gallon in Wyoming. The average state gasoline tax was 19.9 cents per gallon. North Carolina's rate was
21.7 cents per gallon, and was the eighteenth highest tax in the nation. The average motor fuels tax in the
Southeast was 17.9 cents per gallon. and the average for the eleven largest states was 17.3 cents per gallon.
58
STATE GASOLINE TAX RATES FOR THE UNITED STATES,
SOUTHEAST, ELEVEN MOST POPULATED STATES,
NORTH CAROLINA AND SURROUNDING STATES,
AS OF July 1, 1999
State Tax Rate
United States 19.9
Southeast 17.9
Eleven Largest States 17.3
North Carolina 21.7(*)
Surrounding States
Kentucky 16.4
South Carolina 16.0
Tennessee 21.4
Virginia 17.5
Source: Federation of Tax Administrators, 1999.
(*) Effective January 1, 2000, North Carolina had a tax rate of 22 cents per gallon.
59
OVERWEIGHT/ SIZE PERMITS
NORTH CAROLINA STATUTES
20- 119
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 1,774,048 31.4 0.2
1995- 96 1,974,662 11.3 0.2
1996- 97 2,064,440 4.6 0.2
1997- 98 2,196,868 6.4 0.2
1998- 99 2,439,250 11.0 0.2
BASE AND RATE
Upon receipt of application, the state may issue at its discretion special permits granting permission to
operate overweight/ oversized motor vehicles on North Carolina highways. For a single trip a permit is $ 10,
while an annual permit is $ 50 per vehicle.
Persons and firms operating more than one vehicle may apply for an annual permit for all
overweight/ oversized vehicles at the following rate:
ANNUAL PERMIT SCHEDULE
Annual Permit Rate
Number of Vehicles Per Vehicle
First 50 $ 50
51 - 100 40
101- 150 30
Over 150 20
60
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is received at the time the permit is issued.
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
61
PENALTIES
NORTH CAROLINA STATUTES
20- 118
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 5,264,423 - 1.4 0.5
1995- 96 5,377,171 2.1 0.5
1996- 97 5,867,612 9.1 0.6
1997- 98 8,021,271 36.7 0.7
1998- 99 8,069,143 0.6 0.7
BASE AND RATE
For each violation of the license, permit, or axle grouping weight as established by statute, the owner must
pay to the Division of Motor Vehicles, a penalty, per violation, for each pound of weight in excess of the
maximum limit.
The following penalty schedule applies:
Amount of Pounds Penalty Per
Over Maximum Pound
First 1000 lbs. 2 cents
Second 1000 lbs. 4 cents
Additional Pounds 10 cents
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
62
TAX CALENDAR
Payments are due at the time the penalty is issued.
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
63
PROCESS SERVICE FEES
NORTH CAROLINA STATUTES
20- 48. c
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 3,713,939 6.6 0.4
1995- 96 3,815,570 2.7 0.4
1996- 97 3,552,819 - 6.9 0.3
1997- 98 3,890,284 9.5 0.4
1998- 99 4,600,685 18.3 0.4
BASE AND RATE
A $ 50 fee is levied if the Division of Motor Vehicles has to give the taxpayer notice of the revocation of
either the driver license or registration plate.
DISTRIBUTION
The revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is due at time of process.
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
64
REGISTRATION FEES
NORTH CAROLINA STATUTES
20- 85
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 6,824,024 - 39.9 0.7
1995- 96 9,342,022 36.9 0.9
1996- 97 2,394,959( 1) - 74.4 0.2
1997- 98 2,454,399 2.5 0.2
1998- 99 2,488,747 1.4 0.2
( 1) The remaining portion of the certificate of title registration fees were dedicated to the
Highway Trust Fund.
BASE AND RATE
Charges are rendered for the following items: 1) salvage titles, $ 10; 2) failure to transfer title within the
required time, $ 10; and 3) certified copy of a title, $ 4. Collections under this schedule also consist of 1/ 7 of
the $ 35 fee for each application for certificate of title. All other revenue goes to the Highway Trust Fund.
See " Title and Registration Fee" in the Highway Trust Fund section.
DISTRIBUTION
This revenue is used for highway purposes.
TAX CALENDAR
Taxes are paid at the time of title and registration purchase.
65
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
66
SAFETY EQUIPMENT PROCESS FEE
NORTH CAROLINA STATUTES
20- 183.1 through 20- 183.8, 20- 128.2, 20- 385
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95( 1) 4,471,972 - 30.4 0.5
1995- 96 3,736,421 - 16.5 0.3
1996- 97 3,434,382 - 8.1 0.3
1997- 98 3,918,772 14.1 0.4
1998- 99 4,087,029 4.3 0.4
( 1) In order to comply with a Federal mandate, revenue from emission inspections is placed in an interest
bearing account to support the emission program.
