Tax guide

              North Carolina
Tax
Guide
2004
Tax
Guide
2004
Office of State Budget and Management
20320 Mail Service Center
Raleigh, NC 27699- 0320
919/ 733- 7061
PREFACE
The Office of State Budget and Management presents the North Carolina Tax Guide.
The Guide provides an overview of North Carolina's tax structure including General
Fund, Highway Fund, Highway Trust Fund, and local government taxes. The
information contained herein is intended for state lawmakers and planners, the business
community, public interest groups, and individuals. The North Carolina Tax Guide is not
available in hard copy. If further information is required please contact this Office.
CONTENTS
PART I. INTRODUCTION
Overview....................................................................................................................... ... 1
Tax Concepts: Tax Burden ............................................................................................. 1
Chart 1. Tax Collections Received By North Carolina
State and Local Governments ( 2003- 04)...………………………………….… 3
Chart 2. North Carolina State Tax Collections ( 2003- 04) .............................................. 4
PART II. GENERAL FUND TAXES
Chart 3. North Carolina General Fund Tax Collections ( 2000- 01) ................................. 7
Alcoholic Beverage Tax ................................................................................................... 8
Cigarette/ Tobacco Tax.................................................................................................... 12
Corporate Income Tax .................................................................................................... 14
Estate Tax........................................................................................................................ 17
Franchise Tax.................................................................................................................. 19
Freight Car Tax ............................................................................................................... 22
Gift Tax........................................................................................................................... 23
Individual Income Tax.................................................................................................... 25
Insurance Tax.................................................................................................................. 29
Piped Natural Gas Tax .................................................................................................... 31
Privilege License Tax ..................................................................................................... 32
Sales and Use Tax........................................................................................................... 34
PART III. HIGHWAY FUND TAXES
Chart 4. North Carolina Highway Fund Tax Collections ( 2000- 01) ............................. 41
Dealer and Manufacturing License Fees......................................................................... 42
Driver's License Fees ...................................................................................................... 43
Financial Security Restoration Fees................................................................................ 45
Gasoline Inspection Fees ................................................................................................ 46
International Registration Program................................................................................. 48
Motor Fuels Tax.............................................................................................................. 50
Overweight/ Oversize Permits ......................................................................................... 53
Penalties .......................................................................................................................... 54
Process Service Fees....................................................................................................... 56
Registration Fees............................................................................................................. 57
Safety Equipment Inspection Fees.................................................................................. 58
Staggered Registration Fees............................................................................................ 60
Truck License Plate Fees ................................................................................................ 62
PART IV. HIGHWAY TRUST FUND TAXES
Chart 4. North Carolina Highway Trust Fund Tax Collections ( 2000- 01).................... 66
Highway Use Tax ........................................................................................................... 67
Lien Recording Fees ....................................................................................................... 69
Motor Fuels Tax.............................................................................................................. 70
Title and Registration Fees ............................................................................................. 71
PART V. LOCAL GOVERNMENT TAXES
Chart 5. North Carolina Tax Collections Received by
Local Government ( 1994- 95) .......................................................................... 74
Excise Tax on Beer and Wine: Local Government ........................................................ 75
Excise Tax on Conveyances: Local Government ........................................................... 77
Land Transfer Tax........................................................................................................... 79
Liquor By- The- Drink Tax............................................................................................... 80
Prepared Meals Tax ........................................................................................................ 81
Privilege License Tax: Local Government ..................................................................... 82
Property Tax.................................................................................................................... 83
Room Occupancy Tax..................................................................................................... 86
Sales and Use Tax: Local Government........................................................................... 87
Utility Excise Tax: Local Government ........................................................................... 89
PART VI. RECENT TAX LEGISLATION
2002 Legislative Session................................................................................................. 93
2003 Legislative Session................................................................................................. 99
PART VII. COMPARISON OF NORTH CAROLINA TAX COLLECTIONS
WITH THOSE OF OTHER STATES
Table 1. Level and Percentage Distribution of State and Local Tax Collections,
By Level of Government, 1998- 99 ................................................................ 105
Table 2. State Ranking of State and Local Tax Burden, Per Capita
and as a Percentage of Personal Income, for 1998- 99 ................................... 108
Table 3. Estimated Impact of Recent Tax Changes in the United States,
Enacted in 2001, 2000, and 1999................................................................... 111
Table 4. State and Local Tax Collections, Per Capita and as a Percentage of
Personal Income, by Source, for the United States and the Eleven Most
Populated States and the Mid- Southeastern States, for 1998- 99 ................... 114
Table 5. Percentage Distribution, Per Capita Tax Burden, and Tax Burden
as a Percent of Personal Income, of State and Local Taxes,
by Type of Tax, for the United States, the Eleven Most Populated
States, and the Mid- Southeastern States, 1998- 99......................................... 116
Introduction
1
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 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 2002 and 2003 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 6 mid- Southeastern states and the 11 most populated states.
Further, the relative distribution of taxes is presented.
TAX BURDEN
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.
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.
2
EXAMPLE
The population of State A is 100. The state and local tax burden of all the tax payers in
State A is $ 50,000. State B has a population of 75 citizens who have a combined state
and local tax burden of $ 30,000. The per capita tax payments in each state are
determined as follows:
Per Capita Tax Payments = Total State and Local Taxes Paid = $ 50,000 = $ 5,000
( State A) Total State Population 100
Per Capita Tax Payments = Total State and Local Taxes Paid = $ 30,000 = $ 4,000
( State B) 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.
Local Taxes
35%
State Taxes
65%
CHART 1
TAX COLLECTIONS RECEIVED BY NORTH CAROLINA
GOVERNMENTS
( 2003- 04)
State Taxes $ 16,167,074,380
Local Taxes 8,655,955,674
----------------------
Total State and Local Taxes $ 24,823,030,054
General Fund
86%
Highway Fund
8%
Highway Trust Fund
6%
CHART 2
NORTH CAROLINA STATE TAX COLLECTIONS
( 2003- 04)
General Fund $ 13,831,744,605
Highway Fund 1,350,292,632
Highway Trust Fund 985,037,143
-----------------------
Total State Tax Revenue $ 16,167,074,380
General
Fund
Tax
Coporate Income
6%
Other
6%
Sales and Use
31%
Franchise
3%
Individual Income
54%
CHART 3
NORTH CAROLINA GENERAL FUND TAX COLLECTIONS
( 2003- 04)
Individual Income $ 7,509,898,086
Corporate Income 776,964,847
Sales and Use 4,222,201,842
Franchise 445,294,486
Other 877,385,344
----------------------
Total $ 13,831,744,605
8
ALCOHOLIC BEVERAGE TAX
NORTH CAROLINA STATUTES
105- 113.68 to 105- 113.89; 18B- 902; 18B- 804
ADMINISTERED BY
Department of Revenue and the Alcoholic Beverage Control Commission
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1998- 99 158,026,529 2.8 1.3
1999- 00 166,372,353 5.3 1.3
2000- 01 172,698,910 3.8 1.4
2001- 02 174,644,725 1.1 1.4
2002- 03 170,896,552 - 2.2 1.4
2003- 04 182,392,510 6.7 1.3
NOTE: Effective December 1, 2001, sales of spirituous liquor are subject to a sales tax of
6%.
BASE AND RATE
Excise taxes are levied on beer, wine, and spirituous liquors. Resident wholesalers and
importers pay excise taxes on beer and wine, 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; 12) $ 500 for a liquor importer/ bottler permit; and 13) $ 300 for a special
wine tasting permit for wineries, and $ 100 for retail establishments.
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
9
governments along with various mixed beverages permit fees. For more information see
" Liquor By- the- Drink Tax" in 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 25% 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 the first
$ 350,000 in collections of the excise tax on unfortified wines fortified wine bottled in
North Carolina. 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 25% 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. Counties and municipalities use the revenue in the same manner as profits from
local ABC stores. 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.
COMPARISON WITH OTHER STATES
All fifty states levy 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.
10
The latest complete survey on the taxation of alcoholic beverages is for calendar year
2002 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 to $ 1.88 per gallon. The average overall tax
rate for the nation was $ 0.94 per gallon, while the average rate for the 6 mid- southern ( 1)
states stood at $ 1.17, and $ 1.03 for the 11 most populated states ( 2). North Carolina's
rate is $ 1.10 per gallon. North Carolina ranked 11 in the nation, 5th among the controlled
states, 4th among the 6 mid- Southeastern states, and 5th in the 11 most populated states.
