Tax guide

              North Carolina
Tax Guide
2005
Office of State Budget and Management
20320 Mail Service Center
Raleigh, NC 27699- 0320
919/ 807- 4700
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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.
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CONTENTS
PART I. INTRODUCTION
Overview....................................................................................................................... ...... 3
Tax Burden......................................................................................................................... . 3
Chart 1. Tax Collections Received By North Carolina Governments ( 2004- 05) ................ 5
Chart 2. North Carolina State Tax Collections ( 2004- 05) ................................................... 6
PART II. GENERAL FUND TAXES
Chart 3. North Carolina General Fund Tax Collections ( 2004- 05) .................................... 9
Alcoholic Beverage Tax .................................................................................................... 10
Cigarette/ Tobacco Tax....................................................................................................... 14
Corporate Income Tax ....................................................................................................... 16
Estate Tax........................................................................................................................... 19
Franchise Tax..................................................................................................................... 21
Freight Car Tax .................................................................................................................. 24
Gift Tax............................................................................................................................ . 25
Individual Income Tax....................................................................................................... 27
Insurance Tax..................................................................................................................... 31
Piped Natural Gas Tax ....................................................................................................... 33
Privilege License Tax ........................................................................................................ 34
Sales and Use Tax.............................................................................................................. 36
PART III. HIGHWAY FUND TAXES
Chart 4. North Carolina Highway Fund Tax Collections ( 2004- 05) ................................ 43
Dealer and Manufacturing License Fees............................................................................ 44
Driver's License Fees ......................................................................................................... 45
Financial Security Restoration Fees................................................................................... 48
Gasoline Inspection Tax .................................................................................................... 49
International Registration Plan .......................................................................................... 51
Motor Fuels Excise Tax ..................................................................................................... 53
Overweight/ Oversize Permits ............................................................................................ 57
Penalties ............................................................................................................................. 58
Miscellaneous Registration Fees........................................................................................ 60
Safety Equipment Process Fees ......................................................................................... 61
Staggered Registration Fees............................................................................................... 63
Truck License Plate Fees ................................................................................................... 65
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PART IV. HIGHWAY TRUST FUND TAXES
Chart 5. North Carolina Highway Trust Fund Tax Collections ( 2004- 05)....................... 69
Highway Use Tax .............................................................................................................. 70
Lien Recording Fees .......................................................................................................... 72
Motor Fuels Excise Tax ..................................................................................................... 73
Title and Registration Fees ................................................................................................ 76
PART V. LOCAL GOVERNMENT TAXES
Chart 6. North Carolina Tax Collections Received by Local Government ( 2004- 05) ..... 81
Excise Tax on Beer and Wine: Local Share ...................................................................... 82
Excise Tax on Conveyances .............................................................................................. 84
Land Transfer Tax.............................................................................................................. 86
Liquor By- The- Drink Tax.................................................................................................. 87
Prepared Meals Tax ........................................................................................................... 88
Privilege License Tax ........................................................................................................ 89
Property Tax....................................................................................................................... 90
Room Occupancy Tax........................................................................................................ 93
Sales and Use Tax.............................................................................................................. 94
Utility Excise Tax .............................................................................................................. 96
PART VI. RECENT TAX LEGISLATION
2005 Legislative Session.................................................................................................. 101
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 Source
for 2001- 2002.......................................................................................................... 109
Table 2. State Ranking of State and Local Tax Burden, Per Capita and Percent Personal
Income, for 2001- 02................................................................................................... 112
Table 3. State and Local Tax Collections, Per Capita and as a Percent of Personal
Income, for the United States, the Eleven Most Populated States, and the Mid-
Southeastern States, 2001- 02 ..................................................................................... 115
Table 4. Percentage Distribution of State and Local Taxes by Type of Tax for the United
States, Eleven Most Populated States, Mid- Southeastern States, and North Carolina,
2001- 02 ...................................................................................................................... 117
Table 5. Per Capita State and Local Tax Collections by Type of Tax for the United States,
Eleven Most Populated States, Southeastern States, and North Carolina, 2001- 02 .. 118
Table 6. State and Local Tax Collections as a Percent of Personal Income by Type of Tax
for the United States, Eleven Most Populated States, Southeastern States, and North
Carolina for 2001- 02.................................................................................................. 119
Introduction
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OVERVIEW
The Tax Guide is designed to give the reader an overview of the tax structure of both
state and local governments of North Carolina. In the Guide the reader will find a
concise summary of North Carolina tax laws and pertinent statistics, and the growth and
distribution of tax collections. 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, 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 2005 Session of the
General Assembly. A brief summary of the legal changes affecting each tax schedule
and the estimate of their fiscal impact is given as it appeared in the legislative fiscal note.
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 six mid- Southeastern states and the eleven most populated states.
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.
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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.
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Local Taxes
34%
State Taxes
66%
CHART 1
TAX COLLECTIONS RECEIVED BY NORTH CAROLINA
GOVERNMENTS
( 2004- 05)
State Taxes $ 17,874,258,678
Local Taxes 9,117,139,181
----------------------
Total State and Local Taxes $ 26,991,397,859
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General Fund
86%
Highway Fund
8%
Highway Trust Fund
6%
CHART 2
NORTH CAROLINA STATE TAX COLLECTIONS
( 2004- 05)
General Fund $ 15,478,403,628
Highway Fund 1,398,431,341
Highway Trust Fund 997,423,709
----------------------------
Total State Tax Revenue $ 17,874,258,678
General
Fund
Taxes
9
Corporate Income
8%
Other
6%
Sales and Use
29%
Franchise
3%
Individual Income
54%
CHART 3
NORTH CAROLINA GENERAL FUND TAX COLLECTIONS
( 2004- 05)
Individual Income $ 8,409,288,618
Corporate Income 1,193,529,164
Sales and Use 4,477,159,178
Franchise 498,681,391
Other 899,745,277
----------------------
Total $ 15,478,403,629
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ALCOHOLIC BEVERAGE TAX
NORTH CAROLINA GENERAL STATUTES
{ G. S. 105- 113.68 to G. S. 105- 113.89; G. S. 18B- 902, G. S. 18B- 804, & G. S. 18B- 805}
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
2004- 05 189,308,658 3.8 1.2
NOTE: Effective October 1, 2005, In addition to the excise tax of 25% levied on the sale
of liquor sold in ABC stores the sale of spirituous liquor is subject to the 7% general sales tax.
BASE AND RATE
Residents, wholesalers, and importers pay excise taxes on beer and wine, and local
alcoholic beverage control boards pay excise taxes on liquor.
{ G. S. 105- 113.80} The following excise taxes are imposed on the sale of beer, wine, and
spirituous liquors. 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 case cost plus mark-up.
{ G. S. 18B- 804} 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 or 1 cent ( mini bottle) 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. By authorization of local elections, liquor " by the drink"
may be sold by qualified restaurants and clubs. An additional tax of $ 20 per 4 liters is
levied on liquor purchased by restaurants or clubs for sale by the drink. Liquor sold
through a guest room cabinet is also taxed at $ 20 per 4 liters rate.
{ G. S. 18B- 902} 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
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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.
DISTRIBUTION
{ G. S. 105- 113.82} 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 $ 500,000 in collections of the excise tax on unfortified wines and fortified
wine bottled in North Carolina. { G. S. 105- 113.81A} This revenue is allocated to the
Department of Commerce 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, the 5 cents and the 1 cent per bottle " add- on" tax on any alcohol
sold in Alcoholic Beverage Control ( ABC) stores goes to county commissioners for
rehabilitation of alcoholics.
LOCAL GOVERNMENT DISTRIBUTION
{ 18B- 805( 4) & ( c)( 1)} Local governments that have approved the sell of spirituous liquor
receive a portion of the profits. The local ABC Board pays quarterly to the general fund
of the county or city for which the board is established the sum of 3.5% make- up, 1 cent
per 50 milliliter or less, and 5 cents on each bottle greater than 50 milliliter.
TAX CALENDAR
{ 105- 113.83} 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.
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The latest complete survey on the taxation of alcoholic beverages is for calendar year
2003 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 $ 1.90 per gallon. The average overall tax
rate for the nation was $ 0.96 per gallon, while the average rate for the six mid- southern
( 1) states stood at $ 1.21 and $ 1.18 for the eleven most populated states ( 2). North
Carolina's rate is $ 1.17 per gallon. North Carolina ranked fourteenth in the nation, fifth
among the controlled states, forth among the six mid- Southeastern states, and eighth in
the eleven most populated states.