BASE AND RATE
Inspection stations are licensed by the state. Annually inspections are required for all motor vehicles that are
registered in North Carolina and use North Carolina's highways and streets. After passing inspection an
inspection sticker is affixed on the windshield. Safety equipment inspection fees total $ 9.25 per vehicle
inspected. Of that total, $ 8.25 is for the inspection and remains with the inspection station. The remaining
$ 1.00 is for the inspection sticker with $ 0.75 going to the State Highway Fund, $ 0.15 earmarked to the
Department of Insurance for the Volunteer Rescue/ EMS Fund, and $ 0.10 dedicated to the Rescue Squad
Workers’ Relief Fund. Inspections are required for both safety and exhaust systems in Cabarrus, Durham,
Forsyth, Gaston, Guilford, Meklenburg, Orange, Union, and Wake counties. Of the $ 19.40 inspection fee
for inspecting both safety and exhaust standards, $ 17 is for the inspection and remains with the inspection
station. The remaining $ 2.40 is for the inspection sticker with $ 1.80 going to the emission program, $ 0.35
allocated to the Division of Air quality, and $ 0.25 distributed to the Department of Insurance for the
Volunteer Rescue/ EMS Fund, and $ 0.10 for the Rescue Squad Relief Fund.
67
DISTRIBUTION
Revenue from safety inspections is divided between the inspection station and the state as stated under
" Base and Rate." In addition, revenue from emission inspections is placed under a separate account, and is
used to support the emission program. Only Highway Fund revenue is shown above.
TAX CALENDAR
Revenue is collected at the time of the inspection.
TAX ELASTICITY
An estimate of the tax elasticity was not taken.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
68
STAGGERED REGISTRATION FEES
NORTH CAROLINA STATUTES
20- 66, 20- 85, 20- 87
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 120,819,634 3.8 12.4
1995- 96 124,989,515 3.5 12.1
1996- 97 131,363,098 5.1 12.4
1997- 98 134,245,132 2.2 12.2
1998- 99 137,887,521 2.7 12.4
BASE AND RATE
All private passenger hauling vehicles ( automobiles and motorcycles) and all private hauler vehicles
licensed for 4,000 pounds ( private pick- up trucks and vans) are required to enter the staggered registration
plan. A fee of $ 20 is levied on private passenger cars of 15 passengers or less, and a fee of $ 23 is levied on
private passenger cars of more than 15 passengers. Private pick- up trucks and vans licensed for 4,000
pounds pay a license plate fee of $ 21.50. Private passenger motorcycles pay a license plate fee of $ 9, except
when designed to transport property or additional passengers, and the tax is then $ 16. There is a $ 1
processing charge for registrations by mail.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
All registrations are for a twelve- month period from the date of the vehicle's initial registration.
69
TAX ELASTICITY
Fees are directly related to the number of motor vehicles registered and indirectly related to state personal
income. However, the relationship between collections and state personal income is strong ( R2 = .98). That
is, 98% of the changes in collections are statistically related to changes in state personal income.
Collections grow at a slower rate the state personal income since they are on a per unit basis, and are not
responsive to inflation. It is estimated that collections have an income elasticity of 0.49. That is, for every
10% change in state personal income, collections change by 4.9%.
COMPARISON WITH OTHER STATES
All 50 states levy automobile registration fees. Fees may be based on vehicle weight, number of passengers
carried, engine size, horsepower, retail price, or some combination of the above. Rates often vary within a
state depending on the vehicle. Tax rates for the typical automobile ranged from $ 8 in Arizona to $ 100.75
in Oklahoma. The median tax rate for the nation was $ 30.90. Higher automobile registration fees were
recorded in 39 states, three including North Carolina had a rate of $ 20, and 8 had lower rates. A comparison
of registration fees for small trucks and motorcycles was not undertaken. ( Source: Highway Taxes and Fees,
1998, Federal Highway Administration, U. S. Department of Transportation, Washington, D. C., 1999.)
70
TRUCK LICENSE PLATE FEES
NORTH CAROLINA STATUTES
20- 85 and 20- 88
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1994- 95 48,846,251 4.9 5.1
1995- 96 50,786,525 4.0 4.9
1996- 97 54,046,254 6.4 5.1
1997- 98 53,526,079 - 1.0 4.9
1998- 99 56,781,624 6.1 5.1
BASE AND RATE
For the purpose of taxation, the determination of weight is based on combined gross vehicle weight. A
minimum fee of $ 17.50 for a farm vehicle and $ 21.50 for a nonfarm vehicle is levied under this schedule.
Vehicles in the truck category consist of private vehicles such as vans and pick- up trucks over 4,000 pounds
and commercial trucks. Commercial trucks generally carry their own products both interstate and intrastate,
but do not operate under the authority of either the Interstate Commerce Commission or the North Carolina
Utilities Commission. They basically include service trucks, milk trucks, soft drink bottle trucks, beer
trucks, and others. There is no separate commercial truck license plate.