Taxes on wine ranged from $ 0.70 per gallon to $ 7.34 per gallon. The average overall tax
rate for the nation was $ 2.40 per gallon, while the average rate for the 6 mid- Southeastern
states stood at $ 3.18, and $ 2.82 for the 11 most populated states. North Carolina's rate is
$ 2.20 per gallon. North Carolina had the 17th highest tax rate in the nation, while
standing 6th among the 6 Southeastern states, and the 7th highest among the 11 most
populated states.
Taxes on distilled spirits ranged from $ 3.67 per gallon to $ 28.52 per gallon. The average
overall tax rate for the nation was $ 13.37 per gallon, while the average rate for the 6 mid-
Southeastern states stood at $ 16.48 and $ 16.29 for the 11 largest states. North Carolina's
rate is $ 23.31 per gallon. North Carolina had the 5th highest combined tax rate in the
nation, while standing 1st among the 6 mid- Southeastern states, and 2nd among the 11
most populated states.
( 1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
( 2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas.
11
REVENUE PER GALLON FROM COMBINED STATE AND LOCAL
COLLECTIONS,
ON BEER, WINE, AND DISTILLED SPIRITS, FOR NORTH CAROLINA
AND SURROUNDING STATES IN 2002
STATES BEER WINE SPIRITS
United States $ 0.94 $ 2.40 $ 13.37
Six Mid- Southeastern States 1.17 3.18 16.48
Eleven Largest States 1.03 2.82 16.29
Surrounding States
Georgia 1.62 3.32 10.53
Kentucky 0.81 4.61 12.32
North Carolina 1.10 2.20 23.31
South Carolina 1.17 2.37 16.46
Tennessee 1.46 3.48 13.10
Virginia 0.88 3.10 23.06
Source: Information is obtained from " Public Revenues from Alcohol Beverages, 2002,"
Distilled Spirits Council of the United States, Inc., Washington, D. C., January, 2004.
12
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
1997- 98 47,177,218 1.1 0.4
1998- 99 44,852,542 - 4.9 0.4
1999- 00 43,663,205 - 2.7 0.4
2000- 01 42,025,877 - 3.8 0.3
2001- 02 41,531,347 - 1.2 0.3
2002- 03 41,998,713 1.1 0.3
2003- 04 43,732,769 4.1 0.3
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 non- tax- paid tobacco products.
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.
13
COMPARISON WITH OTHER STATES
All states levy cigarette taxes. Rates ranged from 2.5 cents to $ 2.05 per pack. Localities
in six states can levy additional cigarette taxes. The median tax for the nation was 60
cents per pack. North Carolina had the 3rd 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 JANUARY 1, 2004
Cents Per Pack Number of States
Below 10 cents 4
10 cents to 24 cents 6
25 cents to 49 cents 7
50 cents to 99 cents 18
Above 99 cents 15
Source: State Excise Tax Rates on Cigarettes, Federation of Tax Administrators,
January 1, 2004
14
CORPORATE INCOME TAX
NORTH CAROLINA STATUTES
105- 129.1 to 105- 129.37, 105- 130.0 to 150- 132.0, 105- 163.38 to 105- 163.47, and 105-
151.21.
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1997- 98 696,338,557 - 3.0 6.3
1998- 99 848,509,669 21.9 7.1
1999- 00 903,241,974( 1) 6.5 7.3
2000- 01 406,315,086( 2) - 49.0 3.7
2001- 02 409,322,540 - 11.1 3.3
2002- 03 840,499,824 105.3 3.7
2003- 04 776,964,847 - 7.6 5.6
( 1) A change in an accounting procedure resulted in $ 92 million in corporate
franchise tax collections to be recorded under the corporate income tax schedule.
( 2) The $ 92 million was transferred back from the corporate income tax schedule to
the corporate franchise tax schedule. In addition, collections fell as a result of the
recession.
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. The North Carolina Tax Review
Board may authorize alternative methods. 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 intangible property.
15
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 except for income in excess of $ 100,000
annually that is not substantially related to the functions for which the nonprofit
organization was formed.
North Carolina provides many corporate income tax credits. Several credits are designed
to encourage economic development especially in economically depressed counties. The
credits may vary between counties, and companies must meet various criteria to qualify
for the various credits. The credits often apply to a portion of expenditures, and are
subject to maximum allowable amounts. If the criteria is met the credits are for: 1) hiring
additional full time employees for the following industries: manufacturing, warehousing,
data processing, central office or aircraft facility property that creates at least 40 new
jobs, air courier services, computer services, customer service centers located in select
areas, electronic mail order houses that creates at least 250 new jobs and are located in
selected areas, and wholesale trade; 2) certain expenditures incurred for providing
training of five or more eligible employees for the following industries manufacturing,
warehousing, data processing, central office or aircraft facility property that creates at
least 40 new jobs, air courier services, computer services, customer service centers
located in select areas, electronic mail order houses that creates at least 250 new jobs and
are located in selected areas, and wholesale trade; 3) amount spent to purchase or lease
and place in service in this State depreciable machinery and equipment for the following
industries: manufacturing, warehousing, data processing, central offices; central office or
aircraft facility property that creates at least 40 new jobs, air courier services, computer
services, customer service centers located in select areas, electronic mail order houses
that creates at least 250 new jobs and are located in selected areas, and wholesale trade.
( These credits sometimes extend to leased machinery and equipment that is depreciable
for federal tax purposes.); 4) taxpayers in a qualified industry who claim the federal
income tax credit for increased research activities; 5) cost of machinery and equipment of
major recycling facilities; 6) manufacturers who export cigarettes to foreign nations; 7)
machinery and equipment used in production based on technology licensed from a state
research institution; 8) corporations using the ports of Wilmington and Morehead City; 9)
25% of contributions or investments a development zone agency in a development zone;
10) enhanced incentives for establishments located in development zones; 11) cost of
renewable energy property used in residential and nonresidential structures; 12) electric
cogenerator plants; 13) qualified rehabilitation expenditures with respect to a certified
historic structures; 14) construction of dwellings for the handicapped; 15) construction
and rehabilitation of low income housing ( in addition an enhanced credit is allowed in
counties designated as having sustained moderate to severe damage from a hurricane; 16)
market value of donated property to the government used for recreational access or
conservation purposes; 17) property taxes paid on farm machinery by S- Corporations;
24) peat products manufacturing facilities; 18) corporations that provide telephone
service to low income subscribers at reduced rates;
16
19) corporate farms for gleaning crops; 20) credit of 20% the cost of purchasing or
leasing non- hazardous dry cleaning equipment; and 21) construction of a renewable
energy facility.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for 2/ 31st of each
previous quarter's collection, which is transferred to the Public School Building Capital
Fund. 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.
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.
COMPARISON WITH OTHER STATES
Forty- four states levy corporate income taxes. Michigan, which is not included in that
group, levies a single business tax. Most states followed the federal definition of income.
Of the 44 states levying corporate income taxes, 27 states had a higher marginal rate than
North Carolina, while 16 states had a lower marginal rate.
DISTRIBUTION OF STATE CORPORATE INCOME TAXES
AS OF JANUARY 1, 2004
HIGHEST
MARGINAL RATE NUMBER OF STATES
Below 5.0% 2
5.0% to 5.9% 4
6.0% to 6.9% 12
7.0% to 7.9% 8
8.0% to 8.9% 8
9.0% to 9.9% 8
10.0% and above 2
Source: State Corporate Tax Rates, Federation of Tax Administrators, January 2004
17
ESTATE TAX
NORTH CAROLINA STATUTES
105- 32.1 to 105.32
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
2000- 01 123,165,443( 1) n. a. 1.0
2001- 02 104,750,885 - 15.0 1.0
2002- 03 112,504,407 7.4 1.0
2003- 04 128,479,443 14.2 1.0
( 1) The inheritance tax was repealed January 1, 1999. Only collections from the
estate tax are shown above.
BASE AND RATE
The amount of the North Carolina estate tax is the maximum credit for state death taxes
allowed under section 2011 of the Internal Revenue Code without regard to the phase- out
of that credit under subsection ( b)( 2) of that section.
DISTRIBUTION
Revenue was deposited in the General Fund for general purposes.
TAX CALENDAR
A North Carolina estate tax return and payment are due on the date the Federal estate tax
return and payment are due. Interest accrues on any unpaid tax beginning nine months
after the date of death.
18
COMPARISON WITH OTHER STATES
All 50 states levy death taxes. Two states have individual state estate tax schedules.
Eleven states impose both an inheritance tax and an estate tax. For these eleven states, if
the inheritance tax imposed is less than the state death tax credit allowed by the Federal
Estate Tax Act, an estate tax is imposed equal to the difference between the state death
tax credit allowed by the Federal Estate Tax Act and the inheritance tax imposed. The
remaining states levy an estate tax that is equal to the death tax credit allowed by the
Federal Estate Tax Act.