Taxes on wine ranged from $ 0.70 per gallon to $ 7.30 per gallon. The average overall tax
rate for the nation was $ 2.49 per gallon, while the average rate for the 6 mid- Southeastern
states stood at $ 3.45, and $ 2.29 for the 11 most populated states. North Carolina's rate is
$ 3.57 per gallon. North Carolina had the 11th highest tax rate in the nation, while
standing 4th among the 6 Southeastern states, and the 3rd highest among the 11 most
populated states.
Taxes on distilled spirits ranged from $ 3.95 per gallon to $ 29.53 per gallon. The average
overall tax rate for the nation was $ 13.68 per gallon, while the average rate for the 6 mid-
Southeastern states stood at $ 16.70 and $ 17.95 for the 11 largest states. North Carolina's
rate is $ 21.81 per gallon. North Carolina had the 8th highest combined tax rate in the
nation, while standing 6th among the 6 mid- Southeastern states, and 3rd 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.
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REVENUE PER GALLON FROM COMBINED STATE AND LOCAL
COLLECTIONS,
ON BEER, WINE, AND DISTILLED SPIRITS, FOR NORTH CAROLINA
AND SURROUNDING STATES IN 2003
STATES BEER WINE SPIRITS
United States $ 0.96 $ 2.49 $ 13.68
Six Mid- Southeastern States 1.21 3.45 16.70
Eleven Largest States 1.18 3.29 17.95
Surrounding States
Georgia 1.61 3.29 10.68
Kentucky 0.86 4.59 12.43
North Carolina 1.17 3.57 21.81
South Carolina 1.23 2.44 17.25
Tennessee 1.48 3.64 13.60
Virginia 0.90 3.18 24.42
Source: Distilled Spirits Council of the United States, Inc. " Public Revenues from
Alcohol Beverages, 2003." Washington, D. C., January, 2005.
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CIGARETTE/ TOBACCO TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 113.2 to G. S. 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
2004- 05 42,981,044 - 1.7 0.3
BASE AND RATE
{ G. S. 105- 113.5} A tax rate of 30 cents per pack of 20 cigarettes is levied on distributors
effective September 1, 2005. The tax rate is set to increase to 35 cents per package of 20
cigarettes effective July 1, 2006.
{ G. S. 105- 113.35} The excise tax is levied on tobacco products other than cigarettes is
3%.
{ G. S. 105- 113.36} 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
{ 105- 113.37} 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.
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COMPARISON WITH OTHER STATES
All states levy and excise tax on cigarettes. Tax rates, per pack of 20 cigarettes, ranges
from 7 cents to $ 2.46 per pack. Municipalities in six states can levy additional cigarette
taxes. The median tax for the nation was 80 cents per pack. North Carolina’s excise tax
rate of 30 cents per pack ranks the state at 45th in the nation.
DISTRIBUTION OF STATE CIGARETTE TAX RATES,
AS OF JANUARY 1, 2004
Cents Per Pack Number of States
Below 10 cents 1
11 cents to 50 cents 13
51 cents to 100 cents 18
101 cents to 150 cents 9
151 cents to 200 cents 6
Above 200 cents 3
Source: Federation of Tax Administrators. “ State Excise Tax Rates on Cigarettes”.
Washington, DC. January 2006
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CORPORATE INCOME TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 130 to 150- 131.8}
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
2004- 05 1,193,529,164( 3) 53.6 7.7
( 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.
( 3) Legislation ratified in 2001 and clarified in a recent court case, upheld that out- of-state
taxpayers who hold trademarks used in North Carolina, are doing business in
the state and must pay corporate income and franchise tax. ( G. S. 105- 130.4( a)( 4)).
Note: North Carolina's definition of income follows the federal statutes.
BASE AND RATE
{ G. S. 105- 130.3} A 6.9% corporation income tax is levied on C- corporate profits derived
from all business conducted in the state. Multi- state corporations are required to use a
specific formula to determine taxable income to North Carolina. The basic formula used
in North Carolina is a three- factor formula with a double weighting of the sales factor.
The formula is the average of the corporation’s ratio of capital stock, payroll, and sales
made within North Carolina to the totals of these factors, where the sales factor is double
weighted.
{ G. S. 105- 131.11} The taxation of the profit from an S- corporation is not subject to the
6.9% corporate income tax rate. Rather, the pro rata share of the stockholder’s profits
from an S- corporate are subject to North Carolina’s individual income tax rates. Part-year
resident shareholders and nonresident shareholders, of an S- corporation, must also
pay the tax. Part- year and nonresident shareholders of an S- corporation pay the tax based
on ratios of attributable and non- attributable income to the state, during the tax year, and
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on the number of days the shareholder resides in the state or in some other state during
the tax year. S- corporations may claim the credits and deductions for nonresident
shareholders who elect not to file individual income tax returns in North Carolina.
{ G. S. 105- 130.11} The following corporations are exempt from the North Carolina
corporate income tax. A more thorough list can be found in the General Statutes. 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.
{ G. S. 105- 130.22– G. S. 105- 130.47} 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 certain credits. The credits often apply to a
portion of expenditures, and are subject to maximum allowable amounts. If the criteria is
met the credits can span: 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
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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; 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
{ G. S. 115C- 546.1( b)} 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. Only General Fund revenue is shown above.
TAX CALENDAR
{ G. S. 105- 130.17} C Corporations are required to file a corporate tax return on or before
the fifteenth day of the third month following the close of the corporation’s income year.
Some mutual associations are required to file by the fifteenth of September following the
close of the calendar year and those associations that operate on a fiscal year basis file on
of before the fifteenth day of the ninety month following the close of the fiscal year.
Exempt organizations are required to file a return on their unrelated business income by
the fifteenth day of May following the close of the calendar year and those operating on a
fiscal year file their return on or before the fifteenth day of the fifth month following the
close of the fiscal year. { G. S. 105- 131.7} S Corporations file their annual return by the
due date for C Corporations.
COMPARISON WITH OTHER STATES
Forty- five states levy corporate income taxes. Michigan, which is included in that group,
levies a single business tax. Most states followed the federal definition of income. Of
the 45 states levying corporate income taxes, 23 states had a higher marginal rate than
North Carolina, while 21 states had a lower marginal rate.
DISTRIBUTION OF STATE CORPORATE INCOME TAXES
AS OF JANUARY 1, 2006
HIGHEST
MARGINAL RATE NUMBER OF STATES
Below 5.0% 5
5.0% to 5.9% 5
6.0% to 6.9% 14
7.0% to 7.9% 7
8.0% to 8.9% 6
9.0% to 9.9% 8
10.0% and above 0
Source: Federation of Tax Administrators. “ State Corporate Tax Rates”. Washington,
DC. January 2006
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ESTATE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 32.1 to G. S. 105- 32.8 & G. S. 105- 160}
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) NA 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
2004- 05 135,211,344 5.2 1.0
( 1) The inheritance tax was repealed January1,1999. Only collections from the estate
tax are shown above.
BASE AND RATE
{ G. S. 105- 32.1} For decedents dying on or after January 1, 2005, North Carolina estate
tax is imposed on the estate when a federal estate tax would be payable if the federal
estate tax was determined without regard to the deduction for state death taxes. The
North Carolina estate tax is equal to the state death tax credit that was allowed under
section 2011 of the Internal Revenue Code as it existed prior to 2002. The amount of the
North Carolina estate tax is limited to the federal estate tax that would be payable if the
federal estate tax was computed without regard to the deduction for state death taxes.
North Carolina conforms to the federal estate tax by increasing the exemption from $ 1.5
million to $ 2.0 million effective January 1, 2006.
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.
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COMPARISON WITH OTHER STATES
Over the past 20 years, most states have repealed their inheritance tax and retained the
federal estate death tax credit also referred to as the state pick- up tax. In 2001, the federal
government passed the Economic Growth and Tax Relief Act which repealed the federal
death tax credit over four years. However, with the passage of the Act, many states began
eliminating their estate taxes completely. As of February 2004, 28 states were scheduled
to repeal their estate, inheritance, or succession taxes starting in 2005. Some of the
remaining states continue to retain a revenue stream from an inheritance tax or an estate
tax by remaining linked to federal law as it existed prior to 2001. The states that
decoupled from federal law continue to levy stand- alone inheritance or estate taxes and
are unaffected by the federal legislation.
Fourteen states decoupled and continue to levy an estate tax that is very similar to the
state pick- up tax. Three states replaced their pick- up tax with estate taxes; Connecticut,
Kansas and Washington State. Kansas created a separate rate schedule and effective
January 1, 2006 increased the exemption to $ 2 million and in 2009 the exemption
increases to $ 3 million. Maine has permanently decoupled with a $ 1 million exemption.
Seven states levy an inheritance or estate tax that was never tied to the federal estate
death tax credit. Maryland, Nebraska, and New Jersey levy an inheritance tax and an
estate tax that is similar to the pick- up tax prior to the 2001 federal act.