Vehicles in the truck category are subject to taxation according to the following rate and weight schedule:
71
SCHEDULE OF WEIGHTS AND RATES
( Per 100 lbs. of Gross Weight)
Weight/ Rate Bracket Farm Non Farm
Up to 4,000 lbs. $ 0.23 $ 0.46
4,001 to 9,000 lbs. 0.29 0.63
9,001 to 13,000 lbs. 0.37 0.78
13,001 to 19,000 lbs. 0.51 1.06
Over 19,000 lbs. 0.58 1.20
An additional $ 3 charge per plate is levied
In addition, camping trailers and house trailers are subject to a flat $ 7 annual registration fee. Other trailers
are subject to a flat annual fee of $ 10. A multi- year license plate for trailers or semi trailers is available for
$ 75. Wreckers fully equipped weighing 7,000 pounds or less pay $ 75 for a plate and those over 7,000
pounds pay $ 148.
Replacement plates for all vehicles are $ 10.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
The annual renewal period for the purchase of plates is between January 1 and February 15 for the current
calendar year.
TAX ELASTICITY
Truck plate fee collections are per unit levies, and thus, they grow at a slower rate then personal income.
There is a significant statistical relationship between collections and personal income, R2 = 0.81. It is
estimated that collections have an income elasticity of 0.41. That is, for every 10% change in personal
income collections change by 4.1%.
72
COMPARISON WITH OTHER STATES
All states levy truck license plate fees. Most states have a fee schedule based on the empty weight of the
vehicles. All but eight states grant preferential tax treatment to farm vehicles. The typical registration fee for
single- unit non farm trucks was higher than in North Carolina in 16 states and lower in 33. Fees ranged
from $ 11.25 to $ 504, with a median of $ 172. North Carolina's tax rate was $ 215. The typical levy on farm
trucks was higher in 16 states than in North Carolina, one the same, and lower in 32. Fees ranged from $ 10
to $ 425, with a median rate of $ 64. North Carolina's tax rate was $ 109. For large trucks ( five axle tractor
trailers) see, International Registration Plan in this section. ( Source: Highway Taxes and Fees, 1998,
Federal Highway Administration, U. S. Department of Transportation, Washington, D. C., 1999.)
73
75
Highway
Trust Fund
Taxes
Motor Fuel
31%
Highway Use
58%
Title and Registration
Fees
11%
CHART 5
NORTH CAROLINA HIGHWAY TRUST FUND TAX COLLECTIONS
( 1998- 99)
Motor Fuels $ 254,740,680
Highway Use 489,513,431
Title and Registration 90,252,512
-------------------
Total $ 834,506,623
77
HIGHWAY USE TAX
NORTH CAROLINA STATUTES
105- 187.1 to 105- 187.12
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
1994- 95 364,648,618 10.3 54.9
1995- 96 397,273,096 9.0 56.2
1996- 97 407,577,335 2.6 55.3
1997- 98 453,226,656 11.2 57.0
1998- 99 489,513,431 8.0 58.7
BASE AND RATE
A 3% tax with a $ 1,500 ceiling is levied on the retail price of all motor vehicles sold and registered in North
Carolina. The tax on commercial vehicles is 3% with a maximum tax of $ 1,000. Motor vehicles purchased
in other states and registered in North Carolina are also subject to the tax. The retail price of the vehicle is
the net purchase price after trade.
The tax rate on the gross receipts from the long- term ( 365 continuous days or more) lease or rental of a
motor vehicle is 3% with a maximum tax of $ 1,500. Trade- in allowances are permitted. The tax rate on
short- term ( less than 365 continuous days) lease or rental of a motor vehicle is 3%. Short- term rental or
leases are accounted for under the sales and use tax in the General Fund.
Exemptions include: 1) gifts between spouses or parent and child; 2) transfers by will or intestacy; 3)
distribution of marital property as a result of divorce; 4) sales to a motor vehicle dealer for resale; 5)
transfer to the insurer of a vehicle because the vehicle is a salvage vehicle; 6) transfer of vehicle to a
handicapped person from the Department of Human Resources after the vehicle has been specially
equipped; 7) transfer of a vehicle to a local board of education for use in drivers' education; and 8) transfer
because of a change the owner's name. Partial exemptions, with a maximum tax of $ 40 applies when a
certificate of title is issued as a result of transfer of a motor vehicle: 1) to a secured party who has a
perfected security interest in the motor vehicle; and 2) to a partnership, limited liability company, or
78
corporation as an incident to the formation of the company, when no gain arises from the transfer. A
maximum tax of $ 150 applies when a title is issued for an out- of- state vehicle, that at the time of applying
for the certificate of title, is or has been titled in another state for at least 90 days.
DISTRIBUTION
Of total collections, $ 170 million will be transferred annually to the General Fund. The remaining revenue
will be deposited in the Highway Trust Fund for highway purposes.
TAX CALENDAR
Taxes are due upon sale or registration.
TAX ELASTICITY
Sales of motor vehicles are strongly related to the level of personal income, having an R2 = 0.98. That is
98% of changes in collections are related to personal income. Motor vehicle sales have been very strong in
North Carolina in the last few years, resulting in a tax elasticity of 1.58. That is, for every 10% change in
personal income, collections change by 15.8%.