Source: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
19
FRANCHAISE TAX
NORTH CAROLINA STATUTES
105- 114 to 105- 129
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1997- 98 407,256,555 5.0 3.7
1998- 99 409,558,340 0.6 3.4
1999- 00 306,979,197( 1) - 25.1 2.5
2000- 01 580,431,850( 2) 89.1 4.6
2001- 02 446,270,680 - 23.1 4.0
2002- 03 429,128,005 - 4.0 4.6
2003- 04 445,294,486 3.8 3.2
( 1) A change in an accounting procedure resulted in $ 92 million in corporate
franchise tax collections to be recorded under the corporate income tax schedule.
( 2) The $ 92 million was transferred back from the corporate income tax schedule to
the corporate franchise tax schedule.
BASE AND RATE
Franchise taxes include taxes on electric power companies; and other similar utility
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 0.1% of each public utility's North Carolina jurisdictional income.
Power and Light, Water, and Sewerage Companies. A 3.22% tax rate is applied to the
total gross receipts resulting from the sale of power and light in the state, minus
authorized exemptions and deductions of receipts derived from the sale of power and
light to a vendee subject to the tax levied by G. S. 105- 116 or a joint agency established
under Chapter 159B of the General Statutes or a city having an ownership share in a
project established under that Chapter. Water companies are taxed at 4.0% and public
sewage companies are taxes at 6.0%. In addition, power and light utility services are also
subject to a sales tax. ( See " Sales and Use Tax" in this section.)
Telephone Companies. Effective January 1, 2002 all telecommunication services are
taxed under the state sales and use tax at a 6% rate. There will be no local sale and use
taxes on these services.
20
Effective January 1, 2002, a prepaid calling card or another prepaid calling arrangement
is tax under the state sales and use tax at the point of sale as tangible property at the
general rate of tax.
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.
3. Net book value of real and tangible personal property in North Carolina.
As in the case of the corporation income tax, business corporations doing business 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
franchise tax of $ 35.
DISTRIBUTION
The state distributes approximately 96% of the 3.09% gross receipts tax levied and
collected on power and light companies to municipalities, for services that are rendered in
the respective municipality. The remaining gross receipts revenue, plus revenue from all
other sources under the franchise tax schedule remain with the General Fund, and are
used for general purposes.
TAX CALENDAR
Franchise taxes are due on the following dates: 1) power and light companies remit
franchise tax payments on the same schedule that applies to its payment of the state sales
and use tax. The change is effective January 1, 2002, for taxes levied on or after that
date. If the power and light company is classified as a semimonthly payer, the
semimonthly payment period from the first day on the month through the 15th day of the
month is due by the 25th day of that month. The semimonthly payment for the period
from the 16th day of the month through the last day of the month is due by the 10th day
of the following month. If the power and light company is classified as a quarterly payer,
the quarterly payment is due with the quarterly return. Regardless of the payment
schedule, the power and light company must file a quarterly return. The quarterly return
21
is due by the last day of the month following the quarter covered by the return; 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; 3) mutual burial associations must file and remit payment by April 1 each year
for membership as of March 30; and 4) 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.
COMPARISON WITH OTHER STATES
Over 98.0 percent of North Carolina’s total franchise tax collection is made up by the
three largest components of the tax: 1) corporate franchise tax, 2) gross receipts tax
power and light companies, and 3) gross receipts tax on telephone companies.
Twenty five states levy a “ Franchise” tax on corporations. Where the franchise tax
includes all annual taxes imposed on general business corporations, other than franchise
taxes measured by net income and those imposed on public utilities. 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.
North Carolina citizens pay a 3.22% gross receipts tax on electric power. Approximately
half the states levy either a gross receipts or sales tax on electric power.
Source: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
22
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
1998- 99 469,302 - 1.8 < 1%
1999- 00 444,094 - 5.4 < 1%
2000- 01 497,560 12.0 < 1%
2001- 02 518,887 4.3 < 1%
2002- 03 379,551 - 26.9 < 1%
2003- 04 527,447 39.0 < 1%
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.
COMPARISON WITH OTHER STATES
Fifteen states levy specific and separate taxes on freight car lines. The levies are
typically based on gross receipts that range 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: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
23
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
1997- 98 20,640,224 64.3 0.2
1998- 99 19,334,909 - 6.3 0.2
1999- 00 25,085,473 29.7 0.2
2000- 01 20,254,465 - 19.3 0.2
2001- 02 13,390,362 - 33.9 0.1
2002- 03 19,304,091 44.2 0.2
2003- 04 16,630,438 - 14.0 0.1
BASE AND RATE
The tax is levied on the donor against all property under the jurisdiction of the state,
whether real or personal, that is transferred by gift during a calendar year. Taxes are only
levied on nonresidents when they give property that the state has jurisdiction.
Gifts to a spouse are exempt from taxation. For calendar years beginning on or after
January 1, 1985, but before January 1, 2002, the first $ 10,000 in gifts per year given to
each donee other than gifts of future interest in property is exempt from taxes. For
calendar years beginning on or after January 1, 2002, the annual exclusion amount is
equal to the federal inflation- adjusted amount provided in section 2503( b) of the Code.
For years 2002 and 2003, the annual exclusion amount is $ 11,000. 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 annual exclusion, there is a $ 100,000 per donor lifetime
exemption to be deducted from gifts made to a Class A donees. 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.
24
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.
COMPARISON WITH OTHER STATES
Four states including North Carolina levy a gift tax. The additional three are
Connecticut, Louisiana, and Tennessee. Each state’s tax is based on graduated schedules
that vary widely in terms of exemptions, rates, and recipient categories.
Source: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
25
INDIVIDUAL INCOME TAX
NORTH CAROLINA STATUTES
105- 129.2 to 105- 129.19, 105- 129.35 to 105- 129.45, and 105- 133 to 105- 159.2, 105-
163.010 to 105- 163.015, and 105- 163.1 to 105- 163.24
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1997- 98 6,028,870,217 13.1 54.4
1998- 99 6,606,500,278 9.6 55.2
1999- 00 7,080,106,177 7.2 57.1
2000- 01 7,391,342,524 4.4 58.8
2001- 02 7,134,629,832 - 3.5 57.0
2002- 03 7,088,526,873 - 0.7 58.8
2003- 04 7,509,898,086 6.0 54.3
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 but 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) interest from a nonprofit educational
institution organized or chartered in the state; 3) gain from the disposition of obligations
issued before July 1, 1995, to the extent the gain is exempt from tax under the laws of this
state; 4) benefits under Title II of the Social Security Act and retirement benefits under
the Railroad Retirement Act of 1937; 5) 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; 6) up
to $ 2,000 in one or more private retirement plans; and 7) up to $ 35,000 in severance pay
as a result of the taxpayer’s involuntary termination through no fault of the taxpayer.
Each personal exemption for married filing jointly ( two exemptions), head of household,
single, and married filing separately taxpayers is $ 2,500 for a taxpayer( s) whose federal
26
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 jointly $ 100,000
Head of Household 80,000
Single 60,000
Married, filing separately 50,000
The standard deductions for taxable years beginning before January 1, 2003, are as
follows: 1) married filing joint--$ 5,000; 2) married filing separate--$ 2,500; 3) head of
household--$ 4,400; and 4) single--$ 3,000. The standard deductions for taxable years
beginning on or after January 1, 2003, and Before January 1, 2004, are as follows: 1)
married filing jointly --$ 5,500; 2) married filing separately -- $ 2,750; 3) head of
household -- $ 4,400; 4) --$ 3,000. The standard deduction for taxable years beginning on
or after January 1, 2004, are as follows: 1) married filing jointly --$ 6,000; 2) married
filing separately --$ 3,000; 3) head of household--$ 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 Head of
Rate Filing Joint Filing Separate 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 - 200,000 50,001 - 100,000 80,001 - 160,000 60,001 - 120,000
8.25%( 1) 200,001 and above 100,001 and above 160,001 and above 120,001 and above
( 1) Effective from January 1, 2001 to December 31, 2005
The following household related 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) $ 75 for each qualified child,
effective January 1, 2003, and $ 100 effective January 1, 2004; 3) income taxes paid to
another state or country; 4) 1/ 3 the amount allowed by federal government for an
individual who is totally and permanently disabled; 5) taxpayer's share of S- corporation
income taxes paid to another state that taxes the corporation rather than the shareholder;
6) farmers who permit their crops to be gleaned;
7) donating an interest in real property to the state, local government, or other qualifying
organization for certain land conservation purposes; 8) for non- itemizers, a 7% tax credit
27
for charitable contributions in excess of 2% of adjusted gross income; and 9) a 15% tax
credit up to $ 350 for the premium cost on a qualified long- term care policy.