Sources:
( 1) Commerce Clearing House, Inc. “ State Tax Handbook 2006”. Chicago, Illinois, 2005.
( 2) Joel Michael, Legislative Analyst, “ State Response to the 2001 Federal Estate Tax
Credit”. Minnesota House of Representatives, February 2004.
( 3) Elizabeth C. McNichol, “ State Taxes On Inherited Wealth Remain Common: 24
States Levy An Estate Or Inheritance Tax”, Center on Budget and policy Priorities,
Washington DC. 2006.
21
FRANCHISE 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
2004- 05 498,681,391 12.0 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
{ G. S. 105- 122} The franchise tax includes taxes on persons, partnerships, and certain
corporations both foreign and domestic for the privilege of doing business in the state.
The franchise tax is computed by applying the rate of $ 1.50 per $ 1,000.00 to the largest
of the three bases:
( 1) Capital stock, surplus, and undivided profits
( 2) The net accounting value of real and tangible property in the state
( 3) 55% of the appraised value of real and tangible property in the state
Corporations doing business in North Carolina and in other states calculate the share of
capital stock due North Carolina by the same method used for the corporate income tax;
the average of the corporation’s shares of property, payroll and sales, with the sales factor
double weighted.
The minimum tax liability is $ 35.00 with no maximum except for qualified holding
companies.
22
Limited Liability Companies, { 105- 114.1}
If a corporation or an affiliated group of corporations owns more than 50% of the capital
interest in a limited liability company, the corporation or group of corporations must
include in its three tax bases ( capital stock, surplus, and undivided profits) the limited
liability company’s appraised ad valorem tax value of property and the company’s actual
investment in tangible property in the state.
Power and Light, Water, and Sewerage Companies, { G. S. 105- 116} 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.)
Mutual Burial Associations,{ G. S. 105- 121.1} 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.
Holding Companies, { G. S. 105- 120.2} A tax rate of $ 1.50 per $ 1,000 of value of the
capital stock, surplus, and undivided profits apportioned to North Carolina. There is a
maximum tax liability for corporations subject to the franchise tax, of $ 75,000 and a
minimum tax of $ 35.00. If the tax liability exceeds $ 75,000 the franchise tax is
calculated on the greater amount of:
1. Fifty- five percent of the appraised value of real estate and tangible personal
property in North Carolina.
- or-
2. Net book value of real and tangible personal property in North Carolina.
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.
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.
DISTRIBUTION
{ G. S. 105- 116.1( b)} The state distributes to municipalities approximately 3.09% of the
3.22% gross receipts tax levied and collected on power and light companies from taxable
sales within municipal districts. Distributions are made quarterly and reduced by a
limited hold harmless adjustment and an amount for administering the distribution. 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.
23
TAX CALENDAR
{ G. S. 105- 122( a)} The franchise tax is due, unless otherwise stated, on the 15th day of the
third month following the close of the income year.
COMPARISON WITH OTHER STATES
It is difficult to make a national comparison of corporate franchise taxes. The
classification of a “ franchise tax” can lead to misinterpretation if one relies on name
alone. Some states use corporate income as the base for the franchise tax. Other states
may impose a franchise tax on some measure of capital stock. In some states, one- time or
recurring registration fees are classified as a franchise tax. In the states where the
franchise tax is measured on a definition of capital stock the base almost always includes
a combination of shares of outstanding stock, surplus, undivided profits, and
indebtedness, for which the intent is to act as a measure of the privileges granted through
the franchise tax. The apportionment practices among states vary widely in the treatment
of capital stock for both domestic corporations and foreign corporations. Generally, the
tax rate, states impose, range from $ 1 to $ 3 per $ 1,000 of capital stock. However the rate
structure varies widely across states with differential rates and percentages that apply to
different types of domestic and foreign corporations.
Source:
( 1) Commerce Clearing House, Inc. State Tax Handbook 2006. Chicago, Illinois, 2005
( 2) Matthew N. Murray, Franchise/ Privilege Tax, State. University of Tennessee, 1996
24
FREIGHT CAR TAX
NORTH CAROLINA STATUTES
{ G. S. 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%
2004- 05 351,890 - 33.3 < 1%
BASE AND RATE
{ G. S. 105- 228.1} 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
The last time a survey was prepared on the number of states that imposed a tax on the
gross earnings of railroad freight line companies was in 2002. At that time, fifteen states
levied 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%. However, some
states, levy taxes based on net earnings or on a per mile basis.
Source: Commerce Clearing House, Inc. “ 2006 State Tax Handbook”, Chicago, Illinois,
2005.
25
GIFT TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 188 to G. S. 105- 197.1}
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
2004- 05 18,896,837 14.0 0.1
BASE AND RATE
{ G. S. 105- 188} The gift tax is levied on the transfer of real or personal property located
in the state. The tax rate is determined by the relationship between the donor and the
donee and the amount of the gift. The tax on gifts made to nonresidents applies only if the
property is within the jurisdiction of the state.
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, 2003, the annual exclusion amount is
equal to the federal inflation- adjusted amount provided in section 2503( b) of the Code.
For tax year 2006, the annual exclusion amount is $ 12,000. A donor with permission of
the other spouse may use some or all of the spouse's $ 12,000 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.
26
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 - NA- 4 - NA-
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
{ G. S. 105- 197} Taxes are due, on the amount of a gift that exceeds the annual exclusion,
by April 15 of the 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: Commerce Clearing House, Inc. “ 2005 State Tax Handbook”. Chicago, Illinois,
2006.
27
INDIVIDUAL INCOME TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 133 to G. S. 163- 163.44}
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
2004- 05 8,409,288,618 12.0 54.3
BASE AND RATE
{ G. S. 105- 134.2} Every individual resident including part- year residents and
nonresidents, and S Corporations and Partnerships that receive income for the tax year
from a North Carolina source, is required to file an individual income tax return.
Resident
Residents of North Carolina are required to file an individual income tax return if their
federal gross income equals or exceeds the listed federal adjusted gross income by filing
status in Table A.
Table A Federal
Filing Status Adjusted Gross
Income
Single $ 5,500
Single age 65 > $ 6,200
Married, filing jointly $ 11,000
Married, filing jointly one age 65 > $ 11,600
Married, filing jointly both age 65 > $ 12,200
Married filing separate returns $ 2,500
Head of Household $ 6,900
Head of Household age 65 > $ 7,650
Widow( er) w/ dependent $ 8,500
Widow( er) age 65 > $ 9,100
28
Part- year Resident and Nonresident
A part- year resident who received income while a nonresident of North Carolina and
whose gross income equals or exceeds the listed federal adjusted gross income ( Table A)
is require to file a return, if income was derived from any of the following activities:
( 1) The ownership of any interest in real or tangible personal property in the state
( 2) From a business, trade, profession or occupation carried on in the state
( 3) Gambling activities
Children and other Dependents
There is a separate filing status for single and married dependents either age 65 or older
or blind. These individuals are subject to the individual income tax if the amount of
earned, unearned, and/ or gross income exceeds specific minimum amounts. In addition,
these taxpayers must follow specific instruction when making adjustments to federal
taxable income in order to determine state taxable income. For additional information on
the tax treatment of this class of taxpayer please sees, the Department of Revenue’s
Instructions for Filing Form D- 400. ( http:// www. dor. state. nc. us/ downloads/ D401. pdf)
{ G. S. 105- 134.6} In calculating state taxable income certain adjustments must be made to
the federal taxable income in order to derive state taxable income.
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
adjusted gross income ( AGI) is less than the amounts shown below, and $ 2,000 if more
than these 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
Effective for taxable years beginning on or after January 1, 2004, the filing status and
standard deduction are as follows:
Filing Status Standard Deduction
Married, filing jointly $ 6,000
Head of Household $ 4,400
Single $ 3,000
Married, filing separately $ 3,000
29
{ G. S. 105- 134.2} Effective to tax years ending before January 1, 2006:
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) By actions of the 2005 North Carolina General Assembly, the 8.25% rate is
maintained through the 2007 tax year.
DISTRIBUTION
Revenue is deposited in the General Fund for general purposes, except for $ 95,331,927
that is dedicated to local governments 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.
{ G. S. 105- 163.2 & G. S. 105- 163.6} 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 at least $ 2,000 per month are
required to remit payments ( semiweekly) in accordance with the federal withholding
payment schedule.
{ G. S. 105- 163.15( f)} Estimated income tax payments are required if the taxpayer expects
the net estimated tax less credits to be more than $ 1,000. 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).