COMPARISON WITH OTHER STATES
Forty- six states levy a sales or excise taxes on automobiles, with 36 states having a sales tax and 10 an
excise tax. In lieu of a general sales and use tax, North Carolina levies a highway use tax on the retail sale
price of motor vehicles. Only two states, North Carolina and South Carolina, have a tax ceiling. Tax rates
ranged from 1.5% to 7% among the sates, with a median rate of 5%. Three states had a lower tax rate than
North Carolina, 4 the same ( Including North Carolina), while 39 had higher rates. Of the 12 largest states,
North Carolina had the lowest tax rate, and of the 11 Southeastern states, North Carolina had the second
lowest rate.
79
STATE SALES AND EXCISE TAX
RATES ON AUTOMOBILES
Tax Rate Number of States
No Levies 4
1.0% - 1.9% 1
2.0 - 2.9 2
3.0 - 3.9 4
4.0 - 4.9 11
5.0 - 5.9 14
6.0 - 6.9 12
7.0 and Above 2
Source: State Tax Handbook, 1999, Commerce Clearing House, Chicago, Illinois, December 1998.
80
LIEN RECORDING FEES
NORTH CAROLINA STATUTES
20- 85
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
1994- 95 2,567,991 - 4.3 0.4
1995- 96 2,607,998 1.6 0.4
1996- 97 2,443,177 - 6.3 0.3
1997- 98 2,292,215 - 6.2 0.3
1998- 99 2,335,851 1.9 0.3
BASE AND RATES
There is a $ 10 charge for each application for recording a supplementary lien, and a $ 10 charge for each
application for removing a lien from a certificate of title.
DISTRIBUTION
Revenue is deposited in the Highway Trust Fund for highway purposes.
TAX CALENDAR
Taxes are paid at the time of purchase.
TAX ELASTICITY
Elasticity was not estimated.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
81
MOTOR FUEL TAX
NORTH CAROLINA STATUTES
105- 430 to 105- 449.01, 105- 449.1 to 105- 449.139
ADMINISTERED BY
Department of Revenue
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
1994- 95 223,032,201 0.5 33.6
1995- 96 232,662,410 4.3 32.9
1996- 97 243,731,232 4.8 33.1
1997- 98 254,604,049 4.5 32.0
1998- 99 254,740,680 0.1 30.5
BASE AND RATE
See " Motor Fuels Tax" in the Highway Fund section.
DISTRIBUTION
All motor fuel tax collections that are placed in the Highway Trust Fund are used for highway construction. For a
description of the distribution of all motor fuel tax collections, see " Motor Fuel Tax" in the Highway Fund section.
TAX CALENDAR
See " Motor Fuels Tax" in the Highway Fund section.
TAX ELASTICITY
See " Motor Fuels Tax" in the Highway Fund section.
COMPARISON WITH OTHER STATES
See " Motor Fuels Tax" in the Highway Fund section.
82
TITLE AND REGISTRATION FEES
NORTH CAROLINA STATUTES
20- 85
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
1994- 95 74,508,293 13.8 11.2
1995- 96 74,418,598 - 0.1 10.5
1996- 97 83,274,171 11.9 11.3
1997- 98 84,669,551 1.7 10.7
1998- 99 87,916,661 3.8 10.5
BASE AND RATE
Charges are rendered for issuance of certificates of title, transfer of registration, and replacement of
registration plate fees according to the following schedule: 1) each application for certificate of title, $ 35; 2)
each application for duplicate or corrected certificate of title, $ 10; 3) each application of reprossessor for
certificate of title, $ 10; 4) each transfer of registration, $ 10; 5) each set of replacement registration plates,
$ 10; and 6) each application for duplicate registration certificate, $ 10.
In lieu of the regular $ 35 charge for certificate of title, there is a $ 50 charge for one- day service.
DISTRIBUTION
Revenue is deposited in the Highway Trust Fund for highway purposes.
TAX CALENDAR
Taxes are paid at the time of title and registration purchase.
83
TAX ELASTICITY
Title fees are directly related to the number of new and used vehicle sales, and vehicle transfers. Although
economic conditions play a role, the number of titles registered depend strongly on demographic factors.
However, the relationship between collections and state personal income is quite strong ( R2 = 0.97). That
is, 97% of the changes in collections are related to changes in state personal income. It is estimated that
collections have an income elasticity of 1.05. That is, for every 10% change in personal income, collections
change by 10.5%.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
84
85
Local
Government
Taxes
Property
68%
Sales and Use
25%
Utility Excise
3%
Other
4%
CHART 6
NORTH CAROLINA LOCAL TAX COLLECTIONS
RECEIVED BY LOCAL GOVERNMENT
( 1998- 99)
Property $ 4,145,561,429
Sales and Use 1,505,297,284
Utility Excise 161,117,265
Other 223,975,760
----------------------
Total $ 6,035,951,738
87
EXCISE TAX ON BEER AND WINE-- LOCAL SHARE
NORTH CAROLINA STATUTES
105- 113.68 to 105- 113.104
ADMINISTERED BY
Department of Revenue
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95( 1) n. a. n. a. n. a.
