North Carolina biennial tax expenditure report |
Previous | 7 of 7 | Next |
|
small (250x250 max)
medium (500x500 max)
Large
Extra Large
large ( > 500x500)
Full Resolution
|
This page
All
|
North Carolina Biennial Tax Expenditure Report 2005 Tax Research Division North Carolina Biennial Tax Expenditure Report 2005 Tax Research Division October 2005 275 copies of this report were printed at a cost of $ 248.50, or $ 0.90 per copy. Table of Contents List of Tables ...................................................................................................................... vi Introduction................................................................................................................... ..... 1 Defining Tax Expenditures for This Study .......................................................................... 1 Measuring the Fiscal Effects of Tax Expenditures................................................................ 2 Privilege Taxes ( Article 2).................................................................................................... 7 Tax Base Information ........................................................................................................ 7 Exemptions from 3% gross receipts tax............................................................................... 7 Preferential rate for 3% gross receipts tax.......................................................................... 10 Exemptions from license fee of $ 50.00 for attorneys- at- law and other professionals............. 10 Exemptions from loan agency annual privilege tax of $ 250 ................................................ 11 Exemptions from $ 15 per ton tax on unrecycled newsprint................................................. 11 Tobacco Tax ( Article 2A)................................................................................................... 12 Tax Base Information ...................................................................................................... 12 Expenditures ................................................................................................................... 12 Alcoholic Beverage License and Excise Taxes ( Article 2C) ................................................ 13 Tax Base Information ...................................................................................................... 13 Expenditures ................................................................................................................... 13 Franchise Tax ( Article 3) ................................................................................................... 14 Brief Background and Tax Base Information..................................................................... 14 Exemptions..................................................................................................................... 17 Deductions..................................................................................................................... 19 Tax Credits ..................................................................................................................... 21 Caps ............................................................................................................................... 21 Corporation Income Tax ( Article 4. Part 1) ....................................................................... 22 Brief Description and Tax Base Information...................................................................... 22 Exemptions..................................................................................................................... 26 Deductions..................................................................................................................... 28 Tax Credits ..................................................................................................................... 33 Tax Incentives for New and Expanding Businesses ( Article 3A) ........................................ 38 Table of Contents - iv - Business and Energy Tax Credits ( Article 3B) ................................................................... 41 Tax Incentives for Recycling Facilities ( Article 3C) ........................................................... 43 Historic Rehabilitation Tax Credits ( Article 3D) ............................................................... 44 Low- Income Housing Tax Credits ( Article 3E).................................................................. 45 Research and Development Tax Credits ( Article 3F) ......................................................... 46 Tax Incentives for Major Computer Manufacturing Facilities ( Article 3G)....................... 47 Individual Income Tax ( Article 4, Part 2) .......................................................................... 48 Brief Description and Tax Base Information...................................................................... 48 Exemptions..................................................................................................................... 51 Deductions..................................................................................................................... 51 Tax Credits ..................................................................................................................... 54 Sales and Use Tax ( Article 5) ............................................................................................. 59 Tax Base Information ...................................................................................................... 59 Exemptions..................................................................................................................... 65 Preferential tax rates ........................................................................................................ 82 Credits........................................................................................................................ ... 83 Highway Use Tax ( Article 5A) ........................................................................................... 84 Tax Base Information ...................................................................................................... 84 Expenditures ................................................................................................................... 84 Scrap Tire Disposal Tax ( Article 5B) ................................................................................. 87 Tax Base Information ...................................................................................................... 87 Expenditures ................................................................................................................... 87 White Goods Disposal Tax ( Article 5C) ............................................................................. 88 Tax Base Information ...................................................................................................... 88 Expenditures ................................................................................................................... 88 Piped Natural Gas Tax ( Article 5E) ................................................................................... 89 Tax Base Information ...................................................................................................... 89 Expenditures ................................................................................................................... 89 Gift Taxes ( Article 6) ......................................................................................................... 90 Tax Base Information ...................................................................................................... 90 Expenditures ................................................................................................................... 90 Table of Contents - v - Taxes on Insurance Companies ( Article 8B) ...................................................................... 91 Tax Base Information ...................................................................................................... 91 Expenditures ................................................................................................................... 91 Excise Stamp Tax on Conveyances ( Article 8E) ................................................................. 93 Tax Base Information ...................................................................................................... 93 Expenditures ................................................................................................................... 93 Excise Tax on Motor Fuels ( Article 36C) and Alternative Fuels ( Article 36D) ................... 95 Tax Base Information ...................................................................................................... 95 Expenditures ................................................................................................................... 95 Appendix: Tax Exclusions and Exemptions That Are Not Proper Tax Expenditures ........ 99 Privilege Tax................................................................................................................... 99 Bank Annual Privilege Tax .............................................................................................. 99 Tobacco Tax ................................................................................................................... 99 Alcoholic Beverage License and Excise Taxes ................................................................ 100 Franchise Tax................................................................................................................ 101 Corporation Income Tax ................................................................................................ 101 Individual Income Tax................................................................................................... 103 Sales and Use Tax ......................................................................................................... 104 Highway Use Tax.......................................................................................................... 107 Tax on Insurance Companies.......................................................................................... 108 Excise Tax on Motor Fuels and Alternative Fuels ............................................................ 108 Index.......................................................................................................................... .... 110 Table of Contents - vi - List of Tables Table 1. Summary of Tax Expenditures.......................................................................................... 3 Table 2. Forty Largest Tax Expenditures ........................................................................................ 4 Table 3. Franchise Tax Expenditure Estimates ............................................................................. 15 Table 4. Corporate Income Tax Expenditure Estimates................................................................ 24 Table 5. Individual Income Tax Expenditure Estimates ............................................................... 49 Table 6. Carry- Over Provisions for Individual Income Tax.......................................................... 58 Table 7. Sales and Use Tax Expenditure Estimates ...................................................................... 