COMPARISON WITH OTHER STATES
As of January 1, 2006, forty states levy individual income taxes with two taxing only
dividend and interest income and one whose state individual income tax rate is 25% of
30
the federal tax liability. Most states follow the Federal definition of gross or taxable
income. However, tax rates, deductions, and exemptions varying widely by state.
North Carolina relies more heavily on the individual income tax than most other states,
obtaining 32% of its state and local taxes from the individual income tax in tax year 2002
as compared to 22% for the nation, 23% for the six mid- Southeastern states ( 1), and 21%
for the eleven most populated states ( 2). In terms of reliance on the individual income
tax, North Carolina ranked sixth in the nation, second place in the mid- Southeast, and
was the second among the eleven most populous states.
At 8.25%, North Carolina tied with Hawaii for the eighth highest marginal tax rate in the
nation. North Carolina has the highest marginal rate among the six mid- Southeastern
states, and the second highest among the eleven most populous states. The current 8.25%
rate is scheduled to expire on January 1, 2008, when the highest tax bracket will revert to
7.75%. Based on current rates this would be the eleventh highest marginal tax rate.
On a national basis, 2.27% of state personal income was devoted to state individual
income tax payments, while North Carolina citizens allocated 3.2% of their income to
individual income tax payments. North Carolina ranked seventh in the nation, second
among the six mid- Southeastern states, and third among the ten most populated states.
In terms of per capita income the average taxpayer in the nation paid $ 704.00 in
individual income tax payments, while North Carolina taxpayers paid $ 903.00. North
Carolina ranked thirteenth in the nation, second in the mid- Southeast, and forth among
the eleven 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: Federation of Tax Administrators. “ State Corporate Tax Rates”. Washington,
DC. January 2006
31
INSURANCE TAX
NORTH CAROLINA STATUTES
{ G. S. 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
2004- 05 431,664,202 2.0 3.0
BASE AND RATE
{ G. S. 105- 228.5} Insurance companies subject to the gross premiums tax are not subject
to the franchise tax or the income tax. The tax is imposed on contracts covering persons,
property, and risk resident in the state. The tax is measured on the gross premiums of
these types of contracts agreed to during the preceding year.
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 until January 1,
2004, 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%.
The 1.0% gross premiums tax on HMO’s is repealed effective January 1, 2007.
32
{ 105- 228.5A} Insurance Guaranty Association
An insurer who pays the gross premiums tax is allowed a credit against the tax equal to
20% of the amount of the assessment in each of the five taxable years following the year
in which the assessment was made.
The North Carolina Guaranty Association covers life insurance and casualty insurance
companies. Assessments are levied to cover the cost of insolvency and liquidations. A
tax credit against premium tax payments equal to the amount of the assessment is
allowed. Various registrations, 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
{ G. S. 105- 228.5 ( e) & ( f)} 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: Commerce Clearing House, Inc. “ 2005 State Tax Handbook”. Chicago, Illinois,
2006.
33
PIPED NATURAL GAS TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 187.40 to G. S. 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
2004- 05 35,081,603 - 10.0 .23
( 1) The tax became effective July 1, 1999, and collections do not reflect a full
fiscal year.
BASE AND RATE
{ 105- 187.41} A tax is imposed on the consumption of piped natural gas. This tax is in
lieu of the sales and use tax and the tax on gross receipts. The pipes natural gas 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
{ 105- 187.44} 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
{ 105- 187.43} 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.
Payment is due on natural gas delivered to a sales or transportation customer when the
tax is delivered. Person( s) with direct access to an interstate pipeline, for consumption by
that person, accrues when the gas is received.
TAX COMPARISON
A tax comparison was not undertaken.
34
PRIVILEGE LICENSE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 33 to G. S. 105- 109; G. S. 105- 187.30 to G. S. 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 .30
2004- 05 44,992,019 8.1 .30
( 1) A Court settlement resulted in large refunds to two large corporations.
BASE AND RATE
{ G. S. 105- 33} Various business license taxes are levied on persons, firms, or
corporations engaging in certain businesses or professions. The tax is paid annually on or
before the first of July.
{ G. S. 105- 37.1} Dances, Athletic Events, Shows, Exhibitions and Other Entertainment
A 3% gross receipts tax is levied on the receipts of certain athletic, entertainment, and
exhibition events where the admission fee exceeds 50 cents.
{ G. S. 105- 38.1} Motion Picture Shows
A 1% gross receipts tax is levied on the operation of motion picture shows.
{ G. S. 105- 41} Attorneys and Other Professionals
Individuals engaged in various professions including physicians, attorneys, engineers,
public accountants, and so forth pay a $ 50 annual license fee. In lieu of the tax, attorneys
may make a $ 50.00 donation to the North Carolina Public Campaign Financing Fund.
Accounting firms pay an additional privilege tax of $ 12.50 for each employee engaged in
accounting practices.
{ G. S. 105- 83} Installment Paper Dealers
Privilege license taxes are also levied on installment paper dealers at a rate of .227% of
the face value of all installment paper, notes, bonds, contracts or evidence of debt for
which a lien against personal property, located in the state, is made to secure payment.
35
{ G. S. 105- 88} Loan Agencies
Any business, firm, or organization engaged in the business of making loans and lending
money ( et. al.), check cashing, and in the pawnbroker business must pay a privilege
license tax of $ 250.00 for each location. This section does not include banks, industrial
banks, trust companies, savings and loan associations, cooperative credit unions, and real
estate companies.
{ G. S. 105- 102.3} Banks
Every bank or banking association including national banking associations that operate in
the state must pay a privilege license tax equal to $ 30.00 per $ 1,000,000 in assets.
{ G. S. 105- 102.6} Publishers of Newsprint Publications
The privilege license tax for newspaper publishers is based on a minimum recycled
content. The tax is levied on each publisher whose recycled content is less that 40%. The
rate is $ 15.00 for each ton by which a publisher falls short of the minimum.
DISTRIBUTION
Net Proceeds of the privilege license tax 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. 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: Commerce Clearing House, Inc. “ 2005 State Tax Handbook”. Chicago, Illinois,
2006.
36
SALES AND USE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 164.1 to 105- 164.44H}
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
local tax rate remains.
( 2) The state sales tax on food consumed at home was reduced from 3% to 2%. The
local tax rate remains.
( 3) The state sales tax on food consumed at home was eliminated. The local tax rate
remains.
BASE AND RATE
{ G. S. 105- 164.4} The general state sales and use tax rate is 4 1/ 2%. For sales made on or
after July 1, 2007 the rate becomes 4%. The state sales tax is imposed on the retail sale,
lease, or rental of tangible personal property not specifically exempt or subject to taxation
at a reduced rate. All items that are subject to the sales tax rate of 4 1/ 2% are also subject
to the Local Government Sales and Use Tax which is presently at a 2.5% rate. The
“ combined rate” is 7%. ( The state rate is only recorded in this section.)
The Local Government Sales and Use Tax( s) is made up of three separate rates defined in
Article 39, Article 40, and Article 44 of Chapter 105 of the North Carolina General
Statutes. Mecklenburg County collects an additional ½ cent on the local option sales and
use tax. The revenue from this tax is used for public transportation. For additional
information please see the Local Government section of this publication.
The gross receipts from the lease or rental of tangible personal property, services such as
the rental of certain lodging accommodations, cleaning services provided by dry cleaners
and similar types of businesses are subject to the state rate. ( The gross receipts from the
long- term rental or leases of motor vehicles are subject to the 3% highway use tax.)
37
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.
Manufactured housing is taxed at a 2% state rate with a maximum tax or cap of $ 300.00.
The tax rate on modular homes is 2.5%.
A 3% rate of the state sales tax is levied on the retail price of new and used aircraft, and
boats, with a maximum levy of $ 1,500. Funeral expenses that exceed $ 1,500 are subject
to the state sales tax.
The sale of electricity to farmers, manufacturers, and commercial laundries are taxed at
2.83%.
{ G. S. 105- 164.4C} Telecommunication services, cable services and satellite services
including satellite radio services, and voice mail are subject to the state rate.
{ G. S. 105- 164.44F} the Secretary of Revenue distributes 18.03% of the sales tax on
telecommunication to cities quarterly. { Under G. S. 105- 164.21B, a cable service
provider is allowed a credit against the sales tax imposed for the amount of local
franchise tax payable to local governments on its gross receipts for cable service.}
Spirituous liquor is subject to the state sales 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.
Municipalities receive 3.09% of the franchise tax from the sell of electricity within the
municipal boundary.
{ G. S. 105- 164.13B} Food Exempt from Sale Tax
Food is exempt from the sales tax unless it is sold through a vending machine.
Prepared food, soft drinks, candy, and dietary supplements are subject to the sales tax.