1995- 96 22,451,744 7.1 0.5
1996- 97 23,210,614 3.4 0.4
1997- 98 23,599,549 1.7 0.4
1998- 99 24,424,343 3.5 0.4
( 1) Prior to fiscal year 1989- 90, local government received an earmarked portion of the state excise tax on
beer and wine. From 1989- 90 through 1994- 95, the earmarking provisions were replaced by a fixed annual
General Fund appropriation. Effective July 1, 1995, the earmarking provisions were reinstated.
BASE AND RATE
The state levies an excise tax of 21 cents per liter on unfortified wine, 24 cents per liter on fortified wine,
and 53.177 cents per gallon on beer. ( This is equivalent to 5 cents per can.). The state earmarks 23.75% of
the excise tax on malt beverages, 62% of the excise tax on unfortified wine, and 22% of the excise tax on
fortified wine to local jurisdictions in which such sales are allowed.
DISTRIBUTION
The amount of the local share distributed to each county and municipality is determined on the basis of
population in the areas where such sales are permitted. The revenue allocated to local government can be
used for general purposes. The General Fund retains the remaining revenue.
TAX CALENDAR
Wholesalers and importers of beer and wine must file returns including monthly tax payments by the
fifteenth day of the month for the previous month’s activity. The local share of the wine and beer excise tax
is allocated from collections received during the fiscal year ending March 31. The portion going to each
county and municipality is computed and distributed to localities May 30.
88
TAX ELASTICITY
The sales of beer and wine are related to the composition of population, taste, price, and income. Personal
income is used as a proxy for these variable. Tax collections were strongly related to the level of personal
income, as depicted by a computed R2 of 0.98. That is, 98% of changes in tax collections are related to
changes in personal income. Growth in collections is more closely related to demographics, and is not very
responsive to changes in personal income. The estimated tax elasticity was 0.54. That is, for every 10%
change in personal income, tax collections change by 5.4%.
COMPARISON WITH OTHER STATES
A comparison was not undertaken.
89
EXCISE STAMP TAX ON CONVEYANCES
NORTH CAROLINA STATUTES
105- 228.28 to 105- 228.36
ADMINISTERED BY
County Governments
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 20,576,251 5.1 0.4
1995- 96 22,899,557 11.3 0.4
1996- 97 25,966,185 13.4 0.4
1997- 98 30,311,638 16.7 0.5
1998- 99 34,787,017 14.8 0.5
BASE AND RATE
A tax rate of $ 1.00 on each $ 500, or fraction thereof, is levied on the value of each deed, instrument, or
writing by which any interest in real property is conveyed to another person. The tax is payable by the
transferor to the register of deeds in the county in which the property is situated.
This tax is imposed on transactions conveying an interest in real estate located in North Carolina. The
following conveyances are exempt from the tax: 1) operation of law; 2) lease for a term of years; 3) will,
intestacy, or gift; 4) merger or consolidation; 5) instruments securing indebtedness; 6) transfers by a
governmental unit; and 7) transfers where no consideration in property or money is due or paid by the
transferee to the transferor.
DISTRIBUTION
The tax is administered by each county. One- half the net proceeds remains with the respective county and
is used for general purpose, and one- half of the net proceeds are remitted to the Department of Revenue. Of
the non- county portion of the proceeds, a county may retain 2% as compensation for the county's cost in
collecting and remitting the state's share of the tax. Of the remainder 75% is credited to the Parks and
Recreation Trust Fund, and 25% to the Natural Heritage Trust Fund.
90
TAX CALENDAR
The tax is paid at the time of the transfer by the transferor to the county registrar of deeds.
TAX ELASTICITY
Real estate transactions are influenced by personal income and demographic factors. There is a modest
relationship between collections and personal income as depicted in an R2 of 0.72. That is, 72% of the
change in tax collections is related to personal income. As a result of the strong real estate market,
collections are very responsive to changes in personal income, with a tax elasticity of 1.14. That is, for
every 10% increase in personal income, tax collections expand by 11.4%.
COMPARISON BETWEEN STATES
See " Excise Tax on Conveyances" in General Fund section.
91
LAND TRANSFER TAX
NORTH CAROLINA STATUTES
Not part of General Sessions, citations in Session Laws.
ADMINISTERED BY
County Governments
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 4,234,488 3.9 0.1
1995- 96 4,605,676 8.8 0.1
1996- 97 4,964,941 7.8 0.1
1997- 98 6,340,428 27.7 0.1
1998- 99 ( 1) 7,000,000 10.4 0.1
( 1) Estimate. Actual collection figures are not available.
BASE AND RATE
A maximum tax rate of 1% is imposed on the sale value of any private real estate transaction or the value of
interest conveyed in such a transaction if the lease is at least 10 years long.
DISTRIBUTION
To date, the tax is levied by seven counties: Camden, Chowan, Currituck, Dare, Pasquotank, Perquimans, and
Washington. In all cases, tax proceeds are placed in special capital reserve funds.
TAX CALENDAR
Taxes are paid at the time of the transaction.
TAX ELASTICITY
An elasticity was not computed.