The following tax credits are allowed for business related activities: 1) for business
entities using the ports at Wilmington and Morehead City; 2) a 25%, credit up to a
maximum of $ 50,000, for the amount invested in equity securities or subordinated debt of
a qualified business; 3) for qualified rehabilitation expenditures with respect to a certified
historic structures; 4) maximum of $ 550 for the construction of each dwelling for the
handicapped that conforms to the North Carolina Building Code; 5) investing in low
income housing; 6) maximum of $ 1,000 for property taxes paid on farm machinery; 7)
for the construction of a poultry composting facility; 8) certain tillage equipment used for
conservation; 9) cost of purchasing or leasing non- hazardous dry cleaning equipment and
10) the cost of renewable energy property up to a maximum of $ 250,000 for
nonresidential property and $ 10,500 for residential property.
Further, selected credits are granted to individuals for business related activities under the
Bill Lee Act. These include various credits for: 1) creating qualified jobs in selected
industries; 2) investing in machinery and equipment; 3) research and development
expenditures; 4) cost of certain worker training; 5) investing in central administrative
office property; and 6) investing in development zones.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for $ 95,331,927
that is dedicated to local government as a reimbursement for the repeal of the intangible
personal property tax.
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 $ 250 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 $ 250 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.
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).
28
COMPARISON WITH OTHER STATES
As of January 1, 2004, Forty- one states levy individual income taxes with two taxing
only dividend and interest income. Most states follow the Federal definition of gross or
taxable income. However, tax rates, deductions, and exemptions varying widely.
North Carolina relies more heavily on the individual income tax than most other states,
obtaining 34% of its state and local taxes from the individual income tax in 1999- 00, as
compared to 24% for the nation, 26% for the 6 mid- Southeastern states ( 1), and 23% for
the 11 most populated states ( 2). In terms of reliance on the individual income tax, North
Carolina ranked 5th place in the nation, tied with Kentucky for first place in the mid-
Southeast, and was the highest among the 11 most populous states.
At 8.25%, North Carolina tied with Hawaii for the 8th highest marginal tax rate in the
nation. North Carolina has the highest marginal rate among the 6 mid- Southeastern
states, and the second highest among the 11 most populous states. The current 8.25%
rate is scheduled to expire on January 1, 2006, when the highest tax bracket will revert to
7.75%. Based on current rates this would be the 12th highest marginal tax rate.
On a national basis, 2.6% of state personal income was devoted to state individual
income tax payments, while North Carolina citizens allocated 3.4% of their income to
individual income tax payments. North Carolina ranked 10th in the nation, 2nd among
the 6 mid- Southeastern states, and 4th among the 10 most populated states.
In terms of per capita income the average taxpayer in the nation paid $ 752 in individual
income tax payments, while North Carolina taxpayers paid $ 896. North Carolina ranked
12th in the nation, 2nd in the mid- Southeast, and 4th among the 11 largest states.
( 3) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia.
( 4) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas.
Source: State Individual Income Tax Rates, Federation of Tax Administrators, January
2004.
29
INSURANCE TAX
NORTH CAROLINA STATUTES
105- 228.3 to 105- 228.10, 58- 21- 85, and 58- 33- 125
ADMINISTERED BY
Department of Revenue and Department of Insurance
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1997- 98 283,763,234 9.8 2.6
1998- 99 291,230,879 2.6 2.4
1999- 00 273,367,118 - 6.1 2.2
2000- 01 305,791,331 11.9 2.4
2001- 02 340,785,358 11.4 2.7
2002- 03 408,873,355 20.0 2.4
2003- 04 423,405,050 3.6 3.1
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: 1) a 2.5% tax on the gross premiums of worker's compensation
policies; and 2) a 1.9% tax on 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 that are dedicated for special purposes. The tax
rate applied to the gross collections of Article 65 corporations ( hospital, medical, and
dental service companies is 0.5% through December 31, 2002. Effective January 1,
2003, a 1.1% gross premium tax is applied to gross premiums of HMOs, and medical and
dental service corporations. Effective January 1, 2004, the rate is lowered to 1.0%.
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 5.0%. 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.
30
A tax credit against 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. Effective for the tax year 2003 only, Article
65 corporations and health maintenance organizations are to remit two estimated tax
payments with each payment being equal to 50% of their estimated premium tax liability
for the 2003 taxable year. Effective for tax years 2004 and 2005, under Article 65
corporations are to make estimated payments following the same schedule as for tax year
2003. The estimated payments are due by April 15, 2003, and June 15, 2003. Effective
tax year 2004, HMOs are to make estimated payments following the same schedule as
other insurance companies. 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.
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.
Source: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
31
PIPED NATURAL GAS TAX
NORTH CAROLINA STATUTES
105- 187.40 to 105- 187.46
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1999- 00 27,715,136 ( 1) 0.02
2000- 01 37,212,997 34.3 0.03
2001- 02 40,949,924 10.0 .33
2002- 03 36,853,402 - 10.0 .30
2003- 04 38,994,881 6.0 .30
( 1) The tax became effective July 1, 1999, and collections do not reflect a full
fiscal year.
BASE AND RATE
The tax is based on the monthly volume of natural gas received by the final user. The tax
per therm is as follows: 1) first 200, $ 0.047; 2) 201 to 15,000, $ 0.035; 3) 15,001 to
60,000, $ 0.024; 4) 60,001 to 500,000, $ 0.015; and 5) over 500,000, $ 0.03.
DISTRIBUTION
Within 75 days of the end of each quarter, the Department of Revenue distributes to
municipalities one- half of the amount of tax attributable to the activity within their
jurisdiction. The remaining revenue is deposited in the General Fund for general
purposes.
TAX CALENDAR
Tax returns are due quarterly by the last day of the month that follows the quarter cover
by the return. Payments are due semimonthly in accordance with the schedule set out in
G. S. 105- 164.16 for semimonthly payments of sales and use taxes.
TAX COMPARISON
A tax comparison was not undertaken.
32
PRIVILEGE LICENSE TAX
NORTH CAROLINA STATUTES
105- 33 to 105- 109; 105- 187.30 to 105- 187.34
ADMINISTERED BY
Department of Revenue
Annual Percent of
General Fund Percent General Fund Tax
Fiscal Year Collections Change Collections
1997- 98 36,648,113 - 15.5 0.3
1998- 99 27,588,260 - 24.7 0.2
1999- 00 43,828,822 58.9 0.4
2000- 01 2,953,653( 1) - 93.3 0.02
2001- 02 26,579,102 - 41.0 .02
2002- 03 44,721,244 68.3 .04
2003- 04 41,615,694 - 7.0 .3
( 1) A Court settlement resulted in large refunds to two large corporations.
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 receipts tax is levied
on the operation of motion picture shows. A privilege license tax of $ 10 per gallon is
levied on chlorine based dry cleaning solvents, and $ 1.35 per gallon on hydrocarbon
based dry cleaning solvents. Individuals engaged in various professions including
physicians, attorneys, engineers, public accountants, and so forth pay a $ 50 annual
license fee. Privilege license taxes are also levied on banks, installment paper dealers,
loan agencies, pawnbrokers, check cashing businesses, and publishers of newsprint
publications.
DISTRIBUTION
Net Proceeds of the privilege license tax from dry cleaning solvents is credited to the Dry
Cleaning Solvent Clean- up Fund. Other revenue is deposited in the General Fund for
general purposes.
TAX CALENDAR
Taxes for annual licenses are due annually by July 1 for the upcoming fiscal year.
Privilege tax on dry cleaning solvents is collected and administered in the same manner
33
as the sales and use taxes. Gross receipts taxes on entertainment and motion pictures are
due by the 10th day after the end of each month.
COMPARISON WITH OTHER STATES
All states have occupation or business license taxes or fees. The occupations and
privilege license tax rates vary significantly within and between states.
Source: 2003 State Tax Handbook, Commerce Clearing House, Chicago, Illinois,
December 2002.
34
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
1997- 98 3,255,372,048( 1) 4.1 29.3
1998- 99 3,376,206,664( 2) 3.7 28.2
1999- 00 3,354,897,708( 3) - 0.7 27.1
2000- 01 3,435,558,577 2.4 27.3
2001- 02 3,705,769,832 8.0 30.0
2002- 03 3,922,821,877 6.0 27.3
2003- 04 4,222,201,842 7.6 30.5
( 1) The state sales tax on food consumed at home was reduced from 4% to 3%. The
2% local tax remains.