These items are still subject to the local government sales tax.
{ G. S. 105- 164.13C} Sales and Use Tax Holiday
This is a three- day sales tax holiday beginning on the first Friday in August and
extending through Sunday. It was enacted in the 2002. The exemption is extended to
clothing, school supplies, sport and recreational equipment, computers, and educational
software. There is a $ 100 cap per item of clothing and school supplies, a $ 50 cap per
item of sport or recreational equipment, and a $ 3,500 cap per computer. Computer
supplies with a sales price of $ 250.00 or less are exempt beginning with the 2006
holiday.
{ G. S. 105- 164.13} Sales and Use Tax Exemptions and Exclusions
The federal government and the North Carolina Department of Transportation are exempt
from state and local sales and use taxes. Many items, such as prescription medicine and
certain medical devices, are exempt from the tax. Due to actions of the North Carolina
General Assembly during the 2005 Legislative Session, many of the items taxes at 1%
with an $ 80.00 cap are now exempt from the State Sales and Use Tax.
38
{ G. S. 105- 164.14} Certain Refunds Authorized
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.
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
{ G. S. 105- 164.16} 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 to remit twice a month. One semimonthly
payment covers the period of the month from the first through the fifteenth. The second
payment covers the period of the month from the sixteenth through the end of the month.
Persons who consistently owe sales or use taxes of less than $ 100 per month may file
reports quarterly by the last day of the month following the end of the quarter.
COMPARISON WITH OTHER STATES
Forty- five states levy sales and use taxes. As of January 2006, state sales tax rates ranged
from 2.9% to 7.25%, 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, 2007.) There are thirty four
states with a higher state sales tax rate and nine states with a lower rate than North
Carolina.
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 fifth in state sales tax rate among the mid- south states ( 1), and
eighth among the eleven 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
39
local rate than North Carolina. Among the mid- south states North Carolina ranked
second, ( 1) and seventh among the eleven most populated.
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: Federation of Tax Administrators. “ Comparison of State and Local Retail Sales
Taxes”. Washington, DC. January 2006
40
Highway
Fund
Taxes
43
Truck Plates
5%
Staggered Registration
11%
Driver License
6%
IRP
4%
Other
6%
Motor Fuels
68%
CHART 4
NORTH CAROLINA HIGHWAY FUND TAX COLLECTIONS
( 2004- 05)
Motor Fuels $ 959,651,016
Truck Plate 71,265,550
Staggered Registration 160,037,750
Driver License 79,370,033
International Registration
Plan ( IRP) 49,789,517
Other Licenses and Fees 78,317,475
----------------------
Total $ 1,398,431,341
44
DEALER AND MANUFACTURER LICENSE FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 289, G. S. 20- 287 and G. S 20- 288}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 1,051,171 - 2.0 .01
BASE AND RATE
{ G. S. 20- 289} 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: $ 70.00 for
each principal place of business.
2) Manufacturers:$ 150.00, and for each factory branch,$ 100.00.
3) Motor vehicle sales representatives: $ 15.00
4) Factory and distributor representatives: $ 15.00.
{ G. S. 20- 291} If a representative changes employers, the fee for the issuance of a license
stating the name of a new employer is $ 10.00
{ G. S. 20- 287} 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
{ G. S 20- 288} Licenses expire on June 30, and applications and fees must be received
prior to that date.
COMPARISOM WITH OTHER STATE
A comparison with other states was not taken.
45
DRIVER’S LICENSE FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 7, G. S. 20- 7( i1), G. S. 20- 37.13, G. S. 20- 14, G. S. 20- 37.15, G. S. 20- 37.16,
G. S. 20- 26 & G. S. 20- 37}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 79,370,033 6.1 5.7
BASE AND RATES
Classes of Driver’s Licenses A, B, & C
{ G. S. 20- 7( i)} 1) The basic operator’s license, Class C, is issued for a fee of $ 4.00 per
year; and 2) Chauffeurs licenses, Classes A and B, for large vehicles restricted to
intrastate usage are issued for a fee of $ 4.00 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 are issued for a fee of $ 15.00. In order to operate a motorcycle on the roadways of
the state, an operator must have a Class C driver’s license and a motorcycle endorsement.
The fee for a motorcycle endorsement is $ 1.75 cents per year. Five cents of each fee
collected for the issuance of a driver’s license is used to offset the costs of the online
“ Organ Donor Program” and “ License to Give Trust Fund”.
See { G. S. 20- 11}, for additional clarification on the issuance of the limited learners
permit and provisional driver’s licenses.
Commercial Driver Licenses ( CDL)
{ G. S. 20- 37.13} The fee for a commercial drivers license permit is $ 15.00 per year.
{ G. S. 20- 37.15( a1)} Application fee for a commercial Drivers License is $ 30.00 per year.
{ G. S. 20- 37.16( d)} Commercial driver’s license is $ 15.00 per year.
{ G. S. 20- 37.16( d)} The commercial endorsement fee $ 3.00 per year.
In addition the following fees apply:
1) { G. S. 20- 14} Duplicate license is $ 15.00 per year.
2) { G. S. 20- 26( e)} Limited and complete, exact copy( s) of license is $ 8.00 per year.
3) { G. S. 20- 26( e)} Certified true copy of complete license record, $ 11.00 per year
4) { G. S. 20- 37.7( d)} Special ID card for non- drivers aged 16 and over is $ 15.00 per year.
46
5) { G. S. 20- 7( i1)} Restoration fee to restore a license after revocation is $ 50 and $ 75 if
revoked for driving under the influence.
5a.) The charge is $ 50 when a licensee fails to surrender a driver's license that is revoked.
6) { G. S. 20- 16( e)} Driver improvement clinic is $ 50.
Minimum Age Requirements for Licensure:
1) { G. S. 20- 9} Classes of regular licenses, Class A- 18, Class B- 18, Class C - 16.
2) { G. S. 20- 10} Public passenger carrying vehicles, same as classes A & B.
3) { G. S. 20- 11} Issuance of limited learners permit is 15 years of age.
4) { G. S. 20- 37.13} Commercial drivers must be 21 years old and a resident of the state.
DISTRIBUTION
All revenue collected from licenses and fees is deposited in the Highway Fund for
highway purposes, except $ 25 of the $ 75 restoration fee. Revenue collected for the
restoration of a license revoked for driving under the influence is split between the
Highway Fund and the General Fund. The $ 50 restoration fee and $ 50 of the $ 75
restoration fee, for driving while impaired, are deposited in the Highway Fund. Twenty
five dollars ($ 25) of the seventy five dollar fee ($ 75) is deposited in the General Fund for
the Center for Alcohol Studies Endowment. Some of the revenue collected under the
Special Id Cards is used to off- set DMV operating expenses.
TAX CALENDAR
License fees and other charges are due at the time of purchase of the license or service.
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 $ 1.47 to $ 16.55. The average fee in the nation is $ 6.00. North Carolina's levy
converts to an annual fee of $ 3.50. Thirty seven states had a higher levy than North
Carolina. North Carolina has the third lowest rate of the mid- Southeast states ( 1). Of the
most populated states North Carolina ranked eighth.
47
DISTRIBUTION OF DRIVERS' LICENSE FEES: 2004
Fees Number of
States
$ 1.00 - $ 1.99 2
2.00 - 2.99 7
3.00 - 3.99 5
4.00 - 4.99 6
5.00 and Above 30
( 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: Department of Transportation, Highway Taxes and Fees, U. S. Federal Highway
Administration, Washington, D. C., 2004.
48
FINANCIAL SECURITY RESTORATION FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 309}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 4,764,996 - 68.4 .3
BASE AND RATE
{ G. S. 20- 309} 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.
49
GASOLINE INSPECTION TAX
NORTH CAROLINA STATUTES
{ G. S. 119- 1 to G. S. 119- 65 and Articles 36C and 36D of Chapter 105}
ADMINISTERED BY
Department of Revenue
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 15,195,902 9.5 1.1
BASE AND RATE
{ G. S. 119- 18( a)} An inspection tax of one fourth of one cent ( 1/ 4 of 1¢) per gallon is
levied on all petroleum products used as motor fuels. This includes gasoline, diesel,
blended fuels, alternative fuels, kerosene, and exempt fuels under the excise tax on motor
fuels. Aviation fuels are also subject to the inspections tax. ( For additional information
on motor fuel taxation, see Articles 36C and 36D of Chapter 105 of the North Carolina
General Statutes.)