COMPARISON WITH OTHER STATES
Information is not available on land transfer taxes.
92
LIQUOR BY- THE- DRINK TAX
NORTH CAROLINA STATUTES
18B- 2, 15
ADMINISTERED BY
Local Alcoholic Beverage Control Boards
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 5,442,892 3.9 0.1
1995- 96 5,698,879 4.7 0.1
1996- 97 6,056,704 6.3 0.1
1997- 98 6,392,073 5.5 0.1
1998- 99 6,925,829 8.4 0.1
BASE AND RATE
With voter approval, or special legislation, localities are permitted to sell liquor by the drink in qualifying
restaurants, hotels, convention centers, community theaters, sports clubs, tour boats, and private clubs. A
tax of $ 20 per four liters ( of which $ 9 is allocated to local government) is levied on liquor purchased for
sale by the drink. Liquor must be purchased at ABC stores. As of January 1, 2000, 59 cities and 31 counties
approved liquor by- the- drink sales.
DISTRIBUTION
Of the $ 20 liquor by- the- drink levy, $ 1 is earmarked for the Department of Human Resources for alcoholic
rehabilitation, $ 10 goes to the state General Fund, and $ 9 remains with local government. The local
proceeds remain at the county or municipal ABC stores, and are distributed to counties and municipalities
as ordinary profits of the ABC stores. Only the local share is shown above.
TAX CALENDAR
Profits are distributed quarterly to the respective counties and municipalities.
93
TAX ELASTICITY
The relationship between tax collections and personal income was not statistically significant.
COMPARISON WITH OTHER STATES
No other state has such a tax.
94
PRIVILEGE LICENSE TAX
NORTH CAROLINA STATUTES
105- 33 to 105- 113.1, 153A- 152, 160A- 211.
ADMINISTERED BY
Counties and Municipalities
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 54,738,764 7.9 1.1
1995- 96 61,725,545 12.8 1.3
1996- 97 65,691,336 6.4 1.3
1997- 98 71,071,269 8.2 1.3
1998- 99 76,813,950 8.1 1.3
BASE AND RATE
A county may levy privilege licenses taxes on trades, occupations, professions, businesses, and franchises to
the extent authorized under Schedule B ( state privilege license tax) of the Revenue Act, and by other acts of
the General Assembly. The type of business a county may tax and the amount of the tax or tax rate is
typically stated under Schedule B.
Except as otherwise provided in the law, a city may levy privilege license taxes on all trades, occupations,
professions, businesses, and franchises operating within the city. Municipalities that tax businesses are listed
under Schedule B in a similar manner to counties.
DISTRIBUTION
Revenue is used for general purposes.
TAX CALENDAR
Licenses are for a 12- month period. Upon election of the local unit, the license year ends either May 31 or
June 30. Payments are due on or before the end of the license year.
95
TAX ELASTICITY
License taxes are usually fixed levies on specified economic activities. Collections vary as businesses enter
or leave specified fields ( assuming no change in the law). These tax collections are related to the level of
business activity as reflected by personal income ( R2 = 0.99). That is, 99% of the changes in collections
are statistically related to changes in state personal income. One would expect these taxes to be relatively
inelastic ( not very responsive to changes in personal income) since they are typically per unit levies, and
depend on the number of business establishments. However, it was estimated that collections have an
income elasticity of 1.49. That is, for every 10% change in personal income, privilege license taxes increase
by 14.9%. The high elasticity implies the establishment of new businesses and fee increases.
COMPARISON WITH OTHER STATES
A comparison with other states was not undertaken.
96
PROPERTY TAX
NORTH CAROLINA STATUTES
105- 271 to 105- 395
ADMINISTERED BY
The Department of Revenue supervises administration. Assessment of locally appraised property and
collection of taxes is conducted by counties and municipalities.
Annual Percent of
General Fund Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 3,267,967,425 8.6 68.4
1995- 96 3,396,393,368 3.4 68.8
1996- 97 3,620,553,362 6.6 68.7
1997- 98 3,899,767,938 7.7 69.1
1998- 99 4,145,561,429 6.3 68.7
DISTRIBUTION
In fiscal year 1998- 99, 68.9% of property taxes was collected by counties and 31.1% by municipalities and
special jurisdictions. Localities are free to spend the revenue as they see fit.
BASE AND RATE
Real estate is reappraised at least every eight years, while other property including machinery, equipment,
and vehicles is appraised annually. Railroads and public utility companies are appraised annually by the
Department of Revenue. The Machinery Act of 1971 imposes uniform assessment and collection
procedures throughout the state. All property, except motor vehicles ( registration date is the listing date), is
assessed annually as of January 1 at 100% of appraised value. Unless specifically exempted, all real and
personal property located in the state is subject to the tax. The following property is exempt from taxation:
1) property of the United States, North Carolina, and its political subdivisions; 2) personal property used for
personal purposes except motor vehicles, mobile homes, boats, and airplanes; 3) business inventories; 4)
dogs owned as pets; 5) real and personal property of religious, nonprofit charitable hospitals, educational,
scientific, or literary organizations used for such purposes; 6) real and personal property used for air or
water pollution abatement facilities; 7) real and personal property used exclusively for the prevention or
reduction of cotton dust within a textile plant; 8) property held for export for a period of four years; 9)
imported personal property awaiting further shipment; 10) personal property of nonresident servicemen;
97
11) up to $ 20,000 of appraised value of real and personal property of elderly or permanently disabled
persons with a maximum gross income of $ 15,000; 12) special nuclear material held for processing or in the
process of delivery; 13) tangible personal property imported from outside the United States or produced
within the United States and held in a Foreign Trade Zone for approved purposes; 14) cargo containers and
container chassis used for the transportation of cargo by ocean- going vessels; 15) special nuclear material
held for processing; and 16) intangible property.