60 North Carolina Biennial Tax Expenditure Report 2005 Introduction In compliance with the requirements of Section 105- 256 of the General Statutes of North Carolina, the Department of Revenue has prepared this report of tax expenditures contained in the Revenue Laws of North Carolina as amended through 2005. The listing of expenditures and measurements of their respective costs will allow legislative review of their impact on the State’s economy and on government revenues. Defining Tax Expenditures for This Study A “ tax expenditure” is defined as an exemption, exclusion, deduction, allowance, credit, refund, preferential tax rate or other device which reduces the amount of tax revenue which otherwise would be collected. Tax expenditures are created to give economic assistance to certain groups of producers or consumers in the economy or to promote other policy goals. This report does not purport to evaluate the various expenditures as to equity or desirability from a public policy standpoint. This report concentrates on those tax expenditures that the General Assembly can alter. There are some tax expenditures that are not subject to legislative action. For instance, Constitutional restrictions forbid taxing the federal government’s purchases, as well as certain transactions involving interstate trade and trade on Indian Reservations. Also, specific exemptions or exclusions that are made in order to avoid duplicate taxation of an activity are not considered to be tax expenditures. For example, S- corporations are not taxed on profits that are transferred to shareholders, who subsequently pay income taxes on these dividends. These types of tax expenditures are listed in the Appendix. There are several other important tax breaks that are not considered tax expenditures for this report. Some exemptions and exclusions are necessary to define the appropriate base that is being taxed. For example, North Carolina’s choice of Federal Taxable Income ( FTI) as the starting point for income tax calculations is not considered an expenditure, even though FTI is generally lower than other measures of income. The sales tax presents the most ambiguous cases of when exemptions should be included as tax expenditures for this report. The sales tax is generally considered to be a tax on “ retail” purchases. Transactions involving the purchase of intermediate goods that will be further processed into a final good are properly exempted from the sales tax. It is arguable whether purchases of machinery, fuel or similar inputs used in production of final goods should be taxed. Since there is no consensus on this point, we include estimates of tax exemptions on machinery. Sales tax exemptions that are excluded from estimation are included in the Appendix. Introduction - 2 - The term “ preferential tax rate” has been interpreted to mean any rate that is less than the basic rate that applies to the largest number of taxpayers. In some instances higher rates are used on a relatively small number of taxpayers. In such cases, the lower general rates are not listed as preferential. Nor are graduated tax rates, such as those contained in the individual income tax, the estate tax, and the gift tax. Also, no preferential status is acknowledged when distinctly different bases are taxed at different rates under the same tax schedule. For example, under the alcoholic beverage taxes, different rates and bases are used to tax beer, wine, and spirituous liquor. Measuring the Fiscal Effects of Tax Expenditures It should be noted at the outset of this report that the fiscal effects of tax expenditures are sometimes difficult to quantify. Several methods for estimating the costs of expenditures are used. The most accurate source of information comes from actual tax returns that provide direct evidence of when certain expenditures are taken and the amounts of those expenditures. For example, we are able to use personal income tax and corporate income tax returns from 2002 and 2001 respectively to precisely measure the use of certain tax deductions and tax credits. In some cases, we may not have data on tax returns for specific tax expenditures, but we do have good estimates for several expenditures combined. For example, retailers must list on their sales and use tax returns the amount of sales subject to the special 1% rate. Based on this, our estimates of several expenditures receiving this rate can be summed up and rescaled to get closer to the actual amounts. Sometimes, needed data are more timely and extensive at the national level than at the state level. When this occurs, the state- level data are estimated by determining North Carolina’s share of national activity. In these cases, several assumptions must be made to derive the final estimates. Therefore, these estimates are far less reliable than those that can be measured directly. For most national economic data, the share of North Carolina’s activities will consistently be in the range of 2 ½ % to 3%, which also corresponds to North Carolina’s share of population and gross domestic product ( GDP). Therefore, national statistics are often multiplied by 2.75% to estimate North Carolina’s value. However, when it is apparent that North Carolina’s data are not typical of national activity, such as textile or pharmaceutical manufacturing, attempts are made to use more representative proportions. In some cases, sufficient data were not available to allow estimation of the value of an expenditure. In these cases the expenditure estimate is designated as “ unavailable.” For a small number of credits, the provision was utilized by so few taxpayers that reporting the size of the expenditure would jeopardize taxpayer confidentiality. The estimates for these items were reported as a group. Introduction - 3 - Table 1 Summary of Tax Expenditure Estimates for 2004 by Tax Category Tax Number of Expenditures Sum of Estimates of $ 100,000 and Over ( Millions of Dollars) Number Estimated to Be Less than $ 100,000 Number with Unavailable Estimate Privilege Tax 19 11.9 9 1 Tobacco Products Tax 3 2.5 1 0 Alcoholic Beverage Tax 2 2.4 1 0 Franchise Tax 20 276.0 0 8 Corporation Income Tax 47 380.5 13 5 Various Tax Incentives ( Articles 3A through 3G) 21 165.0 6 0 Individual Income Tax 27 765.0 6 1 Sales and Use Tax 77 1,754.1 6 18 Highway Use Tax 10 15.3 2 3 Scrap Tire Disposal Tax 1 0.0 0 1 White Goods Disposal Tax 1 0.0 1 0 Piped Natural Gas Tax 1 3.9 0 0 Gift Taxes 3 21.2 0 0 Taxes on Insurance Companies 5 127.6 0 1 Excise Stamp Tax on Conveyances 8 8.5 2 2 Excise Taxes on Motor Fuels 14 36.4 3 1 Totals 259 3,570.3 50 41 Introduction - 4 - Table 2 Forty Largest Tax Expenditures in North Carolina in 2004 Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 1 Sales and Use Tax 65 164.13B Food Exemption 416.8 2 Individual Income Tax 5 134.6( b)( 5b) Government Retirement Income under Bailey Settlement 246.0 3 Sales and Use Tax 32 164.13( 13) Prescription Drugs and Insulin 242.0 4 Franchise Tax 19 120.2( b)( 1) Cap for Holding Companies 200.0 5 Sales and Use Tax 68 164.14( b) Refund of Sales Taxes to Nonprofits 183.0 6 Individual Income Tax 4 134.6( b)( 3) Social Security Benefits in Excess of Federal Limit 179.4 7 Individual Income Tax 22 151.24 Credit for Children 134.3 8 Sales and Use Tax 11 164.13( 2a) a Feeds, Litter and Medications for Farming 128.0 9 Corporation Income Tax 26 130.8 Net Economic Losses 127.4 10 Sales and Use Tax 76 164.4( 4a) Electricity to Commercial Businesses and Residences 107.1 11 Corporation Income Tax 47 Tax Expenditures Combined for Confidentiality 100.1* 12 Taxes on Insurance Companies 2 228.5( c)( 2) Premiums Received from Annuities 95.0 13 Individual Income Tax 6 134.6( b)( 6) Private Retirement Plans and Government Pensions 68.8 Introduction - 5 - Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 14 Sales and Use Tax 77 164.21B Credit for Local Cable Television Franchise Taxes 65.3 15 Corporation Income Tax 11 130.5( b)( 1) US Obligation Interest 63.7 16 Sales and Use Tax 69 164.14( c) Refund of Sales Taxes to Local Government 62.5 17 Sales and Use Tax 7 164.4C( c)( 13) Internet Access Charges 53.5 18 Sales and Use Tax 40 164.13( 23) a Packaging Items for Manufacturers, Producers and Retailers 52.8 19 Sales and Use Tax 10 164.13( 1) and ( 1a) Items Sold to Farmers 51.1 20 Franchise Tax 1 125( a)( 1) Charitable Nonprofits 50.2 21 Corporation Income Tax 3 130.11( a)( 3) Certain Charitable Organizations 49.3 22 Low- Income Housing Tax Credits 2 129.42 Credit for Low- Income Housing 47.1 23 Sales and Use Tax 63 164.13( 51) Water Delivered Through Main Pipes 43.5 24 Tax Incentives for New and Expanding Businesses 2 129.9 Credit for Investing in Machinery and Equipment 42.9** 25 Individual Income Tax 15 151.11 Credit for Child Care and Certain Employment- Related Expenses 41.2 26 Sales and Use Tax 52 164.13( 38) Food Stamp Purchases 33.1 27 Sales and Use Tax 31 164.13( 12) Durable Medical Equipment 30.0 28 Sales and Use Tax 64 164.13A Tips on Meals and Beverages 29.7 Introduction - 6 - Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 29 Sales and Use Tax 6 164.4C( c)( 12) Information Services 26.1 30 Taxes on Insurance Companies 3 228.5( c)( 3) Premiums Related to Funding Agreements 26.0 31 Business and Energy Tax Credit 1 129.16 Credit for Investing in Business Property 24.6** 32 Sales and Use Tax 71 164.4( a)( 1a) Manufactured Homes 23.7 33 Individual Income Tax 24 151.26 Charitable Contributions by Nonitemizers 23.1 34 Sales and Use Tax 44 164.13( 27) Food Sold in Dining Rooms Operated by Educational Institution 22.0 35 Individual Income Tax 27 Carry- Over Provisions 21.0 36 Sales and Use Tax 74 164.4( 1f) Electricity to Farmers, Manufacturers and Commercial Laundries 20.6 37 Sales and Use Tax 4 164.4C( c)( 9) Sales, Installation, Repair of Telecommunications Property 19.7 38 Sales and Use Tax 53 164.13( 39) Components of Free Distribution Periodicals 19.4 39 Gift Taxes 1 188( d) Annual Exclusion Amount 18.0 40 Individual Income Tax 16 151.12 Credit for Certain Real Property Donations 15.6 * Includes items grouped to protect confidentiality of taxpayer information. See text for this item for more details. ** 2003 value. Privilege Taxes - 7 - Privilege Taxes ( Article 2) Tax Base Information Privilege taxes are imposed for the privilege of carrying on business or doing a remunerative act within the state. Privilege taxes on corporations are discussed under the “ franchise tax” article. There is no standard tax base or tax rate for privilege taxes that covers all businesses or activities. However, in order to determine preferential tax rates and exclusions, the tax rate is assumed to be 3% when the tax base is gross receipts and $ 50 when there is a flat licensing fee. Exemptions from 3% gross receipts tax 1. Low Admission Fee Citation: G. S. 105- 37.1( a)( 1) Description: Giving, offering or managing dance or athletic contests with admissions below $. 50. Estimate ( in millions): less than $ 0.1 Note: There would have to be over 6.6 million tickets sold for this to be above $ 100,000. 2. Charitable Performances by Uncompensated Local Talent Citation: G. S. 105- 40( 1) Description: Performances by local talent exclusively, for the benefit of religious, charitable, benevolent or educational purposes, as long as no compensation is paid to the local talent. Estimate ( in millions): Unavailable 3. North Carolina Symphony Society Citation: G. S. 105- 40( 2) Description: NC Symphony Society, Inc., as specified in G. S. 140- 10.1. Estimate ( in millions): $ 0.1 Data Source: Estimate based on total budget of $ 8.5 million reported by the North Carolina Symphony Society. A report from 2002 by the Symphony Orchestra Institute estimated that US symphonies in this budget range covered an average of 40% of their expenses from sales. Privilege Taxes - 8 - 4. Agricultural Fairs Citation: G. S. 105- 40( 3) Description: Exhibits, shows, attractions, and amusements operated by a society or association organized under the provisions of Chapter 106 of the General Statutes where the society or association has obtained a permit from the Secretary of Revenue to operate without the payment of taxes. Estimate ( in millions): $ 1.2 Data Source: List of county fairs and attendance from North Carolina Association of Agricultural Fairs. Note: Per person receipts based on average gate price of $ 10 and additional $ 10 for amusements. 5. Outdoor Historical Dramas Citation: G. S. 105- 40( 4) Description: Outdoor historical dramas, as specified in Article 19C of Chapter 143 of the General Statutes. Estimate ( in millions): $ 0.1 Data Source: Institute of Outdoor Drama at the University of North Carolina at Chapel Hill 6. Events at Primary and Secondary Schools Citation: G. S. 105- 40( 5) Description: Elementary and secondary school athletic contests, dances and other amusements. Estimate ( in millions): $ 6.7 Data Source: Estimates based on 2002 data from the National Center for Educational Statistics. North Carolina’s revenues from student activities were not directly available. Estimates were made by averaging revenues in nearby states ( Alabama, South Carolina, and Tennessee) and adjusting by the number of schools and the number of students in North Carolina. 7. First $ 1,000 of Charitable Amusements Citation: G. S. 105- 40( 6) Description: First $ 1,000 of gross receipts from amusements promoted and managed by civic organizations when the entire proceeds are used exclusively for civic and charitable purposes and not to defray the expenses of conducting the amusement. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue amusement tax records Note: Each event would receive a $ 30 tax break. There would have to be over 3,300 events for the loss to exceed $ 100,000. Privilege Taxes - 9 - 8. Youth Athletic Contests Citation: G. S. 105- 40( 6a) Description: Youth athletic contest with an admission price of $ 10 or less sponsored by an entity exempt from State income tax. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue amusement tax records 9. Amusements at Nonprofit Arts Centers Citation: G. S. 105- 40( 7) Description: Amusements promoted by a corporation exempt from income tax that operates a center for the performing or visual arts ─ the exempt events must be held at the center. Estimate ( in millions): $ 0.2 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. 