DISTRIBUTION
{ G. S. 119- 18( b)} Revenue collected from the gasoline inspection tax is deposited in the
Highway Fund and in the General Fund. After deducting funds to administer and enforce
the provisions of the inspection laws and the motor fuel tax under Articles 36C and 36D
of Chapter 105, the balance of the revenue is credited on a monthly basis to the
Commercial Leaking Petroleum Underground Storage Tank Cleanup Fund and the
Noncommercial Leaking Petroleum Underground Storage Tank Cleanup Fund. If the
amount of revenue in the Noncommercial Fund at the end of a month is at least five
million dollars ($ 5,000,000), one- half of the remainder of the proceeds shall be credited
to the Noncommercial Fund and one- half of the remainder of the proceeds shall be
credited to the Commercial Fund. If the amount of revenue in the Noncommercial Fund
at the end of a month is less than this threshold amount, all of the remainder of the
proceeds shall be credited to the Noncommercial Fund. Revenue collected under the
gasoline inspection tax is credited to funds outside the Highway Fund, for accounting
purposes; this revenue is considered Highway Fund Revenue. Inspection taxes levied on
fuels not used on the highways are credited to the General Fund.
50
TAX CALENDAR
{ G. S. 119- 18( a)} The inspection tax on motor fuel is due and payable to the Secretary of
Revenue at the same time as the per gallon excise tax on motor fuel is due. ( See G. S.
105- 449.90} The inspection tax on alternative fuels is due monthly within 25 days after
the end of the month. The inspection tax on kerosene is payable monthly to the Secretary
by the supplier. Monthly reports on kerosene are due by the 22nd of each month and
apply to sales during the preceding month.
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: Department of Transportation, Highway Taxes and Fees, U. S. Federal Highway
Administration, Washington, D. C., 2004.
51
INTERNATIONAL REGISTRATION PLAN
NORTH CAROLINA STATUTES
{ G. S. 20- 86.1, G. S. 20- 87.1, G. S. 20- 85, G. S. 20- 88, AND G. S. 20- 385}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
* 2004- 05 49,789,517 5.0 4.0
BASE AND RATE
{ G. S. 20- 87.1} North Carolina has participated in the International Registration Plan
( IRP) since 1977. The IRP is the registration reciprocity compact among states, the
District of Columbia, and some Canadian Provinces. Vehicles licensed under the
International Registration Plan are owned and operated by registrants of member
jurisdictions. Registered vehicles are known as apportion able vehicles and pay license
fees based on fleet distance operated in member jurisdictions. Registered fleets are
granted full intrastate and/ or interstate reciprocity and require the issuance of one plate
and one cab card per fleet vehicle. The Plan defines a fleet vehicle as one or more
apportion able vehicles.
The weight and rate schedule under this plan follows:
SCHEDULE OF WEIGHTS AND RATES
( Per 100 lbs. of Gross Weight)
Weight/ Rate
Bracket
Farm Non-
Farm
Up to 4,000 lbs. $. 29 $. 59
4,001 to 9,000 lbs. .40 .81
9,001 to 13,000 lbs. .50 1.00
13,001 to 17,000 lbs. .68 1.36
Over 17,000 lbs. .77 1.54
52
Vehicles in the " over 17,000" pound category pay an additional tax of $ 3.00.
Replacement plates for all vehicles are $ 9.
{ G. S. 20- 385} ADDITIONAL FEES FOR INTERSTATE MOTOR CARRIERS
1) Insurance verification for- hire motor carrier operated in the state: $ 1.00.
2) Application by interstate motor carrier for certificate of exemption: $ 45.00.
3) Certification by an interstate motor carrier that is not regulated U. S. Department of
Transportation: $ 45.00.
4) Emergency permits for interstate motor carrier: $ 18.00.
* Revenues generated by these fees not included in FY 2004- 05 totals
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
License fees are computed according to the percentage of miles driven in each
jurisdiction for the preceding fiscal year beginning on the first of July. 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 2004, 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.
Sources:
Highway Taxes and Fees, 2002, Federal Highway Administration, Washington, D. C.,
2002.
NC. International Registration Plan, NC. Department of Transportation, Division of
Motor Vehicles, January, 2005.
53
MOTOR FUELS EXCISE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 430 and G. S. 105- 449.37 through G. S. 105- 449.139}
ADMINISTERED BY
Department of Revenue
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
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
2004- 05 956,651,016 2.6 68.5
BASE AND RATE
{ G. S. 105- 449.80} The state levies an excise tax on all motor fuels including alternative
motor fuels sold, distributed, or used in the state. The motor fuels excise tax is levied on
the wholesale price of motor fuel. The excise tax has a fixed rate of 17.5 cents per gallon
plus a variable component rate that is 7% of the average whole sale price of motor fuels.
The excise tax on motor fuels is computed twice a year in January and July and cannot
fall below 3.5 cents per gallon.
Base Period: January 1, 2006 Base Rate is .299 cents
July 1, 2006 Base Rate is .299 cents
BASE PERIOD
The first base period is the six months ending on the 30th of September.
The second base period is the six months ending on the 31st of March.
January Base Period = April, May, June, July, August, September
6
July Base Period = October, November, December, January, February, March
6
54
Computation of the Wholesale Component for the base period:
a. Compute the 6 month average sales price of “ finished” gasoline
b. Compute the 6 month average sales price of # 2 diesel fuel
c. Compute the weighted average of the results of the first two calculations
based on the proportion of the tax collected on gas and diesel.
Gas Weighted Average = Total Taxable Gallons Gas
Gas Taxable Gallons
Diesel Weighted Average = Total Taxable Gallons Diesel
Diesel/ Special Fuel Taxable Gallons
d. Sum the weighted averages and multiply times 7%
e. Round up to the nearest 1/ 10 of a gallon
EXEMPTIONS
{ G. S 105- 449.88} Fuel sold to the U. S. Government, state government agencies, N. C.
counties or municipal corporations, N. C. community colleges, local boards of education
for use in public or charter school transportation ( including fuel for automobiles owned
by school boards), motor fuel removed from a terminal for export for which the supplier
collects the excise tax at the rate of the destination state. Diesel that is kerosene and is
sold to an airport is exempt from the tax.
QUARTERLY REFUNDS
{ G. S. 105- 449.106} A refund of the excise tax paid 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.
ANNUAL REFUNDS
{ G. S. 105- 449.107} A refund of the average excise tax paid is given for purchases of fuel
not used on the highway. The refund is based on the excise tax paid on fuel used in the
preceding calendar year. There is a refund of 33 1/ 3% of the average tax paid 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.
DISTRIBUTIONS
{ G. S. 105- 449.125} 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
3) Water and Air Quality Account— 5/ 16.
55
Of the remaining revenue 75% remains in the Highway Fund, and 25% is allocated to the
Highway Trust Fund. All motor fuel tax collections credited to the Highway Trust Fund
are used for highway construction. Only Highway Trust Fund revenue is shown above.
ADDITIONAL DISTRIBUTION
{ G. S. 105- 449.126} The wildlife Resources Fund receives 1/ 6 of 1% of the excise tax on
motor fuels that is allocated to the Highway Fund. The revenues received under this
distribution are annual and are used for boating and water safety activities within the
Wildlife Fund.
POWELL BILL DISTRIBUTION
Annually, one and three fourths cents ( 1 ¾ ) of the net tax on each gallon of motor fuel
and alternative fuels sold or distributed in the state is appropriated from the Highway
Fund. This appropriation is made to eligible cities and towns for street maintenance. The
funds appropriated from the Highway Fund are based on collections during the fiscal year
preceding the distribution date. Seventy five percent ( 75%) is distributed based on
population and twenty five percent ( 25) is distributed based on public road mileage. A
cash distribution is made in October of each year.
TAX CALENDAR
{ G. S. 105- 449.90} The motor fuels excise tax is collected by wholesale distributors of
motor fuels on purchases made from major oil companies at the terminal rack. The excise
tax collected on motor fuels is paid to the Secretary of Revenue either annually, quarterly,
or monthly. Annual returns are due 45 days after the end of the calendar year. Quarterly
returns are due by the last day of the month that follows the end of the calendar quarter.
Monthly returns are due within 22 days after the end of the month. A monthly return of
an occasional importer is due by the third day of each month.
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 November 2005, state excise taxes on gasoline ranged from 7.5 cents per gallon to
30 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 eleventh highest tax in the nation.
The average motor fuels tax in the six 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 six mid- Southeastern states, and
ranked second among the eleven most populated states.