( 2) The state sales tax on food consumed at home was reduced from 3% to 2%. The
2% local tax remains.
( 3) The state sales tax on food consumed at home was eliminated. The 2% local tax
remains.
BASE AND RATE
Effective October 16, 2001 to July 1, 2005 a 4 1/ 2% state tax is imposed on the retail
sale, lease, or rental to consumers of tangible personal property not specifically exempt or
subject to taxation at a reduced rate. The tax rate is reduced to 4% ( the rate that existed
prior to October 16, 2001) thereafter. Certain services such as rental of accommodations
to transients, cleaning services provided by dry cleaners, laundries and similar type
businesses, and funeral services, except the first $ 1,500, are subject to the 4 1/ 2% rate of
state tax. All items that are subject to the 4 1/ 2% state sales tax are also subject to all
local sales taxes, which are presently at a 2.5% rate, except in Mecklenburg that has a 3%
rate. Many items, such as prescription medicine and certain medical devices, are exempt
from the tax. The stated list of exempt items is not all- inclusive.
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.
Spirituous liquor is subject to a 6% state tax.
A 5% tax is levied on the gross receipts of satellite and cable TV services.
35
A 3% rate of state tax is levied on the retail price of new and used aircraft, boats,
locomotives, railroad cars, mobile offices, and mobile classrooms with a maximum levy
of $ 1,500. Receipts from the long- term rental or leases of motor vehicles are subject to
the 3% highway use tax.
Gross receipts derived by a utility from the sale of electricity are subject to the state sales
tax of 3%, in addition to the 3.22% rate of tax imposed under the franchise tax schedule.
Gross receipts derived from telecommunication services are subject to a 6% tax.
Municipalities receive a quarterly distribution of 18.26% of the net proceeds of net tax
collected subject to statutory adjustments.
The sale of electricity to farmers, manufacturers, and commercial laundries are taxed at
2.83%.
Manufactured housing is taxed at a 2% rate with a $ 300 ceiling per article.
Sales of coal, coke, fuel oil, and other fuels, other than electricity or piped natural gas, to
manufacturing industries or manufacturing plants are subject to the 1% rate, provided
such fuels 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 when sold to manufacturing industries and plants for use in the manufacturing
process, with a maximum tax of $ 80 per article. Sales to farmers of machines, and
machinery and parts, or accessories therefore 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.
Qualified food, which does not include prepared food, soft drinks, food sold through
vending machines, alcoholic beverages, or dietary supplements are exempt from the state
sales tax. 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, and the sale of newspapers
through vending machines and home deliveries.
Currently, state government agencies receive a refund of local sales and use taxes paid on
their direct purchases for use. Effective July 1, 2004, sales to state agencies will be
exempt from sales or use tax if the state agency furnishes and exemption number to the
seller. 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. Refunds apply for machinery and equipment purchased by certain types of
businesses, such as air courier services, data processing, manufacturing, and warehousing
that are located in an enterprise tier 1 or tier 2 areas.
36
A three- day sales tax holiday each August was enacted beginning in the 2002. It includes
clothing, school supplies, sport and recreational equipment, computers, and educational
software. There is a $ 100 cap per item of clothing and school supply, a $ 50 cap per item
of sport or recreational equipment, and a $ 3,500 cap per computer.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for a small
dedication to the Wildlife Resource Fund, and 60% of the state sales tax on dry cleaning
and laundry services which is dedicated to the Dry Cleaning Solvent Cleanup Fund. In
addition to the state sales tax, county governments levy a 2.5% tax on items, which the
state taxes at the 4 1/ 2% rate, except Mecklenburg County, which has a 3% levy. The tax
collected on qualified food items is distributed to local governments. ( See " Sales and
Use Tax: Local Government" in the local government section for more information.)
Only General Fund revenue is shown above.
TAX CALENDAR
For merchants with a monthly sales and use tax liability of at least $ 100, but less than
$ 10,000, 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 $ 10,000 or more are
required 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. A sales and use
tax return covering both periods is due by the 20th 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. Telecommunication, and
power, and light companies are required to file returns and remit taxes on the same
threshold basis.
COMPARISON WITH OTHER STATES
Forty- five states levy sales and use taxes. As of January 2004, state sales tax rates ranged
from 2.9% to 7%, with a median rate of 5%. The base state sale tax rate for North
Carolina is 4.5%. ( It is scheduled to revert to 4% on July 2, 2005.) There are 33 states
with a higher state sales tax rate and 11 states with a lower rate than North Carolina.
( Source: Federation of Tax Administrator’s Web Page, Comparison of State and Local
Retail Sales Taxes as of January 1, 2004.)
Additional local sales and use taxes are levied in 35 states including North Carolina. The
maximum local tax rates ranged from 0.25% to 7%, with a median rate of 3.0%. North
Carolina has a 2.5% local sales tax except for Mecklenburg County that has a 3% rate.
North Carolina ranked forth in state sales tax rate among the mid- south states ( 1), and
ninth among the 11 most populated states ( 2). The combined state and maximum local
sales and use taxes ranged from 4.0% to 11%, with a median rate of 7.0%. North
Carolina has a 7.5% combined rate. Nineteen states have a higher combined state and
local rate than North Carolina. Among the mid- south states North Carolina ranked
second, ( 1) and seventh among the eleven most populated.
37
Eighteen states levy a state sales tax on food consumed at home. Prescription medicine is
exempt in all states, but Illinois that levies a 1% tax. Certain nonprescription drugs are
exempt in 13 states, while Illinois levies a 1% tax. Nonprescription drugs are subject to
the state and local sales tax in North Carolina.
( 1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia
( 2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas.
Source: Comparison of State and Local Retail Sales Taxes, Federation of Tax
Administrators, January 1, 2004.
Highway
Fund
Taxes
Truck Plates
5%
Staggered Registration
12%
Driver License
6%
IRP
4%
Other
4%
Motor Fuels
69%
CHART 4
NORTH CAROLINA HIGHWAY FUND TAX COLLECTIONS
( 2002- 03)
Motor Fuels $ 949,575,705
Truck Plate 66,816,761
Staggered Registration 158,680,221
Driver License 74,839,528
International Registration
Plan ( IRP) 47,623,500
Other Licenses and Fees 52,756,917
----------------------
Total $ 1,350,292,632
42
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
1997- 98 1,163,695 7.7 0.1
1998- 99 1,204,073 3.5 0.1
1999- 00 1,448,912 20.3 0.1
2000- 01 1,145,552 - 20.9 0.1
2001- 02 1,078,075 - 5.9 .01
2002- 03 1,104,651 2.5 .01
2003- 04 1,071,555 - 3.0 .01
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--$ 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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
43
______________________ DRIVERS LICENSES
NORTH CAROLINA STATUTES
20- 7 to 20- 37
ADMINISTERED BY
Department of Transportation
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
1997- 98 70,094,961 2.9 6.4
1998- 99 62,278,971 - 11.2 5.6
1999- 00 58,944,575 - 5.4 5.1
2000- 01 66,172,057 12.3 5.3
2001- 02 68,941,464 4.2 5.4
2002- 03 70,463,916 2.2 5.7
2003- 04 74,839,528 6.2 5.5
BASE AND RATE
There are several bases and rates for the issuance or re- issuance of operator licenses.
These include: 1) the basic operator’s license ( Class C) which is issued for a fee of $ 2.50
per year; and 2) operator licenses for large vehicles restricted to intrastate usage ( Class A
or B) which is issued for a fee of $ 3.75 per year. The renewal period is five years. A
limited learner’s permit and a limited provisional license for persons less than 18 years
old is issued for a fee of $ 10. The following fees are levied for Commercial Driver
Licenses ( CDL): 1) Class A, B, or C is issued for a fee of $ 10 per year. The renewal
period is five years; 2) application fee, $ 20; 3) endorsement fees, $ 125 per endorsement
per year ( this also includes a motorcycle endorsement for either regular or CDL licenses).
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 non-operator'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.
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. This revenue is deposited in
the General Fund.
44
TAX CALENDAR
License fees and other charges are due at the time of purchase of the license or service.
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 $ 1.74 to $ 14.09. The average fee in the nation is $ 4.91. North Carolina's levy
converts to an annual fee of $ 3.47. Ten states had a higher levy than North Carolina.
North Carolina has the lowest rate of the mid- Southeast states ( 1). Of the most populated
states North Carolina ranked ninth.
DISTRIBUTION OF DRIVERS' LICENSE FEES: 2002
Fees Number of
States
$ 1.00 - $ 1.99 3
2.00 - 2.99 5
3.00 - 3.99 11
4.00 - 4.99 8
5.00 and Above 23
( 1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
( 2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New
Jersey, New York, North Carolina, Texas.