10. Amusements Promoted by Nonprofit Arts Organization Citation: G. S. 105- 40( 7a) Description: Exemption for all exhibitions, performances, and entertainments promoted and managed by nonprofit arts organization. Estimate ( in millions): $ 0.2 Data Source: Revenues from exempt arts groups provided by 2002 Economic Census. The share of ticket sales are from the Theatre Communications Group and 2002 Census ( for promoters). Note: The estimate is net of related estimated expenditures in this section. 11. Arts Festivals Citation: G. S. 105- 40( 10) Description: Arts festivals of less than 7 days, no more than twice a year, held outdoors on public property by an income tax- exempt person. Estimate ( in millions): $ 0.2 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. Privilege Taxes - 10 - 12. Community Festivals Citation: G. S. 105- 40( 11) Description: Community festivals held by a person exempt from income tax, no more than one per calendar year, no more than seven days, involving a variety of exhibitions, the majority of which are open to the public. Estimate ( in millions): less than $ 0.1 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. 13. Amusements by Teen Centers Citation: G. S. 105- 40( 8) Description: Persons exempt from income tax who are operating a teen center. Estimate ( in millions): less than $ 0.1 Note: Likely to be small given amounts in other amusement categories. Preferential rate for 3% gross receipts tax 14. 1% Tax on Motion Pictures Citation: G. S. 105- 38.1( a) Description: 1% gross receipts tax on motion pictures ─ if a person offers entertainment that includes both a motion picture and another type of amusement, the total gross receipts will be taxed at the normal rate. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue amusement tax records Exemptions from license fee of $ 50.00 for attorneys- at- law and other professionals 15. Professionals over 75 Years Old Citation: G. S. 105- 41( b)( 1) Description: Exemption from license fee for attorneys or other professionals who are over 75 years old. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses and US Census demographic data Privilege Taxes - 11 - 16. Individuals Practicing Art of Healing Citation: G. S. 105- 41( b)( 2) Description: Exemption from license fee for individuals who practice the art of healing for a fee, if the person is an adherent of an established church or religious organization and confines the healing practice to prayer or spiritual means. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses 17. Blind Individuals Citation: G. S. 105- 41( b)( 3) Description: Exemption from license fee for blind individuals. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses and US Census demographic data Exemptions from loan agency annual privilege tax of $ 250 18. Savings Institutions Citation: G. S. 105- 102.3 Description: Exemption from bank privilege tax for savings institutions under Chapter 54B, 54C or Home Owners' Loan Act of 1933. Estimate ( in millions): $ 0.2 Data Source: North Carolina Commission on Banks and Federal Depositors' Insurance Corporation Exemptions from $ 15 per ton tax on unrecycled newsprint 19. Unavailability of Recycled Newsprint Citation: G. S. 105- 102.6( e) Description: Exemption from tax on unrecycled paper if recycled newsprint is unavailable due to ( 1) high price, ( 2) lack of comparable quality or ( 3) time constraints. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records Tobacco Tax - 12 - Tobacco Tax ( Article 2A) Tax Base Information The tax rate on a pack of cigarettes increased from 5¢ to 30¢ on September 1, 2005 and will increase to 35¢ on July 1, 2006. Other tobacco products will be taxed at the rate of 3% of the price of the products as of September 1, 2005. ( Prior to this date, the tax rate was 2%.) During Fiscal Year 2004- 05, $ 43.0 million was collected from this tax. Expenditures 1. Discount for Timely Reports ─ Cigarettes Citation: G. S. 105- 113.21( a1) Description: A distributor who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): $ 2.5 Data Source: Department of Revenue tax records Note: This deduction was effective August 1, 2004. The estimate includes Item # 3. The actual amount of $ 0.2 million was inflated to provide an estimate at the tax rates that apply after September 1, 2005 and were also adjusted for a full calendar year. 2 Unsalable Cigarettes and Cigars Citation: G. S. 105- 113.21( b) and 105- 113.39( b) Description: Refund for stale or otherwise unsalable cigarettes and cigars upon which the tax has been paid. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records 3. Discount for Timely Reports ─ Other Tobacco Products Citation: G. S. 105- 113.39 Description: A wholesale dealer or retail dealer who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): included in item # 1 Alcoholic Beverage License and Excise Taxes - 13 - Alcoholic Beverage License and Excise Taxes ( Article 2C) Tax Base Information An excise tax of 53.177¢ per gallon is levied on the sale of malt beverages. An excise tax of 21¢ per liter is levied on the sale of unfortified wine and an excise tax of 24¢ per liter is levied on the sale of fortified wine. An excise tax of 25% is levied on liquor sold in ABC stores. During Fiscal Year 2004- 05, $ 189.7 million was collected from this tax. Expenditures 1. Discount for Timely Reports Citation: G. S. 105- 113.85 Description: A wholesaler or importer who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): $ 2.4 Data Source: Department of Revenue tax records Note: This deduction was effective August 1, 2004. The actual amount of $ 0.8 million was adjusted for a full calendar year. 2. Sacramental Wine Citation: G. S. 105- 113.87( a) Description: Refund for wine used for sacramental purposes. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records Franchise Tax - 14 - Franchise Tax ( Article 3) Brief Background and Tax Base Information The franchise tax is a privilege tax on corporations operating in North Carolina. The tax is currently $ 1.50 for every $ 1000 of the largest of the following three measures: 1. the total amount of 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 For tax year 2002, 61% of C- corporations paying the franchise tax used the first of these measures as the taxable amount, while 26% of corporations used the second and 12% used the third. For corporations doing business both in and outside North Carolina, the share of capital stock due to North Carolina is calculated by the same method used for the corporation income tax: the average of the corporation’s shares of property, payroll and sales, with the sales factor double- weighted. The minimum franchise tax is $ 35.00. For tax year 2002, 40% of C- corporations and 47% of S- corporations paid the minimum amount. In Fiscal Year 2004- 05, North Carolina collected $ 629.8 million in franchise taxes. Franchise Tax - 15 - Table 3 2004 NC Franchise Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 114( b)( 2) Limited Liability Companies Unavailable 2 125( a)( 1) Charitable Nonprofits 50.2 3 125( a)( 3) Local Mutual Nonprofits 2.2 4 125( a)( 4) Cooperative Marketing Associations 0.2 5 125( a)( 5) Production Credit Association 0.5 6 125( a)( 6) Nonprofit Clubs 2.0 7 125( a)( 7) Chambers of Commerce 0.9 8 125( a)( 8) Homeowners' Associations 2.3 9 125( a)( 9) Miscellaneous Nonprofits 2.3 10 125( a) Real Estate Mortgage Investment Conduits Unavailable 11 122( b) Deduction from Capital Stock for Investments in Pollution Abatement Unavailable 12 122( b) Deduction from Capital Stock for Investments in Hazardous Waste Abatement Unavailable Franchise Tax - 16 - Item Citation Short Title 2004 Estimate ( millions of dollars) 13 122( b) Deduction from Capital Stock for Facilities Used for Residential Sewer Services Unavailable 14 122( b) Treasury Stock 8.0 15 122( d) Deduction from Property Investment for Expenses Related to Purchases of Real Estate Unavailable 16 122( d) Deduction from Property Investment for Waste Abatement Investments Unavailable 17 122( d) Deduction from Property Investment for Investments in Rural Sewer Services Unavailable 18 125( b) Real Estate Investment Trusts and Regulated Investment Corporations 3.0 19 122( d1) Piped Natural Gas Credit 4.4 20 120.2( b)( 1) Cap for Holding Companies 200.0 Franchise Tax - 17 - Exemptions 1. Limited Liability Companies Citation: G. S. 105- 114( b)( 2) Description: Limited liability companies are exempt from the franchise tax because the definition for corporation in this Article explicitly excludes them. However, under G. S. 105- 114.1( b), the assets of a limited liability company are included in the tax bases of corporations that own more than 50% of the LLC. Estimate ( in millions): Unavailable 2. Charitable Nonprofits Citation: G. S. 105- 125( a)( 1) Description: Charitable, religious, fraternal, benevolent, scientific or educational nonprofit. Estimate ( in millions): $ 50.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 3. Local Mutual Nonprofits Citation: G. S. 105- 125( a)( 3) Description: Mutual ditch or irrigation association, mutual or cooperative telephone association, mutual canning association, cooperative breeding association or similar corporation of a purely local character deriving receipts solely from assessments, dues, or fees collected from members for the sole purpose of meeting expenses. Estimate ( in millions): $ 2.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 4. Cooperative Marketing Associations Citation: G. S. 105- 125( a)( 4) Description: Cooperative marketing associations that operate solely for the purpose of marketing the products of members or other farmers and returns proceeds of sales to members and farmers, less operating costs. Estimate ( in millions): $ 0.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) Franchise Tax - 18 - 5. Production Credit Association Citation: G. S. 105- 125( a)( 5) Description: Nonprofit production credit association under federal Farm Credit Act of 1933. Estimate ( in millions): $ 0.5 Data Source: Based on assets of the four farm credit associations in North Carolina 6. Nonprofit Clubs Citation: G. S. 105- 125( a)( 6) Description: Clubs organized and operated exclusively for pleasure, recreation, or other nonprofit purposes, a civic league operated solely for the promotion of social welfare, a business league, or a board of trade. Estimate ( in millions): $ 2.0 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 7. Chambers of Commerce Citation: G. S. 105- 125( a)( 7) Description: Chamber of commerce or merchants' association, not organized for profit. Estimate ( in millions): $ 0.9 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 8. Homeowners' Associations Citation: G. S. 105- 125( a)( 8) Description: Condominium association, homeowners' association, or cooperative housing corporation not organized for profit. Estimate ( in millions): $ 2.3 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) and additional information from Department of Revenue 2002 corporate income tax records Franchise Tax - 19 - 9. Miscellaneous Nonprofits Citation: G. S. 105- 125( a)( 9) Description: Other organization exempt from federal income tax under the Code. Estimate ( in millions): $ 2.3 Data Source: Estimate for credit unions from NC Department of Commerce, Credit Union Division Annual Report ( 2003). Share of assets taxable for franchise tax derived from comparison to savings banks in Department of Revenue records. 10. Real Estate Mortgage Investment Conduits Citation: G. S. 105- 125( a) Description: An entity that qualifies as a real estate mortgage investment conduit, as defined in section 860D of the Code, is exempt from franchise taxes. Estimate ( in millions): Unavailable Deductions 11. Deduction from Capital Stock for Investments in Pollution Abatement Citation: G. S. 105- 122( b) Description: Deduction for cost of air- cleaning device or sewage or waste treatment plant and pollution abatement equipment. Estimate ( in millions): Unavailable 12. Deduction from Capital Stock for Investments in Hazardous Waste Abatement Citation: G. S. 105- 122( b) Description: Deduction for cost of purchasing equipment or constructing facilities for the purpose of recycling or reducing hazardous wastes. Estimate ( in millions): Unavailable 13. Deduction from Capital Stock for Facilities Used for Residential Sewer Services Citation: G. S. 105- 122( b) Description: Deduction for the cost of constructing facilities used to provide sewer services to residential and outlying areas. Estimate ( in millions): Unavailable Franchise Tax - 20 - 14. Treasury Stock Citation: G. S. 105- 122( b) Description: Treasury stock shall not be considered in computing the capital stock, surplus and undivided profits as the basis for franchise tax, but shall be excluded proportionately. Estimate ( in millions): $ 8.0 Data Source: Department of Revenue 2001 C- Corp records 15. Deduction from Property Investment for Expenses Related to Purchases of Real Estate Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments of reserves for depreciation and any indebtedness incurred by virtue of the purchase of any real estate and any improvements. Estimate ( in millions): Unavailable 16. Deduction from Property Investment for Waste Abatement Investments Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments of cost of air- cleaning device or sewage or waste treatment plant. Estimate ( in millions): Unavailable 17. Deduction from Property Investment for Investments in Rural Sewer Services Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments for the cost of constructing facilities built to provide sewer service to residential and outlying areas. Estimate ( in millions): Unavailable 18. Real Estate Investment Trusts and Regulated Investment Corporations Citation: G. S. 105- 125( b) Description: Deduction for market value of a real estate investment trust or regulated investment corporation of investments in the stocks, bonds or debts of other entities. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue 2002 C- Corp records Franchise Tax - 21 - Tax Credits 19. Piped Natural Gas Credit Citation: G. S. 105- 122( d1) Description: Tax credit of one- half amount of piped natural gas tax. The credit allowed may not exceed the tax amount reduced by all credits. Estimate ( in millions): $ 4.4 Data Source: Department of Revenue 2002 and 2003 C- Corp and S- Corp records Caps 20. Cap for Holding Companies Citation: G. S. 105- 120.2( b)( 1) Description: Maximum tax of $ 75,000 for holding companies. A holding company is any corporation which receives during its taxable year more than 80% of its gross income from corporations in which it owns directly or indirectly more than 50% of the outstanding voting stock. Estimate ( in millions): $ 200.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 22 - Corporation Income Tax ( Article 4. Part 1) Brief Description and Tax Base Information The corporation income tax is a tax on the profits of C- corporations operating in North Carolina. The tax rate is 6.9% of the corporation’s State net income. For corporations doing business both in and outside North Carolina, the share of business income taxable to North Carolina is calculated by the following formula: the average of the corporation’s ratios of capital stock, payroll and sales within North Carolina to the company’s totals of these factors, with the sales factor double- weighted. For a few types of companies, the sales factor only is used. These companies include building or construction contractors, securities dealers, loan companies, or corporations that receive more than 50% of their ordinary gross income from intangible property. The corporation tax’s base is net income, or profits, since most operating costs can be deducted. There is no minimum tax, so that corporations with negative profits pay no corporation income taxes. Based on 2002 tax returns, two- thirds of corporations filing North Carolina C- Corporation tax returns had no tax liability. This creates a special problem in measuring individual tax expenditures since some companies that claim them would still have negative incomes if they were not allowed that particular deduction. ( The tax expenditure is non- binding for these companies.) In the measurement of tax expenditures in this section, attempts were made to include only companies for which the tax expenditure reduces tax liability. S- corporations may also claim the credits and deductions in this section for nonresident shareholders who elect not to file individual income tax returns in North Carolina. In Fiscal Year 2004- 05, North Carolina collected $ 1.27 billion in corporate income taxes. Corporation Income Tax - 23 - Table 4 2004 NC Corporate Income Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 130.11( a)( 1) Fraternal Beneficiary Societies less than 0.1 2 130.11( a)( 2) Certain Cooperative Companies 12.5 3 130.11( a)( 3) Certain Charitable Organizations 49.3 4 130.11( a)( 4) Nonprofit Business Associations 0.7 5 130.11( a)( 5) Nonprofit Promoters of Social Welfare 0.3 6 130.11( a)( 6) Nonprofit Clubs 0.6 7 130.11( a)( 7) Local Mutual Nonprofits less than 0.1 8 130.11( a)( 8) Nonprofit Agricultural Marketing Memberships 0.1 9 130.11( a)( 9) Certain Agricultural Associations included in item # 8 10 130.11( a)( 11) Homeowners' Association 0.4 11 130.5( b)( 1) US Obligation Interest 63.7 12 130.5( b)( 1a) NC Obligation Interest 1.0 13 130.5( b)( 7) Depreciation of Certain Facilities 0.0 14 130.5( b)( 8) Net Capital Losses Not Deductible from Federal Taxable Income 3.0 15 130.5( b)( 9) Shareholders of a Regulated Investment Company Unavailable 16 130.5( b)( 12) Reforestation and Cultivation of Trees less than 0.1 17 130.5( b)( 13) Income from International Banking Facility included in item # 47 18 130.5( b)( 14) Basis Adjustment for Federal Tax Credit Unavailable Corporation Income Tax - 24 - Item Citation Short Title 2004 Estimate ( millions of dollars) 19 130.5( b)( 15) Marketing Assessments on Tobacco 0.0 20 130.5( b)( 16) Natural Gas Expansion Surcharges Unavailable 21 130.5( b)( 18) Earnings of Certain Trusts included in item # 47 22 130.5( b)( 19) Income from Hurricane Floyd Reserve Fund less than 0.1 23 130.5( b)( 22) Disaster Relief Reserve Payments 1.5 24 130.5( c)( 2) Percentage Depletion over Cost Depletion 1.4 25 130.6A( e) Expenses Related to Nontaxed Dividends for Bank Holding Company included in item # 47 26 130.8 Net Economic Losses 127.4 27 130.9( 1) Charitable Contributions Outside NC 4.6 28 130.9( 1)-( 3) Charitable Contributions Within NC 4.0 29 130.10 Amortization of Pollution Abatement Facilities and Equipment Unavailable 30 130.10A Amortization of Equipment Mandated by OSHA Unavailable 31 130.6A( f) Credit for Bank Holding Companies Related to Expenses on Nontaxed Earnings included in item # 47 32 130.6A( g) Credit for Electric Power Holding Companies Related to Expenses on Nontaxed Earnings included in item # 47 33 130.22 Rental Units for Handicapped Persons 0.0 Corporation Income Tax - 25 - Item Citation Short Title 2004 Estimate ( millions of dollars) 34 130.25 Equipment for Cogenerating Power Plant 0.0 35 130.28 Construction of Renewable Energy Equipment Facility 0.0 36 130.34 Credit for Certain Real Property Donations 0.1 37 130.36 Conservation Tillage Equipment Credit less than 0.1 38 130.37 Credit for Gleaned Crops less than 0.1 39 130.39 Credit for Low- Income Residential Telephone Service 3.8 40 130.41 Credit for Costs at NC Ports 0.4 41 130.43 Credit for S& L Supervisory Fees 0.2 42 130.44 Credit for Poultry Composting Facility 0.0 43 130.45 Credit for Manufacturing Cigarettes for Exportation included in item # 47 44 130.46 Alternative Cigarette Export Credit included in item # 47 45 130.47 Film Industry Production Expenses 5.4 46 163.011 Credit for Qualified Investments less than 0.1 47 Tax Expenditures Combined for Confidentiality 100.1 Corporation Income Tax - 26 - Exemptions 1. Fraternal Beneficiary Societies Citation: G. S. 105- 130.11( a)( 1) Description: Exemption for fraternal beneficiary societies, orders or associations ( a) operating under the lodge system or providing benefits to members of a lodge system and ( b) providing for the payment of life, sick, accident, or other benefits of the organization or their dependents. Estimate ( in millions): less than $ 0.1 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 8) organizations. 2. Certain Cooperative Companies Citation: G. S. 105- 130.11( a)( 2) Description: Exemption for nonprofit cooperative banks without capital stock and electric and telephone membership corporations organized under Chapter 117 of the General Statutes. Estimate ( in millions): $ 12.5 Data Source: National Center for Charitable Statistics; “ 2003 Annual Report of State Chartered Credit Unions,” Credit Union Division, NC Department of Commerce Note: Based on data for IRC 501( c)( 12) and 501( c)( 14) organizations. 3. Certain Charitable Organizations Citation: G. S. 105- 130.11( a)( 3) Description: Exemption for cemetary corporations and corporations organized for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Estimate ( in millions): $ 49.3 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 3) and 501( c)( 13) organizations Corporation Income Tax - 27 - 4. Nonprofit Business Associations Citation: G. S. 105- 130.11( a)( 4) Description: Exemption for business leagues, chambers of commerce, merchants' associations or boards of trade not organized for profit. Estimate ( in millions): $ 0.7 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 6) organizations. 5. Nonprofit Promoters of Social Welfare Citation: G. S. 105- 130.11( a)( 5) Description: Exemption for civic leagues or organizations not organized for profit, but operated for the promotion of social welfare. Estimate ( in millions): $ 0.3 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 4) organizations. 6. Nonprofit Clubs Citation: G. S. 105- 130.11( a)( 6) Description: Exemption for nonprofit clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes. Estimate ( in millions): $ 0.6 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 7) organizations. 7. Local Mutual Nonprofits Citation: G. S. 105- 130.11( a)( 7) Description: Exemption for farmers' or other mutual hail, cyclone, or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations of a purely local nature. Estimate ( in millions): less than $ 0.1 Data Source: Data on county farm mutual insurance companies, NC Department of Insurance Corporation Income Tax - 28 - 8. Nonprofit Agricultural Marketing Memberships Citation: G. S. 105- 130.11( a)( 8) Description: Exemption for farmers' , fruit growers' or like organization for the purposes of marketing member products. Estimate ( in millions): $ 0.1 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 5) organizations. The estimate includes Item # 9. 9. Certain Agricultural Associations Citation: G. S. 105- 130.11( a)( 9) Description: Exemption for mutual associations formed under G. S. 54- 111 through 54- 128 to conduct agricultural business on the mutual plan and marketing associations organized under G. S. 54- 129 through 54- 158. Estimate ( in millions): included in item # 8 10. Homeowners' Association Citation: G. S. 105- 130.11( a)( 11) Description: Exemption for nonprofit condominium associations, homeowners' associations, or cooperative housing corporation. Estimate ( in millions): $ 0.4 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Deductions 11. US Obligation Interest Citation: G. S. 105- 130.5( b)( 1) Description: Deductions for interest upon the obligations of the US or its possessions, to the extent included in federal taxable income. Estimate ( in millions): $ 63.7 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 29 - 12. NC Obligation Interest Citation: G. S. 105- 130.5( b)( 1a) Description: Deductions for interest on the obligations of this State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State, or a nonprofit educational institution. Estimate ( in millions): $ 1.0 Data Source: Department of Revenue 2001 C- Corp sample records 13. Depreciation of Certain Facilities Citation: G. S. 105- 130.5( b)( 7) Description: Deduction for depreciation of emergency facilities acquired prior to Jan 1, 1955. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 C- Corp sample records 14. Net Capital Losses Not Deductible from Federal Taxable Income Citation: G. S. 105- 130.5( b)( 8) Description: Deduction for the amount of losses realized on the sale or disposition of assets not allowed under section 1211( a) of the Code. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue 2001 C- Corp sample records 15. Shareholders of a Regulated Investment Company Citation: G. S. 105- 130.5( b)( 9) Description: Deduction of the portion of undistributed capital gains of a regulated investment company for which a shareholder in the company takes a federal credit or deduction under Section 852 of the Code. Estimate ( in millions): Unavailable 16. Reforestation and Cultivation of Trees Citation: G. S. 105- 130.5( b)( 12) Description: Deduction for reasonable expenses, in excess of deductions allowed under the Code, paid for reforestation and cultivation of commercially grown trees. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 C- Corp sample records Corporation Income Tax - 30 - 17. Income from International Banking Facility Citation: G. S. 105- 130.5( b)( 13) Description: Deduction of the eligible income of an international banking facility to the extent included in determining federal taxable income. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 C- Corp sample records 18. Basis Adjustment for Federal Tax Credit Citation: G. S. 105- 130.5( b)( 14) Description: Deduction for the amount that the basis of a depreciable asset is reduced due to Federal tax credit. Estimate ( in millions): Unavailable 19. Marketing Assessments on Tobacco Citation: G. S. 105- 130.5( b)( 15) Description: Deduction for the amount paid, pursuant to 7 U. S. C. § 1445- 2, as marketing assessments on tobacco grown by a corporation in North Carolina. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp records and USDA’s Farm Service Agency ( FSA) data through 2003 Note: The federal provisions on which the marketing assessments were based have been repealed in the American Jobs Creation Act of 2004. 20. Natural Gas Expansion Surcharges Citation: G. S. 105- 130.5( b)( 16) Description: Deduction for the amount of natural gas expansion surcharges collected by a natural gas local distribution company. Estimate ( in millions): Unavailable 21. Earnings of Certain Trusts Citation: G. S. 105- 130.5( b)( 18) Description: Deduction of earnings on a trust for settlement of an agreement by two or more manufacturers with the State for potential claims against the manufacturers. Estimate ( in millions): included in item # 47 Corporation Income Tax - 31 - 22. Income from Hurricane Floyd Reserve Fund Citation: G. S. 105- 130.5( b)( 19) Description: Deduction for the amount paid to taxpayer from the Hurricane Floyd Reserve Fund. Estimate ( in millions): less than $ 0.1 Note: Not likely to be significant in 2004. 23. Disaster Relief Reserve Payments Citation: G. S. 105- 130.5( b)( 22) Description: Deduction for amounts paid to taxpayers for hurricane relief from the Disaster Relief Reserve Fund, not to include amounts paid for goods and services provided. Estimate ( in millions): $ 1.5 Data Source: Fiscal Research Division fiscal note. The estimate is based on expected payments to compensate for lost crop income. Note: The estimate includes the amount for similar provision in Individual Income Tax Item # 12. 24. Percentage Depletion over Cost Depletion Citation: G. S. 105- 130.5( c)( 2) Description: Federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property which has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes. Estimate ( in millions): $ 1.4 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 25. Expenses Related to Nontaxed Dividends for Bank Holding Company Citation: G. S. 105- 130.6A( e) Description: Cap for bank holding companies of $ 11,000,000 as a result of the limitation of 105- 130.6A( c). Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 32 - 26. Net Economic Losses Citation: G. S. 105- 130.8 Description: Deduction for net economic losses in any or all of the 15 preceding income years. Estimate ( in millions): $ 127.4 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 27. Charitable Contributions Outside NC Citation: G. S. 105- 130.9( 1) Description: Deduction for charitable contributions. The amount of deduction for this item may not exceed 5% of the taxpayer's net income. Estimate ( in millions): $ 4.6 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: This estimate includes only contributions made to donees outside NC; see item # 29 for deduction for donees in NC. 28. Charitable Contributions Within NC Citation: G. S. 105- 130.9( 1)-( 3) Description: Deductions for contributions to the State of North Carolina, its counties and municipalities and any agency or instrumentality of these institutions, in addition to contributions made to educational institutions located in North Carolina. For companies with income allocable outside North Carolina, charitable contributions to donees inside NC may be deducted fully from taxable income allocated to North Carolina. Estimate ( in millions): $ 4.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: Allowing companies with income allocable outside North Carolina to receive 100% deduction for contributions to NC donees ( instead of their apportionment percentage) cost the State $ 1.7 million of the $ 4.0 million estimate. 29. Amortization of Pollution Abatement Facilities and Equipment Citation: G. S. 105- 130.10 Description: In lieu of any depreciation allowance, a corporation may opt to deduct amortization of air- cleaning devices, waste treatment facilities, recycling facilities, equipment or plant used to provide sewer service to residential and outlying areas. Estimate ( in millions): Unavailable Corporation Income Tax - 33 - 30. Amortization of Equipment Mandated by OSHA Citation: G. S. 105- 130.10A Description: In lieu of any depreciation allowance, a corporation may opt to deduct amortization of equipment mandated by the Occupational Safety and Health Act ( OSHA), including the cost of planning, acquiring, constructing, modifying, and installing said equipment. Estimate ( in millions): Unavailable Tax Credits 31. Credit for Bank Holding Companies Related to Expenses on Nontaxed Earnings Citation: G. S. 105- 130.6A( f) Description: Credit for bank holding companies of $ 2 million if they are eligible for the cap in 105- 130.6A( e). See item # 25. Estimate ( in millions): included in item # 47 32. Credit for Electric Power Holding Companies Related to Expenses on Nontaxed Earnings Citation: G. S. 105- 130.6A( g) Description: After calculating the adjustment for expenses related to dividends under G. S. 105- 130.5( c)( 3), each electric power holding company must calculate the amount of additional tax that results from the expense adjustment for the taxable year. The electric power holding company is allowed a credit for the following taxable year equal to one- half of this amount of additional tax. Estimate ( in millions): included in item # 47 33. Rental Units for Handicapped Persons Citation: G. S. 105- 130.22 Description: Credit for corporate owners of multifamily rental units for handicapped persons of $ 550 per unit constructed. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 34. Equipment for Cogenerating Power Plant Citation: G. S. 105- 130.25 Description: Credit of 10% of the costs to purchase and install electrical or mechanical equipment for a cogenerating power plant. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 34 - 35. Construction of Renewable Energy Equipment Facility Citation: G. S. 105- 130.28 Description: Credit against corporate income tax for 25% of costs of construction of a renewable energy equipment facility. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records and information from the NC Solar Center 36. Credit for Certain Real Property Donations Citation: G. S. 105- 130.34 Description: Credit of 25% for donations of real property for public beach access, public access to water or trails, fish and wildlife conservation, or other similar land conservation purposes. The credit may not exceed $ 500,000. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 37. Conservation Tillage Equipment Credit Citation: G. S. 105- 130.36 Description: Credit of 25% of the cost of conservation tillage equipment used in a farm business, including tree farming. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 38. Credit for Gleaned Crops Citation: G. S. 105- 130.37 Description: Credit of 10% of the market price of the quantity of gleaned crops for companies that allow gleaning of their crop. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 35 - 39. Credit for Low- Income Residential Telephone Service Citation: G. S. 105- 130.39 Description: Credit for corporation that provides local telephone service to low-income residential consumers at reduced rates. The credit is equal to the difference between what the companies actually charged these customers and the amount they would have charged at normal rates. Estimate ( in millions): $ 3.8 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 40. Credit for Costs at NC Ports Citation: G. S. 105- 130.41 Description: Credit for loading or unloading cargo at a State- owned port terminal at Wilmington or Morehead City. Estimate ( in millions): $ 0.4 Data Source: Department of Revenue 2003 tax records 41. Credit for S& L Supervisory Fees Citation: G. S. 105- 130.43 Description: Credit for savings and loan supervisory fees assessed by the Commissioner of Banks of the Department of Commerce. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 42. Credit for Poultry Composting Facility Citation: G. S. 105- 130.44 Description: Credit for 25% of the installation, materials and equipment costs of constructing poultry composting facility. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 36 - 43. Credit for Manufacturing Cigarettes for Exportation Citation: G. S. 105- 130.45 Description: Credit of up to $ 6,000,000 is allowed a company that exports cigarettes to a foreign country through the North Carolina State Ports. The amount of the credit depends on the volume of cigarettes exported compared to the volume in a base year. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 44. Alternative Cigarette Export Credit Citation: G. S. 105- 130.46 Description: Credit of up to $ 10,000,000 is allowed a company that exports cigarettes to a foreign country through the North Carolina State Ports. The amount of the credit depends on the employment level at the company compared to the employment level in 2004. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 45. Film Industry Production Expenses Citation: G. S. 105- 130.47 Description: A film or television production company that spends at least $ 250,000 in North Carolina on productions during the tax year is allowed a credit equal to 15% of the qualifying expenses. Estimate ( in millions): $ 5.4 Data Source: Fiscal Research Division fiscal note based on Department of Commerce data on expenses of film companies. The estimate includes individual income tax item # 25. 46. Credit for Qualified Investments Citation: G. S. 105- 163.011 Description: A tax credit is allowed to corporations investing in the equity securities of a North Carolina Enterprise Corporation, a limited partnership in which a North Carolina Enterprise Corporation is the only general partner, or a qualified investment organization. The credit is equal to 25% of the amount invested, but may not exceed $ 750,000. Unused credits may be carried forward 5 years. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: See Individual Income Tax, Item # 26. Corporation Income Tax - 37 - 47. Tax Expenditures Combined for Confidentiality Citation: G. S. 105- 129.27; G. S. 105- 129.28; G. S. 105- 130.5( b)( 13); G. S. 105- 130.5( b)( 18); G. S. 105- 130.6A( e), ( f), ( g); G. S. 105- 130.45; G. S. 105- 130.46; G. S. 105- 134.6( b)( 15) Description: All of these tax expenditures are utilized by a small enough number of taxpayers that it would compromise taxpayer confidentiality to report them separately. Estimate ( in millions): $ 100.1 Data Source: Department of Revenue Corporate Income and Franchise Tax records Note: Includes Corporate Income Tax Items 17, 21, 25, 31, 32, 43, 44; Individual Income Tax Item 10; and Tax Incentives for Recycling Facilities Items 1 and 2. Tax Incentives for New and Expanding Businesses - 38 - Tax Incentives for New and Expanding Businesses ( Article 3A) The amounts of tax expenditures in this section are based on the figures published in the 2005 William S. Lee Act report from the NC Department of Revenue. That report covers returns processed in 2004, most of which were tax year 2003 forms. 1. Credit for Creating Jobs Citation: G. S. 105- 129.8 Description: A taxpayer that meets the eligibility requirements set out in G. S. 105- 129.4, has 5 or more full- time employees, and hires an additional full- time employee to fill a new position located in this State is allowed a credit for creating a new full- time job. Estimate ( in millions): $ 10.6 Data Source: Department of Revenue NC- 478 tax credit records 2. Credit for Investing in Machinery and Equipment Citation: G. S. 105- 129.9 Description: A taxpayer that has purchased or leased eligible machinery and equipment and places them in service in this State is allowed a credit equal to the applicable percentage of the excess of the eligible investment amount over the applicable threshold. Estimate ( in millions): $ 42.9 Data Source: Department of Revenue NC- 478 tax credit records 3. Technology Commercialization Credit Citation: G. S. 105- 129.9A Description: A taxpayer may receive a 15% or 20% credit for machinery and equipment investments that are directly related to production based on technology developed by and licensed from a research university or are used to produce resources essential to the taxpayer's production based on technology developed by and licensed from a research university. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Tax Incentives for New and Expanding Businesses - 39 - 4. Research and Development Credit Citation: G. S. 105- 129.10 Description: A taxpayer that claims a federal income tax credit under Section 41( a) of the Code for increasing research activities is allowed a credit equal to either 5% of the State's apportioned share of the taxpayer's expenditures for increasing research activities or 25% of the State’s apportioned share of the federal credit. Estimate ( in millions): $ 9.5 Data Source: Department of Revenue NC- 478 tax credit records 5. Worker Training Credit Citation: G. S. 105- 129.11 Description: A taxpayer that provides worker training for 5 or more of its employees is allowed a credit equal to the wages paid to the eligible employees during the training. Estimate ( in millions): $ 1.4 Data Source: Department of Revenue NC- 478 tax credit records 6. Credit for Investing in Central Office or Aircraft Facility Property Citation: G. S. 105- 129.12 Description: If a taxpayer that has purchased or leased real property in this State begins to use the property as a central office or aircraft facility, the taxpayer is allowed a credit equal to 7% of the eligible investment amount. Estimate ( in millions): $ 1.9 Data Source: Department of Revenue NC- 478 tax credit records 7. Credit for Substantial Investment in Other Property Citation: G. S. 105- 129.12A Description: If a taxpayer that has purchased or leased real property in an enterprise tier 1 or 2 area begins to use the property in an eligible business, the taxpayer is allowed a credit equal to 30% of the eligible investment amount if all of the requirements of GS 105- 129.4 are met. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Tax Incentives for New and Expanding Businesses - 40 - 8. Credit for Development Zone Projects Citation: G. S. 105- 129.13 Description: A taxpayer who contributes cash or property to a development zone agency for an improvement project in a development zone is allowed a credit equal to 25% of the value of the contribution. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Business and Energy Tax Credits - 41 - Business and Energy Tax Credits ( Article 3B) The estimates for the following tax expenditures are based on reports produced by the NC Department of Revenue covering returns processed from April 1, 2004 through March 31, 2005, most of which were tax year 2003 forms. 1. Credit for Investing in Business Property Citation: G. S. 105- 129.16 Description: If a taxpayer that has purchased or leased business property places it in service in this State, the taxpayer is allowed a credit equal to 4.5% of the cost of the property, up to a credit of $ 4,500. This credit was repealed for activity after January 1, 2002. Estimate ( in millions): $ 24.6 Data Source: Department of Revenue records Note: The expenditure represents installments of previously- earned credits. 2. Credit for Investing in Renewable Energy Property Citation: G. S. 105- 129.16A Description: If a taxpayer that has constructed, purchased, or leased renewable energy property places it in service in this State, the taxpayer is allowed a credit equal to 35% of the cost of the property. Estimate ( in millions): $ 2.0 - $ 5.0 Data Source: Department of Revenue records 3. Credit for Investing in Dry- Cleaning Equipment That Does Not Use a Hazardous Substance Citation: G. S. 105- 129.16C Description: If a taxpayer that has purchased or leased qualified dry- cleaning equipment places it in service in this State for commercial purposes, the taxpayer is allowed a credit equal to 20% of the cost of the equipment. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue records Business and Energy Tax Credits - 42 - 4. Credit for Constructing Renewable Fuel Facilities Citation: G. S. 105- 129.16D Description: A taxpayer that constructs and installs and places in service in this State a qualified commercial facility for dispensing renewable fuel is allowed a credit equal to 15% of the cost to the taxpayer of constructing and installing the part of the dispensing facility, including pumps, storage tanks, and related equipment, that is directly and exclusively used for dispensing or storing renewable fuel. The credit must be taken in 3 annual installments. Estimate ( in millions): 0.0 Data Source: Department of Revenue records; NC Legislative Fiscal Note for HB 1636 ( 2003- 04 session) Tax Incentives for Recycling Facilities - 43 - Tax Incentives for Recycling Facilities ( Article 3C) Data for the estimates in this section were derived from evaluation of 2001 C-Corporation and S- Corporation tax returns. 1. Credit for Investing in Large or Major Recycling Facility Citation: G. S. 105- 129.27 Description: An owner that purchases or leases machinery and equipment for a major recycling facility in this State is allowed a credit equal to 50% of the amount payable by the owner during the taxable year to purchase or lease the machinery and equipment. Estimate ( in millions): included in item # 47 of Corporate Income Tax list Data Source: Department of Revenue 2002 and 2003 records 2. Credit for Reinvestment Citation: G. S. 105- 129.28 Description: A major recycling facility that is accessible by neither ocean barge nor ship and that transports materials to the facility or products away from the facility is allowed a credit against the income tax equal to its additional transportation and transloading expenses incurred due to its inability to use ocean barges or ships. The credit is capped at $ 10.4 million for 2004 and is refundable. Estimate ( in millions): included in item # 47 of Corporate Income Tax list Data Source: Department of Revenue 2003 records Historic Rehabilitation Tax Credits - 44 - Historic Rehabilitation Tax Credits ( Article 3D) Data for the estimates in this section were derived from evaluation of 2001 C-Corporation and S- Corporation tax returns, in addition to 2003 Individual income tax returns. 1. Credit for Rehabilitating Income- Producing Historic Structure Citation: G. S. 105- 129.35 Description: A taxpayer who is allowed a federal income tax credit under Section 47 of the Code for making qualified rehabilitation expenditures for a certified historic structure located in this State is allowed a credit equal to 20% of the expenditures that qualify for the federal credit. Estimate ( in millions): $ 4.0 Data Source: Department of Revenue records 2. Credit for Rehabilitating Nonincome- Producing Historic Structure Citation: G. S. 105- 129.36 Description: A taxpayer who is not allowed a federal income tax credit under Section 47 of the Code and who makes rehabilitation expenses for a State-certified historic structure located in this State is allowed a credit equal to 30% of the rehabilitation expenses. To qualify for the credit, the taxpayer's expenses must exceed $ 25,000 within a 24- month period. Estimate ( in millions): $ 7.0 Data Source: Department of Revenue records Low- Income Housing Tax Credits - 45 - Low- Income Housing Tax Credits ( Article 3E) The amounts of credits taken come from reports produced by the NC Department of Revenue 1. Credit for Low- Income Housing Awarded a Federal Credit Allocation before Jan. 1, 2003 Citation: G. S. 105- 129.41 Description: A taxpayer that is allowed a federal income tax credit for low- income housing under Section 42 of the Code with respect to a qualified North Carolina low- income building is allowed a credit equal to a percentage of the federal credit. Estimate ( in millions): included in next item 2. Credit for Low- Income Housing Awarded on or after Jan. 1, 2003 Citation: G. S. 105- 129.42 Description: A taxpayer that is allowed a federal income tax credit for low- income housing under Section 42 of the Code to construct or substantially rehabilitate a qualified North Carolina low- income housing development is allowed a credit equal to a percentage of the development's qualified basis. Estimate ( in millions): $ 47.1 Data Source: Department of Revenue records Research and Development Tax Credits - 46 - Research and Development Tax Credits ( Article 3F) 1. Credit for North Carolina Research and Development Citation: G. S. 105- 129.55( a) Description: A taxpayer thas has qualified North Carolina research expenses for the taxable year is allowed a credit equal to a percentage of the expenses, determined by the following criteria: ( 1) if the taxpayer is a small business, the applicable percentage is 3%; ( 2) for expenses with respect to research performed in an enterprise tier one, two, or three area, the percentage is 3%; ( 3) for expenses not covered under ( 1) or ( 2), the credit is 1% of expenses up to $ 50 million, 2% of additional expenses up to $ 200 million, and 3% of additional expenses above $ 200 million. Estimate ( in millions): $ 12.5 Data Source: NC Legislative Fiscal Note for HB 1631 or SB 1115 ( 2003- 04 Session) Note: This credit is effective for business activities occurring on or after May 1, 2005. The estimate is based on the expected amount if the credit had been in effect in 2004. This credit is a close substitute for Item # 4 under “ Tax Incentives for New and Expanding Businesses,” and it is likely that some taxpayers that are currently taking that credit would prefer to switch to this one. However, the estimate above does not reflect any substitution away from the other credit. 2. Credit for NC University Research Expenses Citation: G. S. 105- 129.55( b) Description: A taxpayer that has NC university research expenses for the taxable year is allowed a credit equal to 15% of the expenses. Estimate ( in millions): included in item # 1 Note: This credit is effective for business activities occurring on or after May 1, 2005. Tax Credit for Computer Manufacturing Facilities - 47 - Tax Incentives for Major Computer Manufacturing Facilities ( Article 3G) 1. Tax Incentives for Major Computer Manufacturing Facilities Citation: G. S. 105- 129.64 Description: A taxpayer that is expected to add at least 1,200 employees within five years to a computer manufacturing and distribution facility and invests, directly or indirectly, $ 100 million in constructing the facility is eligible for a credit against its franchise and income taxes. The credit is $ 10 million for 2005. For taxable years beginning in 2006, the amount of the credit is determined based on the levels of employment and production at the facility. Estimate ( in millions): 0.0 Data Source: NC Legislative Fiscal Note for SB 2 ( 2004 Extra Session) Note: This credit is effective for tax years beginning on or after January 1, 2005. The estimate is based on the expected amount if the credit had been in effect in 2004. The Legislature’s Fiscal Note estimated a $ 10 million cost for 2005. Individual Income Tax - 48 - Individual Income Tax ( Article 4, Part 2) Brief Description and Tax Base Information The individual income tax is the largest component of the State’s general revenues. In fiscal year 2004- 05, the State collected over $ 8.4 billion from this tax. There are currently four marginal tax rates: 6%, 7%, 7.75% and 8.25%. The highest tax rate is scheduled to expire beginning with the 2008 tax year. Tax brackets vary by marital status and by whether an individual is either ( 1) the head of a household, ( 2) elderly, or ( 3) blind. The base of the individual income tax is federal taxable income. This implies that all federal tax deductions are passed on to the state. However, certain provisions have been “ decoupled” from the federal Code. Specifically, the amounts of the personal deduction and exemptions allowable on North Carolina income are not adjusted for inflation, unlike the federal levels. In addition, there are different provisions for deductions for accelerated depreciation for the years 2002- 2004. Deductions and tax credits estimated in this report reduced North Carolina personal income taxes by $ 780 million in 2004. This does not include the tax deductions available via the federal Code, such as the standard deduction and personal exemptions, deductions for mortgage interest payments, charitable deductions for itemizers, etc. Individual Income Tax - 49 - Table 5 2004 NC Individual Income Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 158 Certain Individuals upon Death less than 0.1 2 134.6( b)( 1) US and NC Obligation Interest 13.4 3 134.6( b)( 2) Disposition of Certain Obligations 0.1 4 134.6( b)( 3) Social Security Benefits in Excess of Federal Limit 179.4 5 134.6( b)( 5b) Government Retirement Income under Bailey Settlement 246.0 6 134.6( b)( 6) Private Retirement Plans and Government Pensions 68.8 7 134.6( b)( 10) Basis Adjustment for Disposed Property Unavailable 8 134.6( b)( 11) Severance Wages 9.7 9 134.6( b)( 14) Erroneous Conviction and Imprisonment less than 0.1 10 134.6( b)( 15) Interest Earned on Certain Trusts included in corporate income tax item # 47 11 134.6( b)( 16) Hurricane Floyd Reserve Fund less than 0.1 12 134.6( b)( 18) Disaster Relief Reserve Payments included in corporate income tax item # 23 13 134.7( a)( 4) Net Economic Losses $ 3.0 to $ 5.0 14 151.1 Construction of Dwellings for Handicapped Persons 0.1 15 151.11 Credit for Child Care and Certain Employment- Related Expenses 41.2 Individual Income Tax - 50 - Item Citation Short Title 2004 Estimate ( millions of dollars) 16 151.12 Credit for Certain Real Property Donations 15.6 17 151.13 Credit for Conservation Tillage Equipment less than 0.1 18 151.14 Credit for Gleaned Crops 0.1 19 151.18 Credit for the Disabled 0.7 20 151.21 Credit for Property Taxes Paid on Farm Machinery 1.5 21 151.22 Use of North Carolina Ports less than 0.1 22 151.24 Credit for Children 134.3 23 151.25 Construction of Poultry Composting Facility less than 0.1 24 151.26 Charitable Contributions by Nonitemizers 23.1 25 151.29 Film Industry Production Expenses included in corporate income tax item # 45 26 163.011 Investments in Qualified Businesses 6.0 27 Carry- Over Provisions 21.0 Individual Income Tax - 51 - Exemptions 1. Certain Individuals upon Death Citation: G. S. 105- 158 Description: Certain armed forces personnel and other individuals are exempted from taxation on all income for the year in which they died. Estimate ( in millions): less than $ 0.1 Data Source: Number of military deaths from Department of Defense Deductions 2. US and NC Obligation Interest Citation: G. S. 105- 134.6( b)( 1) Description: Deduction for interest on obligations of US, North Carolina, and nonprofit educational institutions. Estimate ( in millions): $ 13.4 Data Source: Department of Revenue 2003 Individual Income Tax records Note: Although not separately stated, the deductible amount for interest on State and local obligations would likely be less than $ 1 million. 