56
STATE GASOLINE TAX RATES FOR THE UNITED STATES,
MID- SOUTHEASTERN, ELEVEN MOST POPULATED STATES,
NORTH CAROLINA AND SURROUNDING STATES,
AS OF NOVEMBER 2005
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: Department of Transportation, Highway Taxes and Fees, U. S. Federal Highway
Administration, Washington, D. C., 2004
57
OVERWEIGHT/ OVERSIZE PERMITS
NORTH CAROLINA STATUTES
{ G. S. 20- 119}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 7,349,815 113.4 0.5
BASE AND RATE
{ G. S. 20- 119} Upon receipt of application, the state may issue at its discretion special
permits granting permission to operate overweight/ oversize motor vehicles on North
Carolina highways. The single trip permit fee for oversize vehicles is $ 12.00 for each
dimension over the lawful dimensions including height, length, width, and weight up to
132,000 pounds. The single trip permit for overweight vehicles is $ 3.00 per 1,000
pounds over 132,000 pounds. The annual permit fee for moving house trailers is
$ 200.00, and for other commodities is $ 100.00. The application fee for permit
applications that require an engineering study for pavement or structures is $ 100.00.
DISTRIBUTION
Revenue is deposited in the Highway Fund for highway purposes.
TAX CALENDAR
Revenue is received at the time the permit is issued.
58
PENALTIES
NORTH CAROLINA STATUTES
{ G. S. 20- 118}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 34,262,047 86.6 2.4
BASE AND RATE
{ G. S 20- 118( e) ( 3)} 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 2000 lbs. 2 cents
Second 3000 lbs. 4 cents
In excess of 5000 lbs. 10 cents
59
{ G. S. 20- 118( e) ( 1)} 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. 4 cents
Second 1000 lbs. 6 cents
In excess of 2000 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.
60
MISCELLANEOUS REGISTRATION FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 37.7, G. S 20- 85( b) ( 1), G. S. 20- 73( c), G. S. 20- 42( b)}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 2,743,180 - 1.6 0.2
BASE AND RATE
Charges are rendered for the following items:
{ G. S. 20- 37.7} $ 15.00 for the issuance of a special identification card
{ G. S. 20- 85( a)( 10)} $ 15.00 salvage title fee when the repair exceeds 75% of market value
{ G. S. 20- 73( c)} $ 15.00 fee for failure to transfer title within 28 days of transfer of
ownership
{ G. S. 20- 42( b)} $ 10.00 fee to certify any DMV document for use in court and $ 5.00 for
each accident report
DISTRIBUTION
Legislative changes in 1989 did not identify some of these fees as Highway Trust Fund
Revenues. The Revenue collected from these fees is credited to the Highway Fund for
general highway purposes. Some of the revenue from the issuance of Special Id Card is
used to off- set DMV operating expenses.
TAX CALENDAR
These fees are collected on a daily basis.
COMPARISON WITH OTHER STATES
A comparison with other states was not taken.
61
SAFETY EQUIPMENT PROCESS FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 183.1 through G. S. 20- 183.8, and G. S. 20- 128.2, G. S. 20- 385}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 4,553,823 3.0 .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.
{ G. S. 20- 183.7} 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 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.
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.
Note: Effective July 1 2007, the fee amount for the Emissions and Safety Inspection is
changed from $ 23.50 to $ 23.75 and the corresponding amount for the Emissions and
Safety Sticker is changed from $ 6.50 to $ 6.25. This change in the fee structure reduces
the $. 25 allocation to the Division of Motor Vehicles from the Highway Trust Fund for
the implementation of the vehicle emissions and maintenance program.
62
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]
Buncombe, Cleveland, Granville, Harnett, and Rockingham counties
[ Effective January 1, 2005]
Edgecombe, Lenoir, Nash, Pitt, Robeson, Wayne, and Wilson counties
[ 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
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.
63
STAGGERED REGISTRATION FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 87, G. S. 20- 88( b)( 1), G. S. 20- 50, and G. S. 20- 85.1}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 160,037,750 1.0 11.4
BASE AND RATE
{ G. S. 20- 87} 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 $ 28.00 is levied on private
passenger cars of 15 passengers or less, and a fee of $ 31.00 is levied on private passenger
cars of more than 15 passengers ( Buses). Private passenger motorcycles pay a license
plate fee of $ 15.00, except when designed to transport property or additional passengers,
and the tax is then $ 22.00. An additional fee of $ 3.00 is imposed on the registration of
each private motorcycle and the proceeds are used to fund the Motorcycle Safety
Instruction Program.
{ 20- 87( 2)} U- Drive It Vehicles with the capacity to transport 15 or fewer passengers pay
a license pate fee of $ 51.00. House trailers pay a $ 11.00 license fee in lieu of other
registration fees. The fee for busses is $ 33.00. Automobile Dealers pay $ 28.00 per plate
up to 5 plates and $ 14.00 for each plate over 5 plates.
{ G. S. 20- 88( b)( 1)} Private pick- up trucks and vans licensed for 4,000 pounds pay a
license plate fee of $ 28.00.
{ G. S. 20- 88( c)} Boat trailers, utility trailers and semi trailers pay a license plate fee of
$ 19.00.
{ G. S. 20- 85.1} There is a $ 1 processing charge for registrations by mail.
{ G. S. 20- 50} The fee to issue a temporary 10 day plate is $ 5.00.
64
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. 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: Department of Transportation, Highway Taxes and Fees, U. S. Federal Highway
Administration, Washington, D. C., 2002
65
TRUCK LICENSE PLATE FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 85 and G. S. 20- 88}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Fund Percent Highway Fund Tax
Fiscal Year Collections Change Collections
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
2004- 05 71,265,550 7.0 5.1
BASE AND RATE
{ G. S. 20- 88( 1)} For the purpose of taxation, the determination of weight is based on
combined gross vehicle weight. A minimum fee of $ 24.00 for a farm vehicle and $ 28.00
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:
66
SCHEDULE OF WEIGHTS AND RATES
( Per 100 lbs. of Gross Weight)
Weight/ Rate
Bracket
Farm Non- Farm
Up to 4,000
lbs.
$ 0.29 $ 0.59
4,001 to 9,000
lbs.
0.40 0.81
9,001 to 13,000
lbs.
0.50 1.00
13,001 to 19,000
lbs.
0.68 1.36
Over 19,000
lbs.
0.77 1.54
An additional $ 3 charge per plate is levied.
{ G. S. 20- 88( 6)} The annual plate and registration fee for wreckers fully equipped
weighing 7,000 pounds or less is $ 75 and those over 7,000 pounds pay $ 148.
{ G. S. 20- 88( 6)( c)} A multi- year license plate for trailers or semi- trailers is available for
$ 75. A multi- year license plate and registration card are valid until the owner transfers
the title or surrenders the plate and registration to the Division of Motor Vehicles.
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.
Source: Department of Transportation, Highway Taxes and Fees, U. S. Federal Highway
Administration, Washington, D. C. 2002
HIGHWAY
TRUST FUND
TAXES
69
Chart 5
Title and Registration
Fees
9.8%
Highway Use
60%
Motor Fuel
31%
CHART 5
NORTH CAROLINA HIGHWAY TRUST FUND TAX COLLECTIONS
( 2004- 05)
Motor Fuels $ 320,410,843
Highway Use 580,117,766
Title and Registration 94,638,020
-------------------
Total $ 997,423,709
70
HIGHWAY USE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 187.1 to G. S. 105- 187.11}
ADMINISTERED BY
Department of Revenue
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
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
2004- 05 580,117,766 0.3 58.0
BASE AND RATE
{ G. S. 105- 187.3} 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.
{ G. S. 105- 187.5( b)} The tax rate on the gross receipts from the long- term lease or rental
of 365 continuous days or more of a motor vehicle is 3%. Long- term leases are subject to
8% trade- in allowances are permitted.
{ G. S. 105- 187.6} Exemptions:
1) Transfer to the insurer of a vehicle because the vehicle is a salvage vehicle
2) Sales to a motor vehicle dealer for resale
3) Transfer because of a change in the owner's name
4) Transfer by will or intestacy
5) Gifts between spouses or parent and child
6) Distribution of marital property as a result of divorce
7) Transfer of a vehicle to a handicapped person from the Department of Human
Resources after the vehicle has been specially equipped
8) Transfer of a vehicle to a local board of education for use in drivers' education
9) Transfers of a vehicle purchased by volunteer fire and/ or rescue departments. Subject
to a partial exemption, 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.
71
2) To a partnership, limited liability company, or corporation as an incident to the
formation of the company, when no gain arises from the transfer. A maximum tax
of $ 150 applies when a title is issued for an out- of- state vehicle that at the time of
applying for the certificate of title, is or has been titled in another state for at least
90 days.
DISTRIBUTION
{ G. S. 105- 187.9} Taxes collected at the rate of 8% are credited to the General Fund and
taxes collected at the 3% are credited to the Highway Trust Fund.
Of total collections, $ 170 million will be transferred annually to the General Fund. 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 person leasing the vehicle
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.