Tax rates vary between counties and between municipalities within counties. In 1998- 99, the average
countywide rate was 66.0 cents per $ 100 of appraised value, and the average municipality rate was 49.0
cents per $ 100 of appraised value. The average combined municipal and county rate for property located
within a municipality was $ 1.15 per $ 100 of appraised value.
TAX CALENDAR
Property is listed with the county assessor during the month of January. Taxes are based on the assessed
value as of January 1 for the year in question. Property taxes are due on September 1 for the current fiscal
year and interest is added if taxes are not paid by January 5.
TAX ELASTICITY
Within certain political constraints, property tax rates are set annually to meet the budget needs. Collections
reflect both increases in the stock and value of property and the willingness of governments to impose the
tax. Thus, collections are only partially related to economic events. However, it is found that collections
have a strong statistical relationship to changes in personal income ( R2 = 0.99). That is, 99% of the changes
in collections are statistically related to changes in state personal income. Further, it is estimated that
property taxes were modestly responsive to changes in personal income with an income elasticity of 1.05.
That is, for every 10% change in personal income, property tax collections change by 10.5%. The measured
elasticity reflects increases in property values, plus a willingness on the part of local officials to raise tax
rates.
COMPARISON WITH OTHER STATES
Property taxes are levied by localities in all states, with a wide dispersion of appraisal and assessment rates.
North Carolina relies less heavily on the property tax and has a lower property tax burden than most states.
Property taxes consisted of 30.4% of state and local tax levies in the United States, while consisting of
27.4% in the Southeast, and 31.8% in the 11 most populated states. In North Carolina property taxes
consisted of 21% of state and local tax collections. As of fiscal year 1995- 96, the average local property tax
paid per capita in the United States was $ 789, while the per capita property tax burden for the Southeast
was $ 590, and stood at $ 872 for the 11 largest states. North Carolina's per capita property tax burden was
98
$ 472. North Carolina ranked 40th nationally in per capita property tax burden. Of the 12 Southeastern
states, North Carolina ranked 6th. Of the 11 most populated states, North Carolina had the lowest per capita
property tax burden. As a percent of personal income, the average citizen devoted 3.4% of their personal
income to property tax payments nationally, 2.9% in the Southeast, 3.7% in the 11 most populated sates,
and 2.3% for North Carolina. North Carolina ranked 40th in the nation, 6th in the Southeast, and had the
lowest property tax burden as a percent of personal income of the 11 largest states. ( Source: Governmental
Finances in 1995- 96, U. S. Department of Commerce, Bureau of Census, Washington, D. C., 1999.)
99
ROOM OCCUPANCY TAX
NORTH CAROLINA STATUTES
Not part of the General Statutes. Citations in Session Laws.
ADMINISTERED BY
County Governments
Annual Percent of
General Fund Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 52,421,128 16.7 1.1
1995- 96 58,288,091 11.2 1.2
1996- 97 64,371,992 10.4 1.2
1997- 98 71,390,103 10.9 1.3
1998- 99 78,500,000( 1) 10.0 1.3
( 1) Estimate. Actual collection figures are not available.
BASE AND RATE
A maximum tax rate of 6% may be imposed by a county, municipality, or combination of both on the rental
of any room, lodging, or similar accommodations subject to the state sales tax. The tax does not apply to
accommodations furnished by charitable, educational, or religious organizations when furnished for
nonprofit purposes. As of fiscal 1997- 98, 63 counties and 31 municipalities levied such taxes.
DISTRIBUTION
Counties and municipalities place various restrictions on the use of the tax proceeds; however, a portion of
the proceeds is usually dedicated for programs encouraging tourism.
TAX CALENDAR
Taxes are paid at the time of the transaction.
100
TAX ELASTICITY
A tax elasticity was not estimated.
COMPARISON WITH OTHER STATES
Information is not available on room occupancy taxes.
101
SALES AND USE TAX
NORTH CAROLINA STATUTES
105- 164.1 to 105- 164.44A and 105- 463 to 105- 474
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95 1,141,219,593 9.7 23.9
1995- 96 1,231,938,883 8.0 25.0
1996- 97 1,314,993,108 6.7 24.9
1997- 98 1,390,151,275 5.7 24.6
1998- 99 1,505,297,284 8.3 24.9
BASE AND RATE
Counties may levy the local government sales and use tax on those items included under the state's 4% levy.