3. Disposition of Certain Obligations Citation: G. S. 105- 134.6( b)( 2) Description: Deduction for gain from disposition of obligations issued before July 1, 1995, to the extent exempt from tax. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2003 Individual Income Tax records 4. Social Security Benefits in Excess of Federal Limit Citation: G. S. 105- 134.6( b)( 3) Description: Deduction for benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937. Estimate ( in millions): $ 179.4 Data Source: Department of Revenue 2003 Individual Income Tax records Individual Income Tax - 52 - 5. Government Retirement Income under Bailey Settlement Citation: G. S. 105- 134.6( b)( 5b) Description: Exemption for State, local or federal government retirement plans to the extent the amount is exempt pursuant to a court order in settlement of Bailey v. State and Patton v. State. Estimate ( in millions): $ 246.0 Data Source: Department of Revenue 2003 Individual Income Tax records 6. Private Retirement Plans and Government Pensions Citation: G. S. 105- 134.6( b)( 6) Description: Deduction for private retirement plans up to $ 2,000 or a State, local or federal government pension up to $ 4,000. Estimate ( in millions): $ 68.8 Data Source: Department of Revenue 2003 Individual Income Tax records 7. Basis Adjustment for Disposed Property Citation: G. S. 105- 134.6( b)( 10) Description: Deduction for the amount that the basis of property disposed of exceeds the federal basis. Estimate ( in millions): Unavailable 8. Severance Wages Citation: G. S. 105- 134.6( b)( 11) Description: Deduction for severance wages received from an employer as the result of the taxpayer's permanent termination from employment through no fault of the employee. The amount of wages deducted may not exceed $ 35,000. Estimate ( in millions): $ 9.7 Data Source: Department of Revenue 2002 Individual Income Tax records and NC Employment Security Commission data on unemployment insurance claims through 2004 Individual Income Tax - 53 - 9. Erroneous Conviction and Imprisonment Citation: G. S. 105- 134.6( b)( 14) Description: Deduction for the amount paid to the taxpayer under G. S. 148- 84 for erroneous conviction and imprisonment. Estimate ( in millions): less than $ 0.1 Data Source: Industrial Commission of the North Carolina Department of Commerce 10. Interest Earned on Certain Trusts Citation: G. S. 105- 134.6( b)( 15) Description: Deduction for interest earned on a trust established by two or more manufacturers to pay for damages. Estimate ( in millions): included in Corporation Income Tax item # 47 Data Source: Department of Revenue 2003 Individual Income Tax records 11. Hurricane Floyd Reserve Fund Citation: G. S. 105- 134.6( b)( 16) Description: Deduction for amount paid from Hurricane Floyd Reserve Fund. Estimate ( in millions): less than $ 0.1 12. Disaster Relief Reserve Payments Citation: G. S. 105- 134.6( b)( 18) Description: Deduction for amounts paid to taxpayers for hurricane relief from the Disaster Relief Reserve Fund, not to include amounts paid for goods and services provided by taxpayer. Estimate ( in millions): included in Corporate Income Tax item # 23 Data Source: Fiscal Research Division fiscal note. The estimate is based on expected payments to compensate for lost crop income. 13. Net Economic Losses Citation: G. S. 105- 134.7( a)( 4) Description: Deductions for net economic losses in last 5 years, arising from business transactions, business capital, or business property. Estimate ( in millions): $ 3.0 to $ 5.0 Data Source: Department of Revenue 2003 Individual Income Tax records Individual Income Tax - 54 - Tax Credits 14. Construction of Dwellings for Handicapped Persons Citation: G. S. 105- 151.1 Description: An owner of multifamily rental units located in this State is allowed a credit against income tax equal to $ 550 for each dwelling unit constructed that conforms to Volume I- C of the NC Building Code. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 15. Credit for Child Care and Certain Employment- Related Expenses Citation: G. S. 105- 151.11 Description: A person who is allowed a credit against federal income tax for a percentage of employment- related expenses under Section 21 of the Code shall be allowed a proportional credit on State income taxes. The amount of expenses for which a credit is claimed may not exceed $ 2,400 for one qualifying household member or $ 4,800 for multiple qualifying members. Estimate ( in millions): $ 41.2 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 16. Credit for Certain Real Property Donations Citation: G. S. 105- 151.12 Description: Credit of 25% for donations of real property for public beach access, public access to water or trails, fish and wildlife conservation, or other similar land conservation purposes. The credit may not exceed $ 250,000. Estimate ( in millions): $ 15.6 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 17. Credit for Conservation Tillage Equipment Citation: G. S. 105- 151.13 Description: Credit for conservation tillage equipment. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Individual Income Tax - 55 - 18. Credit for Gleaned Crops Citation: G. S. 105- 151.14 Description: A credit of 10% of the market price of unharvested crops donated by the grower to a qualified organization. Any unused credit may be carried forward for the succeeding five years. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 19. Credit for the Disabled Citation: G. S. 105- 151.18 Description: A taxpayer who ( 1) is retired on disability, ( 2) at the time of retirement was totally and permanently disabled, and ( 3) claims a federal income tax credit for the elderly and disabaled for the taxable year is allowed a credit equal to 1/ 3 of the amount of the federal credit. A credit is also available for a disabled dependent. Estimate ( in millions): $ 0.7 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 20. Credit for Property Taxes Paid on Farm Machinery Citation: G. S. 105- 151.21 Description: A credit is allowed to individual farmers and individual shareholders of S Corporations engaged in farming equal to the amount of property taxes paid on farm machinery, or attachments and repair parts for farm machinery. This credit is not to exceed $ 1,000 and may not be carried forward. Estimate ( in millions): $ 1.5 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 21. Use of North Carolina Ports Citation: G. S. 105- 151.22 Description: A credit is allowed to individuals utilizing North Carolina ports in either Wilmington or Morehead City equal to the excess of current year charges paid on exported, processed cargo over the average of the current year and the two previous years. This credit may not exceed 50% of tax due less all other credits. The cumulative amount of credit cannot exceed $ 100,000. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2003 tax records Individual Income Tax - 56 - 22. Credit for Children Citation: G. S. 105- 151.24 Description: An individual who is allowed a federal child tax credit under Section 24 of the Code and whose adjusted gross income ( AGI) is less than a specified amount is allowed a credit of $ 100 for each dependent child. The credit cannot exceed the individual's tax liability for the year reduced by all other credits. Estimate ( in millions): $ 134.3 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Note: The credit prior to January 1, 2004 was $ 75 per dependent. 23. Construction of Poultry Composting Facility Citation: G. S. 105- 151.25 Description: A taxpayer who constructs in this State a poultry composting facility is allowed a credit of 25% of the installation, materials, and equipment costs of construction paid during the year. This credit may not exceed $ 1,000 for any single installation. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2003 tax records 24. Charitable Contributions by Nonitemizers Citation: G. S. 105- 151.26 Description: A taxpayer who elects the standard deduction on their Federal income tax is allowed a credit of 7% of the taxpayer's excess charitable contributions. Excess contributions are those over 2% of the taxpayer's federal adjusted gross income. Estimate ( in millions): $ 23.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 25. Film Industry Production Credits Citation: G. S. 105- 151.29 Description: A film or television production company that spends at least $ 250,000 in North Carolina on productions during the tax year is allowed a credit equal to 15% of qualifying expenses. Estimate ( in millions): included in Corporate Income Tax item # 45 Data Source: Fiscal Research Division fiscal note. The estimate is based on Department of Commerce data on expenses of productions in North Carolina. Individual Income Tax - 57 - 26. Investments in Qualified Businesses Citation: G. S. 105- 163.011 Description: A credit is allowed to individuals investing in the equity securities or subordinated debt of a North Carolina Enterprise Corporation, a limited partnership in which a North Carolina Enterprise Corporation is the only general partner, a qualified business venture, a qualified grantee business, or a qualified investment organization, equal to 25% of the amount invested or $ 50,000, whichever is less. Unused credits may be carried forward for five years. The total amount of all tax credits allowed to taxpayers may not exceed $ 7,000,000. Estimate ( in millions): $ 6.0 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Note: The cap on total tax credits claimed for investments made prior to 2004 was $ 6,000,000. Individual Income Tax - 58 - Table 6 Carry- Over Provisions for NC Individual Income Tax Description of tax credit Length of carry forwards Other conditions Credit for construction of dwelling units for handicapped persons 1 year Credit for child care and certain employment- related expenses none Credit for certain real property donations 5 years Credit for conservation tillage equipment 5 years Credit for gleaned crops 5 years Credit for the disabled none Credit or partial refund for tax paid on certain federal retirement benefits 2 years Credit for property taxes paid on farm machinery none Maximum credit = $ 1,000 Credit for North Carolina State Ports Authority 5 years Cannot exceed 50% of tax liability; maximum=$ 2 million Credit for children none Credit for construction of a poultry composting facility none Maximum=$ 1,000 per facility Credit for charitable contributions by non- itemizers none 27. Carry- Over Provisions Description: Various individual income tax credits may be carried forward. Estimate ( in millions): $ 21.0 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Sales and Use Tax - 59 - Sales and Use Tax ( Article 5) Tax Base Information The sales tax in North Carolina is imposed on retail sales ( including the value of leases and rentals) of tangible property occurring in the State and the use tax is imposed on purchases made outside the State if the property purchased is used in the State. Currently, the sales tax is 4 ½ %. Local governments are allowed to add 2 ½ % to the tax. Mecklenburg County has an additional ½ % tax. In addition to retail sales, the sales and use tax is imposed on several services, such as accommodation rentals and laundry and dry cleaning services. Telecommunications services are taxed at 6% until November 2005 and 7% thereafter. All these funds are paid to the State. However, the Department of Revenue must distribute 18.26% of the taxes collected to local governments each quarter, less $ 2,620,948. After January 1, 2006, the reimbursement rate to local governments changes to 18.03%. ( See