72
LIEN RECORDING FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 85}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
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
2004- 05 2,257,080 5.4 0.2
BASE AND RATES
{ G. S. 20- 85( a)( 8)} There is a $ 15.00 charge for each application for recording a
supplementary lien, and a $ 15.00 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.
73
MOTOR FUELS EXCISE TAX
NORTH CAROLINA STATUTES
{ G. S. 105- 430 and G. S. 105- 449.37 through G. S. 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
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
2004- 05 320,410,843 3.1 32.0
BASE AND RATE
{ G. S. 105- 449.80} The state levies an excise tax on all motor fuels including alternative
motor fuels sold, distributed, or used in the state. The motor fuels excise tax is levied on
the wholesale price of motor fuel. The excise tax has a fixed rate of 17.5 cents per gallon
plus a variable component rate that is 7% of the average whole sale price of motor fuels.
The excise tax on motor fuels is computed twice a year in January and July and cannot
fall below 3.5 cents per gallon.
Base Period: January 1, 2006 Base Rate is .299 cents
July 1, 2006 Base Rate is .299 cents
BASE PERIOD
The first base period is the six months ending on the 30th of September.
The second base period is the six months ending on the 31st of March.
January Base Period = April, May, June, July, August, September
6
July Base Period = October, November, December, January, February, March
6
Computation of the Wholesale Component for the base period:
a. Compute the 6 month average sales price of “ finished” gasoline
b. Compute the 6 month average sales price of # 2 diesel fuel
c. Compute the weighted average of the results of the first two calculations
based on the proportion of the tax collected on gas and diesel.
74
Gas Weighted Average = Total Taxable Gallons Gas
Gas Taxable Gallons
Diesel Weighted Average = Total Taxable Gallons Diesel
Diesel/ Special Fuel Taxable Gallons
d. Sum the weighted averages and multiply times 7%
e. Round up to the nearest 1/ 10 of a gallon
EXEMPTIONS
{ G. S 105- 449.88} Fuel sold to the U. S. Government, state government agencies, N. C.
counties or municipal corporations, N. C. community colleges, local boards of education
for use in public or charter school transportation ( including fuel for automobiles owned
by school boards), motor fuel removed from a terminal for export for which the supplier
collects the excise tax at the rate of the destination state. Diesel that is kerosene and is
sold to an airport is exempt from the tax.
QUARTERLY REFUNDS
{ G. S. 105- 449.106} A refund of the excise tax paid 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.
ANNUAL REFUNDS
{ G. S. 105- 449.107} A refund of the average excise tax paid is given for purchases of fuel
not used on the highway. The refund is based on the excise tax paid on fuel used in the
preceding calendar year. There is a refund of 33 1/ 3% of the average tax paid 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.
DISTRIBUTIONS
{ G. S. 105- 449.125} 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
3) Water and Air Quality Account— 5/ 16.
Of the remaining revenue 75% remains in the Highway Fund, and 25% is allocated to the
Highway Trust Fund. All motor fuel tax collections credited to the Highway Trust Fund
are used for highway construction. Only Highway Trust Fund revenue is shown above.
75
ADDITIONAL DISTRIBUTION
{ G. S. 105- 449.126} The wildlife Resources Fund receives 1/ 6 of 1% of the excise tax on
motor fuels that is allocated to the Highway Fund. The revenues received under this
distribution are annual and are used for boating and water safety activities within the
Wildlife Fund.
POWELL BILL DISTRIBUTION
{ G. S. 135- 176( b)( 3), G. S. 136- 41.1} There is an annual supplemental appropriation of
6.5% from the Highway Trust Fund to municipalities for street maintenance. The funds
appropriated from the Highway Trust Fund are based on collections during the fiscal year
preceding the date the distribution is made. A cash distribution is made in October of
each fiscal year.
TAX CALENDAR
{ G. S. 105- 449.90} The motor fuels excise tax is collected by wholesale distributors of
motor fuels on purchases made from major oil companies at the terminal rack. The excise
tax collected on motor fuels is paid to the Secretary of Revenue either annually, quarterly,
or monthly. Annual returns are due 45 days after the end of the calendar year. Quarterly
returns are due by the last day of the month that follows the end of the calendar quarter.
Monthly returns are due within 22 days after the end of the month. A monthly return of
an occasional importer is due by the third day of each month.
COMPARISON WITH OTHER STATES
See section on “ Motor Fuels Tax” under the Highway Fund.
76
TITLE AND REGISTRATION FEES
NORTH CAROLINA STATUTES
{ G. S. 20- 85 and G. S. 20- 85.1( b)}
ADMINISTERED BY
Department of Transportation Division of Motor Vehicles
Annual Percent of
Highway Trust Fund Percent Highway Trust Fund
Fiscal Year Tax Collections Change Tax Collections
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
2004- 05 94,638,020 0.2 9.5
BASE AND RATE
{ G. S. 20- 85 ( a)} Charges are rendered for issuance of certificates of title, transfer of
registration, and replacement of registration plate fees according to the following
schedule:
1) certificate of title, $ 40.00
2) duplicate or corrected certificate of title, $ 15.00
3) repossessing certificate of title, $ 15.00
4) transfer of registration plate, $ 15.00
5) replacement of registration plates, $ 15.00
6) duplicate registration card or certificate, $ 15.00
7) recording supplementary lien, $ 15.00
8) lien removal fee, $ 15.00
9) manufacturer of dealer title, $ 15.00
* Fees collected under G. S. 20- 85( a)( 10), salvage titles, are credited to the Highway Fund
* One Dollar of the fees collected under G. S. 20- 85( a)( 1), certificate of title, is earmarked
to the Mercury Pollution Prevention Account in the Department of Revenue. This fund is
used to off- set the cost of removing mercury switch from end- of- life vehicles. Recipients
of the fund are the Department of Environment and Natural Resources, automobile
recyclers, and scrap metal recyclers for the inspection and removal of mercury switches.
{ G. S. 20- 85.1( b)} In lieu of the regular $ 35.00 charge for certificate of title, there is a
$ 75.00 charge for one- day service.
DISTRIBUTION
Revenue is deposited in the Highway Trust Fund for highway purposes.
77
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.
78
Local
Government
Taxes
81
Property
69%
License
1%
Sales and Use
25%
Utility Excise
2%
Other
3%
CHART 6
NORTH CAROLINA LOCAL TAX COLLECTIONS
RECEIVED BY LOCAL GOVERNMENT
( 2004- 05)
Property $ 6,241,977,711
License 115,844,770
Sales and Use 2,276,331,341
Utility Excise 212,707,109
Other 257,976,457
----------------------
Total $ 9,104,837,388
82
EXCISE TAX ON BEER AND WINE-- LOCAL SHARE
NORTH CAROLINA STATUTES
{ G. S. 105- 113.68 to G. S. 105- 113.89}
ADMINISTERED BY
Department of Revenue
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
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 0.3
2004- 05 29,778,545 4.6 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
{ G. S. 105- 113.80} 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.). { G. S. 105- 113.82} The state earmarks 23.75% of the
excise tax on malt beverages, 62% of the excise tax on unfortified wine, and 22% of the
excise tax on fortified wine to local jurisdictions in which such sales are allowed.
DISTRIBUTION
The amount of the local share distributed to each county and municipality is determined
on the basis of population in the areas where such sales are permitted. The revenue
allocated to local government can be used for general purposes. The General Fund
retains the remaining revenue.
TAX CALENDAR
Wholesalers and importers of beer and wine must file returns including monthly tax
payments by the fifteenth day of the month for the previous month’s activity. The local
share of the wine and beer excise tax is allocated from collections received during the
fiscal year ending March 31. The portion going to each county and municipality is
computed and distributed to localities by May 30.
83
COMPARISON WITH OTHER STATES
See “ Alcoholic Beverage Taxes” in the General Fund section.
84
EXCISE TAX ON CONVEYANCES
NORTH CAROLINA STATUTES
{ G. S. 105- 228.28 to G. S. 105- 228.37}
ADMINISTERED BY
County Governments
Annual Percent of
Local Government Percent Local Government
Fiscal Year Tax Receipts Change Tax Receipts
1997- 98 30,311,638 13.4 0.5
1998- 99 34,787,017 14.8 0.5
1999- 00 35,951,673 3.4 0.5
2000- 01 35,350,847 - 1.7 0.5
2001- 02 37,311,800 5.5 0.5
2002- 03 41,595,069 11.5 0.5
2003- 04 46,120,495 10.9 0.5
2004- 05 63,984,129 38.7 0.7
BASE AND RATE
{ G. S. 105- 228.30} A tax rate of $ 1.00 on each $ 500, or fraction thereof, is levied on the
value of each deed, ins