Source: Highway Taxes and Fees, 2002, Federal Highway Administration, U. S.
Department of Transportation, Washington, D. C., 2002.
45
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
1997- 98 5,720,651 7.7 0.5
1998- 99 7,003,646 22.4 0.6
1999- 00 8,445,869 20.6 0.7
2000- 01 10,263,535 21.5 0.8
2001- 02 12,716,831 24.0 1.0
2002- 03 14,479,061 14.0 1.2
2003- 04 15,068,442 4.1 1.1
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 re- licensed 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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
46
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
1997- 98 11,804,079 1.1 1.1
1998- 99 12,491,183 5.8 1.1
1999- 00 12,278,488 - 1.7 1.1
2000- 01 12,803,620 4.3 1.0
2001- 02 12,938,330 1.1 1.0
2002- 03 13,450,770 4.0 1.1
2003- 04 13,881,390 3.2 1.0
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 a
non- highway use motor fuel 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.
47
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.
COMPARISON WITH OTHER STATES
As of January 2001, 18 states levied gasoline inspection taxes with rates ranging from
0.0008 cent per gallon to three cents per gallon. Three states have higher fees than North
Carolina, one the same, eleven lower, and two unknown.
Source: Highway Taxes and Fees, 2002, Federal Highway Administration, Washington,
D. C., 2002.
48
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
1997- 98 41,890,137 1.0 3.8
1998- 99 50,791,801 21.3 4.6
1999- 00 54,694,488 7.7 4.8
2000- 01 47,494,993 - 13.2 3.8
2001- 02 49,909,132 5.1 4.0
2002- 03 45,039,506 - 10.0 4.0
2003- 04 47,623,500 5.74 4.0
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:
49
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.
COMPARISON WITH OTHER STATES
In 2002, 10 Canadian provinces and the 48 contiguous states participated 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 $ 3,218, and had a national
average of $ 1,241. North Carolina's tax rate was $ 973, and ranked 36th. North Carolina
ranked 5th among the 6 mid- Southeastern states, and 8th among the 11 most populated
states.
Source: Highway Taxes and Fees, 2002, Federal Highway Administration, Washington,
D. C., 2002.
50
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
1997- 98 762,551,945 4.4 69.3
1998- 99 762,888,007 0.2 69.6
1999- 00 781,017,763 2.4 68.2
2000- 01 867,815,163 11.1 69.7
2001- 02 888,128,994 2.3 69.3
2002- 03 848,372,049 - 4.5 68.3
2003- 04 935,531,825 10.3 69.3
BASE AND RATE
As of January 1, 2002 an excise tax of 24.2 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, N. C. counties or municipal
corporations, N. C. community colleges or used in public or charter 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 volunteer fire departments,
sheltered workshops recognized and approved by the Department of Human Resources,
volunteer rescue squads, taxicabs transporting fare- paying passengers, 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. A refund of
the average excise tax paid is given for purchases of fuel not used on the highway. There
is a refund of 33 1/ 3% of the average tax paid for the year on fuel used in concrete
mixing vehicles, solid waste compacting vehicles, commercial vehicles that deliver and
spread mulch, soil and similar materials, and certain agricultural and tank delivery
vehicles.
51
DISTRIBUTION
Of the tax collected, 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. Of the remaining revenue 75% remains in the Highway Fund, and 25%
is allocated to the Highway Trust Fund. Only Highway Fund revenue is shown above.
TAX CALENDAR
Taxes are paid by wholesale distributors of motor fuel ( gasoline and diesel) on purchases
made from 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.
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 January 1, 2004, state excise taxes on gasoline ranged from 7.5 cents per gallon to
31 cents per gallon. The average state gasoline tax was 18.4 cents per gallon. North
Carolina's rate was 24.55 cents per gallon, and was the 11th highest tax in the nation.
The average motor fuels tax in the 6 mid- Southeastern states was 17.23 cents per gallon,
and the average for the eleven most populated states was 19.13 cents per gallon. North
Carolina had the highest tax rate among the 6 mid- Southeastern states, and ranked 2nd
the 11 most populated states.
52
STATE GASOLINE TAX RATES FOR THE UNITED STATES,
MID- SOUTHEASTERN, ELEVEN MOST POPULATED STATES,
NORTH CAROLINA AND SURROUNDING STATES,
AS OF January 1, 2004
State Tax Rate
United States 18.4
Mid- Southeastern 17.23
Eleven Largest States 19.13
North Carolina 24.55
Surrounding States
Georgia 7.5
Kentucky 16.4
North Carolina 24.55
South Carolina 16.0
Tennessee 21.4
Virginia 17.5
Source: Federation of Tax Administrators, Motor Fuel Excise Tax Rates, January 1,
2004.
53
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
1997- 98 2,196,868 6.4 0.2
1998- 99 2,439,250 11.0 0.2
1999- 00 2,488,424 2.0 0.2
2000- 01 5,261,816 111.5 0.4
2001- 02 6,359,366 21.0 0.5
2002- 03 5,024,634 - 21.0 0.4
2003- 04 3,444,149 - 31.5 0.3
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.
Annual permit fee for moving house trailers are $ 200, and for other commodities is $ 100.
For a single trip a permit is $ 12, while an annual permit is $ 50 per vehicle.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is received at the time the permit is issued.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
54
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
1997- 98 8,021,271 36.7 0.7
1998- 99 8,069,143 0.6 0.7
1999- 00 8,453,829 4.8 0.7
2000- 01 13,263,785 56.9 1.1
2001- 02 15,300,462 15.4 1.2
2002- 03 16,003,526 5.0 1.3
2003- 04 18,366,061 15.0 1.4
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, as
follows: for the first 2000 pounds or any part thereof, two cents per pound; for the next
3000 pounds or any part thereof, four cents per pound; for each pound in excess of 5000
pounds ten cents per pound.
Amount of Pounds Penalty Per
Over Maximum Pound
First 1000 lbs. 2 cents
Second 3000 lbs. 4 cents
In excess of 5000 lbs. 10 cents
55
For each violation of axle weight as established by statute, the owner must pay the
Division of Motor Vehicles a civil penalty, per violation as follows: for the first 1000
pounds or any part thereof, four cents per pound; for the next 1000 pounds or any part
thereof, six cents per pound; and for each additional pound ten cents per pound.
Amount of Pounds Penalty Per
Over Maximum Pound
First 1000 lbs. 2 cents
Second 3000 lbs. 4 cents
In excess of 5000 lbs. 10 cents
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Payments are due at the time the penalty is issued.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
56
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
1997- 98 3,890,284 9.5 0.4
1998- 99 4,600,685 18.3 0.4
1999- 00 4,972,022 8.1 0.4
2000- 01 5,406,987 8.8 0.4
2001- 02 6,600,681 22.1 0.5
2002- 03 6,693,116 1.4 0.5
2003- 04 7,369,770 10.1 0.6
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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
57
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
1997- 98 2,454,399 2.5 0.2
1998- 99 2,488,747 1.4 0.2
1999- 00 2,687,772 8.0 0.2
2000- 01 2,594,868 - 3.5 0.2
2001- 02 2,585,980 - 0.3 0.2
2002- 03 2,595,095 0.4 0.2
2003- 04 2,786,678 7.4 0.2
( 1) The remaining portion of the certificate of title registration fees was
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,
with the remaining revenue going 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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
58
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
1997- 98 3,918,772 14.1 0.4
1998- 99 4,087,029 4.3 0.4
1999- 00 4,255,866 4.1 0.4
2000- 01 4,010,440 - 5.8 0.3
2001- 02 4,024,782 0.4 0.3
2002- 03 4,264,217 6.0 0.3
2003- 04 4,421,842 4.0 0.3
BASE AND RATE
Inspection stations are licensed by the state. Annual inspections are required for all
motor vehicles that are registered in North Carolina and use North Carolina's highways
and streets. Once a vehicle has passed the inspection, an inspection sticker is affixed to
the windshield. Safety equipment inspection fees total $ 9.10 per vehicle inspected. Of
that total, $ 8.25 is for the inspection and remains with the inspection station. The
remaining $ 0.85 is for the inspection sticker with $ 0.55 going to the State Highway Fund,
$ 0.18 earmarked to the Department of Insurance for the Volunteer Rescue/ EMS Fund,
and $ 0.12 dedicated to the Rescue Squad Workers’ Relief Fund.