All 100 counties levy the full 2% in local government sales taxes.
DISTRIBUTION
The proceeds of the local government sales tax, less the cost of administration, are returned quarterly to the
counties. The revenue from the first 1% of the local government sales tax is returned to the counties from
which the tax was collected. The revenue from each of the two 1/ 2% local government sales taxes is
allocated to the counties on a per capita basis. In April of each year, each county board of commissioners
elects one of two methods to determine the distribution of revenue between the county and its
municipalities. The two methods are: 1) the net proceeds of the county are divided by the sum of population
of the county and its municipalities to determine a per capita amount. This amount is multiplied by the
county's total population and each municipality's population to determine the allocation to each area; and 2)
the net proceeds may be distributed between the county and its municipalities in proportion to the total
amount of ad valorem taxes levied by each during the year fiscal year preceding the year of distribution.
102
TAX CALENDAR
Proceeds from the local government sales and use tax are distributed to local governments quarterly
reflecting the prior quarter's collections. For further information see " Sales and Use Tax" on page 43.
TAX ELASTICITY
Sales tax collections are directly related to the level of retail sales, and since state personal income is the
major determinant of retail sales. Tax collections are closely related to the level of personal income as
depicted by a R2 = 0.99. That is 99% of the changes in sales and use tax collections are related to changes
in state personal income. It is estimated that the sales and use tax is moderately responsive to changes in
personal income with an income elasticity of 1.02. That is, for every 10% change in personal income, sales
and use tax collections change by 1.02%.
COMPARISON BETWEEN STATES
Localities in 32 states levy sales taxes. In most states, some discretion is allowed as to the level of the local
levy. Local sales taxes range from 1/ 2% to 5%. Alaska has only locally administered sales taxes. The
median local sales tax for the nation was 2.0%. For more information see " Sales and Use Taxes" under the
General Fund section. ( Source: Tax Rates and Burdens 1997, The District of Columbia, 1998.)
103
UTILITY EXCISE TAX
NORTH CAROLINA
STATUTES
105- 114 to 105- 129.1
ADMINISTERED BY
Department of Revenue
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1994- 95( 1) 121,579,749 n. a. n. a.
1995- 96 136,399,500 12.4 2.8
1996- 97 148,932,981 9.0 2.8
1997- 98 152,200,121 2.2 2.7
1998- 99 161,117,265 5.9 2.7
( 1) Prior to fiscal 1989- 90, local government received an earmarked portion of the state excise tax on the
gross receipts from intra- state services of gas, power and light, and telephone companies. From 1989- 90
through 1994- 95, the earmarking provisions were replaced by a fixed annual General Fund appropriation.
Effective July 1, 1995, the earmarking provisions will be reinstated.
BASE AND RATE
Of the 3.22% state excise tax rate on the in- state gross receipts of gas(*), power and light, and telephone
companies, 3.09 percentage points ( or 96% of collections) are distributed to the respective municipalities
within which these services took place. Additional taxes are levied on utility companies and distributed to
the General Fund. ( See Franchise Taxes-- General Fund.)
(*) Effective July 1, 1999, a separate schedule for piped natural gas is created based on the monthly volume
of natural gas received by the final user. The tax per therm is as follows: first 200, $ 0.047; 201 to 15,000,
$ 0.035; 15,001 to 60,000, $ 0.024; 60,001 to 500,000 $ 0.015; and over 500,00, $ 0.003.
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DISTRIBUTION
The revenue earmarked to municipalities can be used by the respective municipality for general purposes.
Effective July 1, 1999, within 75 days after the end of each calendar quarter, the Secretary must distribute to
the cities ( which resell natural piped gas) one half the amount of collections attributed to that city. This will
be done under the new excise tax on natural gas schedule.
TAX CALENDAR
Gas, power and light, and telephone companies file quarterly returns within 30 days after the first of July,
October, January, and April, for the prior quarter’s economic activity. The municipal share will be
determined and distributed shortly after, and is received by September15, December 15, March 15, and
June 15.
TAX ELASTICITY
Utility sales are dependent on the state of the economy which personal income is a good proxy R2 = 0.98).
That is, 98% of the change in tax collections are related to changes in personal income. Collections are
moderately responsive to changes in personal income, as reflected by a tax elasticity of 0.96. That is, for
every 10% change in personal income, tax collections change by 9.6%.
COMPARISON WITH OTHER STATES
See “ Franchise Taxes,” in the General Fund Section.
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Recent
Tax
Legislation
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1996 LEGISLATIVE SESSION
REGULAR SESSION
Estimated Fiscal Effect
Change in the Law 1996- 97 1997- 98 1998- 99 1999- 00
GENERAL FUND
CORPORATE INCOME TAX
Updates North Carolina statutes to reference the March 20, 1996, Internal
Revenue Code. Effective upon ratification.
Insignificant
INSURANCE TAX
Transfers responsibility for collecting remainder of the gross premiums tax
from the Department of Insurance to the Department of Revenue. Effective
January 1, 1997.
None
SALES AND USE TAX