Inspections are required for both safety and emissions systems in the following counties:
Alamance, Cabarrus, Catawba, Chatham, Cumberland, Davidson, Durham, Franklin,
Forsyth, Gaston, Guilford, Iredell, Johnston, Lee, Lincoln, Mecklenburg, Moore, Orange,
Randolph, Stanly, Rowan, Union, Wake.
Future Counties that require emissions inspections will be phased in according to the
schedule below:
[ Effective July 1, 2004]
Buncomde, Clevelend, Granville, Harnett, and Rockingham counties
[ Effective January 1, 2005]
Edgecombe, Lenoir, Nash, Pitt, Robeson, Wayne, and Wlison counties
59
[ Effective July 1, 2005]
Burke, Caldwell, Haywood, Henderson, Rutherford, Stokes, Surry, and Wilkes counties
[ Effective January1, 2006]
Brunswick, Carteret, Craven, New Hanover, and Onslow counties
The inspection fee for inspecting both safety and exhaust standards is $ 30.00. Of that
amount, $ 23.50 is for the inspection and remains with the inspection station. The
remaining $ 6.50 is for the inspection sticker; $ 3.00 goes to the emission program
account, $ 1.75 goes to the telecommunications account, $ 0.65 is allocated to the Division
of Air Quality, $ 0.55 goes to the Highway Fund, $ 0.25 goes to the Highway Trust Fund
Repayment Fees and $ 0.18 is distributed to the Department of Insurance for the
Volunteer Rescue/ EMS Fund, and $ 0.12 for the Rescue Squad Relief Fund.
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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
60
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
1997- 98 134,245,132 2.2 12.2
1998- 99 139,114,535 3.7 12.4
1999- 00 145,624,292 4.7 12.7
2000- 01 147,014,471 1.0 11.8
2001- 02 149,565,091 2.0 12.0
2002- 03 151,932,070 2.0 12.0
2003- 04 158,680,221 4.4 12.0
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.
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 to $ 125.
61
The median tax rate for the nation was $ 35. Thirty- nine states had a higher automobile
registration fee than North Carolina, 3 including North Carolina had a rate of $ 20, and 8
had lower rates. The average rate among the 6 mid- Southeastern states ( 1) and the 11
most populated states ( 2) was $ 21 and $ 32 respectively. Three of the mid- Southeastern
states had higher rates than North Carolina, one the same, and one lower. North Carolina
tied for the lowest rate among the largest states. A comparison of registration fees for
small trucks and motorcycles was not undertaken.
( 3) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
( 2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New
Jersey, New York, North Carolina, Texas.
Source: Highway Taxes and Fees, 2002, Federal Highway Administration, Washington,
D. C., 2002.
62
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
1997- 98 53,526,079 - 1.0 4.9
1998- 99 56,781,624 6.1 5.1
1999- 00 59,519,842 4.8 5.2
2000- 01 60,570,817 1.8 4.9
2001- 02 61,474,240 1.5 5.0
2002- 03 61,838,112 0.6 5.0
2003- 04 66,816,761 8.1 5.0
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 non- farm
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:
63
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.
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 states grant preferential tax treatment to farm vehicles.
The typical registration fee for single- unit non- farm trucks was $ 176 for the nation, $ 158
among the 6 mid- Southeastern states ( 1), and $ 187 among the 11 most populated states
( 2). North Carolina’s rate was $ 183, giving it a ranking of 21st for the nation, 3rd in the
mid- Southeast, and 5th among the largest states.
64
The typical registration fee for single- unit farm trucks was $ 87 for the nation, $ 92 among
the 6 mid- Southeastern states, and $ 131 among the 11 most populated states. North
Carolina’s rate was $ 90, giving it a ranking of 14th for the nation, 2nd in the mid-
Southeast, and 4th among the largest states. For large trucks ( five axle tractor trailers)
see, International Registration Plan in this section.
( 1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.
( 2) California, Georgia, Florida, Illinois, Michigan, Ohio, Pennsylvania, New
Jersey, New York
Source: Highway Taxes and Fees, 2002, Federal Highway Administration, Washington,
D. C., 2002.
65
HIGHWAY
TRUST FUND
TAXES
Motor Fuel
31%
Highway Use
60%
Title and Registration
Fees
9.8%
CHART 5
NORTH CAROLINA HIGHWAY TRUST FUND TAX COLLECTIONS
( 2003- 04)
Motor Fuels $ 310,767,003
Highway Use 578,346,241
Title and Registration 95,923,899
-------------------
Total $ 985,037,143
67
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
1997- 98 453,226,656 11.2 57.0
1998- 99 489,513,431 8.0 58.7
1999- 00 545,268,353 11.4 60.6
2000- 01 545,166,755 - 0.0 58.9
2001- 02 555,320,540 2.0 59.0
2002- 03 552,758,579 - 0.5 60.0
2003- 04 578,346,241 5.0 59.0
BASE AND RATE
A 3% tax is levied on the retail sales of most non- commercial motor vehicles titled in
North Carolina. The tax on commercial vehicles is 3% with a maximum tax of $ 1,000.
Recreational vehicles weighing less than 26,000 pounds are subject to a $ 1,500 ceiling,
while those weighing more than 26,001 are subject to a $ 1,000 cap. Motor vehicles
purchased in other states and titled 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%, and is subject to the same maximum taxes. Trade- in
allowances are permitted. The tax rate on short- term ( less than 365 continuous days)
lease or rental of a motor vehicle is 8%. 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; 8) transfer because of a change
in the owner's name; and 9) fire trucks and rescue vehicle purchased by volunteer
departments. 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 corporation as an incident to the formation of the company, when no gain
68
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. For
the fiscal year 2002- 03, an additional $ 2.4 million will be transferred to the General
Fund, and this amount will be adjusted annually based on the increase or decrease of
highway use tax collections. The remaining revenue will be deposited in the Highway
Trust Fund for highway purposes.
TAX CALENDAR
Taxes are due upon application for a certificate of title. The lessor may make an
irrevocable option at the time of titling to pay tax on the gross lease or rental receipts
instead of on the retail sales price of a motor vehicle.
COMPARISON WITH OTHER STATES
Forty- six states levy a state sales or excise taxes on automobiles. ( Alaska levies a local
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. The median state tax rate for the nation was 5%. Three
states had a lower state tax rates than North Carolina, one the same, while 41 had higher
rates. North Carolina had the lowest rate of the 6 mid- Southeastern states ( 1) and of the
11 most populated states ( 2).
( Source: State Tax Handbook, 2002, Commerce Clearing House, Chicago, Illinois,
December 2001.)
( 5) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia.
( 6) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas.
69
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
1997- 98 2,292,215 - 6.2 0.3
1998- 99 2,335,851 1.9 0.3
1999- 00 2,141,461 - 8.3 0.2
2000- 01 2,139,360 - 0.1 0.2
2001- 02 2,067,367 - 3.4 0.2
2002- 03 2,184,983 5.7 0.2
2003- 04 2,141,361 - 2.0 0.2
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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
70
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
1997- 98 254,604,049 4.5 32.0
1998- 99 254,740,680 0.1 30.5
1999- 00 260,744,650 2.4 29.0
2000- 01 289,594,678 11.1 31.3
2001- 02 296,259,387 2.3 31.4
2002- 03 283,055,950 - 4.5 31.0
2003- 04 310,767,003 9.8 32.0
BASE AND RATE
As of January 1, 2002 an excise tax of 24.2 cents per gallon was levied on all motor fuels
sold, distributed or used in the state. The tax was 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. After
earmarking 1/ 2 cents per gallon for other purposes, the Highway Trust Fund receives
25% of the remaining motor fuel tax collections. For further information 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.
TAX CALENDAR
See " Motor Fuels Tax" in the Highway Fund section.
COMPARISON WITH OTHER STATES
See " Motor Fuels Tax" in the Highway Fund section.
71
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
1997- 98 84,669,551 1.7 10.7
1998- 99 87,916,661 3.8 10.5
1999- 00 91,079,907 3.6 10.1
2000- 01 88,504,456 - 2.8 9.6
2001- 02 88,662,989 0.2 9.4
2002- 03 88,674,949 0.01 9.6
2003- 04 93,782,538 5.8 9.5
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.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
Local
Government
Taxes
Property
68%
License
1%
Sales and Use
26%
Utility Excise
2%
Other
3%
CHART 6
NORTH CAROLINA LOCAL TAX COLLECTIONS
RECEIVED BY LOCAL GOVERNMENT
( 2003- 04)
Property $ 5,865,046,478
License 115,844,770
Sales and Use 2,245,040,171
Utility Excise 205,971,700
Other 224,052,555
----------------------
Total $ 8,655,955,674
75
EXCISE TAX ON BEER AND WINE-- LOCAL SHARE
NORTH CAROLINA STATUTES
105- 113.68 to 105- 113.89
ADMINISTERED BY
Department of Revenue
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1997- 98 23,599,549 1.7 0.4
1998- 99 24,424,343 3.5 0.4
1999- 00 25,236,935 3.3 0.4
2000- 01 26,003,945 3.0 0.4
2001- 02 26,778,672 3.0 0.4
2002- 03 27,408,926 2.4 0.4
2003- 04 28,475,073 4.0 .3
Note: 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.
76
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.
COMPARISON WITH OTHER STATES
See “ Alcoholic Beverage Taxes” in the General Fund section.
77
EXCISE 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
1997- 98 25,966,185 13.4 0.5
1998- 99 30,311,638 16.7 0.5
1999- 00 34,787,017 14.8 0.5
2000- 01 35,951,673 3.3 0.5
2001- 02 35,350,847 - 1.7 0.5
2002- 03 37,311,800 5.5 0.5
2003- 04 41,595,069 11.5 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
Each county administers the tax. 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.
78
TAX CALENDAR
The tax is paid at the time of the transfer by the transferor to the county registrar of
deeds.
COMPARISON BETWEEN STATES
Information was not found on land transfer taxes.
79
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
1997- 98 6,340,428 27.7 0.1
1998- 99 7,418,315 17.1 0.1
1999- 00 8,601,850 16.0 0.1
2000- 01 8,899,408 3.5 0.1
2001- 02 13,035,751 46.5 0.2
2002- 03 13,322,537 2.2 0.2
2003- 04 19,451,593 49.2 0.2
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
The counties authorized to impose a land transfer tax are: 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.
COMPARISON WITH OTHER STATES
Information was not found on land transfer taxes.
8 0
LIQUOR BY- THE- DRINK TAX
NORTH CAROLINA STATUTES
18B- 804, 18B- 805
ADMINISTERED BY
Local Alcoholic Beverage Control Boards
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1997- 98 6,392,073 5.5 0.1
1998- 99 6,925,829 8.4 0.1
1999- 00 7,535,084 8.8 0.1
2000- 01 7,816,809 3.7 0.1
2001- 02 7,932,319 1.5 0.1
2002- 03 8,305,995 4.7 0.1
2003- 04 Not Available
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 October 28 2003, 70 cities and 36 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.
COMPARISON WITH OTHER STATES
Information was not found on alcohol beverage control.
8 1
________________________________________ PREPARED MEALS TAX
NORTH CAROLINA STATUTES
Not part of the General Statutes. The citations are in Session Laws.
ADMINISTERED BY
County Governments
Annual Percent of
General Fund Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1997- 98 22,646,728 11.0 .4
1998- 99 24,530,306 8.3 .4
1999- 00 26,234,636 6.9 .4
2000- 01 27,273,472 4.0 .4
2001- 02 27,842,390 2.1 .4
2002- 03 29,197,877 4.9 .4
2003- 04 30,657,771 5.0 .4
BASE AND RATE
A maximum tax rate of 1% may be imposed by a county or a municipality, on the sales
price of prepared foods and beverages sold at retail for consumption on or off the
premises by any retailer within a county that is subject to the general sales and use tax.
The tax does not apply to boarding houses, certain items exempt under the local sales and
use tax, sales through vending machines, meals that are bundled with transient rooms,
meals provided to an employee by and employer with out charge, and some sales by
grocery stores. As of August, 2003, 4 counties and 1 municipality were authorized to levy
the prepared meals tax.
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 visitor
services and facilities.
TAX CALENDAR
Taxes are paid at the time of the transaction.
COMPARISON WITH OTHER STATES
Information is not available on room occupancy taxes.
8 2
PRIVILEGE LICENSE TAX
NORTH CAROLINA STATUTES
105- 33 to 105- 109, 153A- 152, 160A- 211.
ADMINISTERED BY
Counties and Municipalities
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1997- 98 71,071,269 8.2 1.3
1998- 99 76,813,950 8.1 1.3
1999- 00 84,883,723 10.5 1.3
2000- 01 84,835,843 - 0.1 1.2
2001- 02 101,469,222 19.6 1.4
2002- 03 109,558,246 8.0 1.4
2003- 04 115,844,770 6.0 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.
A city may levy privilege license taxes on all trades, occupations, professions, businesses,
and franchises operating within the city except where prohibited by statute.
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 and due by July 1, of each year.
COMPARISON WITH OTHER STATES
A comparison with other states was not undertaken.
8 3
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
1997- 98 3,899,767,938 7.7 69.1
1998- 99 4,145,561,429 6.3 68.7
1999- 00 4,538,764,544 9.5 70.6
2000- 01 4,877,350,974 7.5 69.5
2001- 02 5,358,322,611 9.9 72.0
2002- 03 5,641,247,054 5.3 72.0
2003- 04 5,865,046,478 4.0 68.0
DISTRIBUTION
In fiscal year 2003- 04, 69% of property taxes were collected by counties, 27% by
municipalities, and 4% by special jurisdictions. Localities are free to spend the revenue
as they see fit.
BASE AND RATE
Real estate is required to be reappraised at least every eight years. However, many
counties have more frequent appraisals. 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 imposes uniform
assessment and collection procedures throughout the state. All property, except
registered 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; 11) excludes
either $ 20,000 of appraised value of real and personal property, or an exclusion of 50%
of the tax value if the property is valued at greater than $ 20,000 of elderly or permanently
8 4
disabled persons with a maximum gross income of $ 18,800. Effective July 1, 2003 the
limit is increased annually by the Social Security Insurance cost of living adjustments;
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; 16) short term leases of motor vehicles ( less than
365 days, instead subject to a 1.5% gross receipts tax); 17) motor vehicles owned by a
disabled veteran and altered to accommodate a service connected disability; 18)
Continuing Care Retirement Communities; and 19) intangible property. In addition,
there is a decreasing annual schedule of exemptions for the first five taxable years on
Brownfield sites.
Tax rates vary between counties and between municipalities within counties. In 2000- 01,
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.
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 28% of state and local
tax levies in the United States, while consisting of 24% in the 6 mid- Southeastern states
( 1), and 29% in the 11 most populated states ( 2). In North Carolina property taxes
consisted of 21% of state and local tax collections. As of fiscal year 1999- 00, the average
local property tax paid per capita in the United States was $ 875, while the per capita
property tax burden for the mid- Southeastern was $ 643, and $ 942 for the 11 largest
states. North Carolina's per capita property tax burden was $ 572. North Carolina ranked
33rd nationally in per capita property tax burden. Of the 6 mid- Southeastern states,
North Carolina ranked 3rd. Of the 11 most populated states, North Carolina ranked 8th.
As a percent of personal income, the average citizen devoted 3.0% of their personal
income to property tax payments nationally, 2.4% in the mid- Southeast, 3.2% in the 11
most populated sates, and 2.2% for North Carolina. Among the 11 largest states, North
Carolina ranked 33rd in the nation, 3rd in the mid- Southeast, and 8th as a percent of
personal income.
Source: Governmental Finances in 1999- 00, U. S. Department of Commerce, Bureau of
Census, Washington, D. C., 2002.
8 5
( 1) Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia.
( 2) California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas.
8 6
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
1997- 98 71,259,448 10.9 1.3
1998- 99 80,211,705 12.6 1.3
1999- 00 86,259,350 7.5 1.3
2000- 01 88,778,039 2.9 1.3
2001- 02 89,032,624 .3 1.2
2002- 03 90,279,081 1.4 1.3
2003- 04 103,873,049 5.0 1.2
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
August 2003, 70 counties and 44 municipalities levied an occupancy tax.
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.
COMPARISON WITH OTHER STATES
Information is not available on room occupancy taxes.
8 7
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
1997- 98 1,390,151,275 5.7 24.6
1998- 99 1,505,297,284 8.3 24.9
1999- 00 1,575,410,429 4.7 24.5
2000- 01 1,668,957,994 5.9 23.8
2001- 02 1,622,070,199 - 2.8 21.7
2002- 03 1,717,835,130 5.9 21.8
2003- 04 2,245,040,171 30.7 26.0
BASE AND RATE
Counties may levy the local government sales and use tax on those items included under
the state's 4 1/ 2% levy. All 100 counties levy the full 2 1/ 2% in local government sales
taxes. Mecklenburg County levies an additional 1/ 2% sales and use tax that is dedicated
for public transportation. In addition, all counties receive a distribution from a 2% levy
that is imposed on food. More information on the sales and use tax can be found in the
General Fund section.
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% ( Article 39) 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% ( Articles 40 and 42) local