G. S. 105- 164.44F.) Satellite services are taxed at 5% until November 2005 and 7% thereafter. The sales tax rate on spirituous liquor is 7% as of October 1, 2005. For Fiscal Year 2004- 05, sales and use tax receipts for the State ( excluding local receipts) were approximately $ 4.6 billion. Sales and Use Tax - 60 - Table 7 2004 NC Sales and Use Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 164.4C( c)( 5) Pay Telephone Services less than 0.1 2 164.4C( c)( 7) One- Way Paging Services 4.8 3 164.4C( c)( 8) Telephone Charges by a Hotel or Motel 1.2 4 164.4C( c)( 9) Sales, Installation, Repair of Telecommunications Property 19.7 5 164.4C( c)( 10) Directory and Yellow- Page Advertising 1.9 6 164.4C( c)( 12) Information Services 26.1 7 164.4C( c)( 13) Internet Access Charges 53.5 8 164.4C( c)( 16) Charges Related to NC Information Highway and Other Government Data Networks 1.0 9 164.4C( f) Out- of- State Call Centers 14.1 10 164.13( 1) and ( 1a) Items Sold to Farmers 51.1 11 164.13( 2a) a Feeds, Litter and Medications for Farming 128.0 12 164.13( 2a) b Pesticides, Rodenticides and Related Products for Farming 10.7 13 164.13( 2a) c Defoliants for Commercial Use included in item # 12 14 164.13( 2a) d Plant Growth Inhibitors included in item # 12 15 164.13( 2a) e Semen for Artificial Insemination less than 0.1 Sales and Use Tax - 61 - Item Citation Short Title 2004 Estimate ( millions of dollars) 16 164.13( 3) Certain Products of Forests and Mines by Producers Unavailable 17 164.13( 4b) Farm Products Requiring Ice Preservation For Further Sale Unavailable 18 164.13( 4c) a Manufactured Facilities for Commercial Housing of Animals Unavailable 19 164.13( 4c) b and c Building Materials and Equipment for Animal Enclosures and Housing Unavailable 20 164.13( 4d) Tobacco Farming Items less than 0.1 21 164.13( 4e) Grain, Feed, or Soybean Storage Facilities Unavailable 22 164.13( 5b) Telephone Equipment 2.8 23 164.13( 5c) Radio and Television Broadcast Equipment 1.3 24 164.13( 5d) Cable Service Broadcast Equipment Unavailable 25 164.13( 7) Aquacultural Products in Raw State Unavailable 26 164.13( 9) Tangible Property Purchased for Commercial Fishing 1.5 27 164.13( 10) Items Used by Laundries and Dry Cleaning Businesses 1.0 28 164.13( 10a) a and b Lubricants Used by Major Recycling Facility Unavailable 29 164.13( 10a) c Electricity Used by Major Recycling Facility Unavailable 30 164.13( 11a) Diesel Fuel for Railroads Unavailable Sales and Use Tax - 62 - Item Citation Short Title 2004 Estimate ( millions of dollars) 31 164.13( 12) Durable Medical Equipment 30.0 32 164.13( 13) Prescription Drugs and Insulin 242.0 33 164.13( 13c) Chiropractors' Nutritional Supplements 0.2 34 164.13( 14) Public School Books 2.6 35 164.13( 15) Accounts of Sales Charged Off for Income Purposes Unavailable 36 164.13( 20) Sales by Blind Merchants 0.5 37 164.13( 21) Lease or Rental of Films for Exhibition 2.8 38 164.13( 22) Lease or Rental of Films, Transcriptions and Recordings to Broadcasters Unavailable 39 164.13( 22a) Audiovisual Masters 0.2 40 164.13( 23) a Packaging Items for Manufacturers, Producers and Retailers 52.8 41 164.13( 23) b Packaging Returned to Seller 0.1 42 164.13( 26) Food Sold by a Public or Private School Cafeteria 11.1 43 105.164.13( 26a) Food Sold by a Public School Cafeteria to Certain Child Care Centers included in item # 42 44 164.13( 27) Food Sold in Dining Rooms Operated by Educational Institutions 22.0 45 164.13( 28) Certain Sales of Newspapers 11.8 Sales and Use Tax - 63 - Item Citation Short Title 2004 Estimate ( millions of dollars) 46 164.13( 30) Vending Machine One- Cent Sales less than 0.1 47 164.13( 31) Meals for the Elderly less than 0.1 48 164.13( 31a) Food Sold by a Church or Religious Organization Unavailable 49 164.13( 34) Sales by Nonprofits Whose Proceeds Go to the State Unavailable 50 164.13( 35) Sales by Nonprofits Conducted Annually 1.0 51 164.13( 36) Advertising Supplements Sold with Newspapers 4.0 52 164.13( 38) Food Stamp Purchases 33.1 53 164.13( 39) Components of Free Distribution Periodicals 19.4 54 164.13( 41) Mobile Classrooms Purchased by Boards of Education or Community Colleges 0.5 55 164.13( 43) Custom Computer Software 5.0 56 164.13( 43a) Software Delivered Electronically Unavailable 57 164.13( 45) Items Purchased by Interstate Air Carriers included in item # 58 58 164.13( 45a) Lubricants Used in Maintenance of Commercial Aircraft 4.0 59 164.13( 45b) Items Purchased by Interstate Air Couriers Unavailable 60 164.13( 46) Electricity to Municipalities Supplied by Federal Agency Unavailable 61 164.13( 49a) Delivery Charges of Direct Mail 0.3 Sales and Use Tax - 64 - Item Citation Short Title 2004 Estimate ( millions of dollars) 62 164.13( 50) Goods Sold Through Vending Machines 4.5 63 164.13( 51) Water Delivered Through Main Pipes 43.5 64 164.13A Tips on Meals and Beverages 29.7 65 164.13B Food Exemption 416.8 66 164.13C Sales and Use Tax Holiday 11.0 67 164.14( a1) Cap on Tax of Aviation Fuel for Interstate Air Carriers 5.0 68 164.14( b) Refund of Sales Taxes to Nonprofits 183.0 69 164.14( c) Refund of Sales Taxes to Local Government 62.5 70 164.14( k) Motor Sports Events Refunds Unavailable 71 164.4( a)( 1a) Manufactured Homes 23.7 72 164.4( a)( 8) Modular Homes 6.6 73 164.4( a)( 1b) Aircraft and Boats 12.7 74 164.4( 1f) Electricity to Farmers, Manufacturers and Commercial Laundries 20.6 75 164.4( 1h) Electricity to Aluminum Smelting Facility 0.0 76 164.4( 4a) Electricity to Commercial Businesses and Residences 107.1 77 164.21B Credit for Local Cable Television Franchise Taxes 65.3 Sales and Use Tax - 65 - Exemptions 1. Pay Telephone Services Citation: G. S. 105- 164.4C( c)( 5) Description: Receipts of a pay telephone provider from the sale of pay telephone services. Estimate ( in millions): less than $ 0.1 Note: Volume of sales is not likely to exceed the level for a tax revenue loss of $ 100,00 or more. 2. One- Way Paging Services Citation: G. S. 105- 164.4C( c)( 7) Description: Paging service, unless the service provides two- way communication. Estimate ( in millions): $ 4.8 Data Source: 2002 Economic Census data for telecommunications Note: The estimate has been adjusted to take into account the tax rates on telecommuncations that apply after January 1, 2006. Consequently, the estimate uses an effective State tax rate of 5.74% ( that is, the 7% rate less the 18.03% share distributed to the local governments). 3. Telephone Charges by a Hotel or Motel Citation: G. S. 105- 164.4C( c)( 8) Description: Charges for telephone service made by a hotel, motel, or another entity whose gross receipts are taxable under G. S. 105- 164.4( a)( 3) when the charges are incidental to the occupancy of the entity's accomodations. Estimate ( in millions): $ 1.2 Data Source: 2002 Economic Census data for accomodations Note: See the note on Item # 2. 4. Sales, Installation, Repair of Telecommunications Property Citation: G. S. 105- 164.4C( c)( 9) Description: Receipts from the sale, installation, maintenance or repair of tangible personal property. Estimate ( in millions): $ 19.7 Data Source: 2002 Economic Census data for telecommunications Note: See the note on Item # 2. Sales and Use Tax - 66 - 5. Directory and Yellow- Page Advertising Citation: G. S. 105- 164.4C( c)( 10) Description: Directory advertising and yellow- page classified listings. Estimate ( in millions): $ 1.9 Data Source: 2003 Economic Census data for telecommunications Note: See the note on Item # 2. 6. Information Services Citation: G. S. 105- 164.4C( c)( 12) Description: An information service is a service that can generate, acquire, store, transform, process, retrieve, use, or make available information through a communications service. Estimate ( in millions): $ 26.1 Data Source: 2002 Economic Census data for telecommuncations and internet service providers Note: Includes data transmission services, data storage services and data management services. See the note on Item # 2. 7. Internet Access Charges Citation: G. S. 105- 164.4C( c)( 13) Description: Internet access service, electronic mail service, electronic bulletin board service, or similar on- line services. Estimate ( in millions): $ 53.5 Data Source: 2002 Economic Census data for internet service providers Note: Includes web hosting services. See the note on Item # 2. 8. Charges Related to NC Information Highway and Other Government Data Networks Citation: G. S. 105- 164.4C( c)( 16) Description: Charges to a State agency or to a local unit of government for the North Carolina Information Highway and other data networks owned or leased by the State or unit of local government. Estimate ( in millions): $ 1.0 Data Source: ITS telecommunications revenues in 2003- 05 Certified Budget, Office of State Budget and Management; State Controller’s 2004 IT report Sales and Use Tax - 67 - 9. Out- of- State Call Centers Citation: G. S. 105- 164.4C( f) Description: The gross receipts tax on telecommunications service that originates outside this State, terminates in this State, and is provided by a call center that has a direct pay permit many not exceed $ 50,000. Estimate ( in millions): $ 14.1 Data Source: 1997 and 2002 Economic Census data for Telephone Call Centers, US Census Bureau Note: The cap effectively eliminates taxes on company revenues over $ 833,333. See the note on Item # 2. 10. Items Sold to Farmers Citation: G. S. 105- 164.13( 1) and ( 1a) Description: Various items sold for agricultural purposes: ( a) commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, potting soil, and seeds ( b) farm machinery, attachment and repair parts for farm machinery, and lubricants applied to farm machinery, ( c) horse or mule, ( d) fuel other than electricity, ( e) containers sold to a farmer used to transport or package products. Estimate ( in millions): $ 51.1 Data Source: Department of Revenue sales tax records; North Carolina Department of Agriculture and Consumer Services ( NCDACS); 2002 Economic Census; USDA Economic Research Service 11. Feeds, Litter and Medications for Farming Citation: G. S. 105- 164.13( 2a) a Description: Remedies, vaccines, medications, litter materials, and feeds for animals raised for commercial purposes. Estimate ( in millions): $ 128.0 Data Source: National Agriculture Statistics Service ( NSS), USDA; North Carolina Department of Agriculture and Consumer Services ( NCDACS) 12. Pesticides, Rodenticides and Related Products for Farming Citation: G. S. 105- 164.13( 2a) b Description: Rodenticides, insecticides, herbicides, fungicides and pesticides for use on plants grown for commercial purposes. Estimate ( in millions): $ 10.7 Data Source: National Agriculture Statistics Service ( NSS), USDA; North Carolina Department of Agriculture and Consumer Services ( NCDACS) Note: Includes Items # 13 and 14. Sales and Use Tax - 68 - 13. Defoliants for Commercial Use Citation: G. S. 105- 164.13( 2a) c Description: Defoliants for use on cotton or other crops grown from commercial purposes. Estimate ( in millions): included in item # 12 14. Plant Growth Inhibitors Citation: G. S. 105- 164.13( 2a) d Description: Plant growth inhibitors, regulators, or stimulators, including systemic and contact or other sucker control agents for tobacco and other crops grown for commercial purposes. Estimate ( in millions): included in item # 12 15. Semen for Artificial Insemination Citation: G. S. 105- 164.13( 2a) e Description: Sale of semen for artificial insemination. Estimate ( in millions): less than $ 0.1 Note: Although no direct information on semen sales were found, North Carolina is not a major cattle or dairy producer; the cost of artificial insemination of poultry and hogs is not likely to be large. Comparable estimates from other states were used to support estimate. 16. Certain Products of Forests and Mines by Producers Citation: G. S. 105- 164.13( 3) Description: Exemption for sales of products of forests and mines in their original or non- manufactured state when such sales are made by the producer in the capacity of producer. Estimate ( in millions): Unavailable Note: Although a portion of sales of these products will undergo further processing or be sold for resale, a sizable amount of goods will be sold at retail by the producer, especially products of the mine such as gravel sold to road contractors. Sales and Use Tax - 69 - 17. Farm Products Requiring Ice Preservation For Further Sale Citation: G. S. 105- 164.13( 4b) Description: Exemption for sales of products of a farm sold in their original state by the producer of the products if the producer is not primarily a retail merchant and ice is used to preserve agriculture, aquaculture and commercial fishery products until the products are sold at retail. Estimate ( in millions): Unavailable Note: No information on direct retail sales by farmers for this category was available. 18. Manufactured Facilities for Commercial Housing of Animals Citation: G. S. 105- 164.13( 4c) a Description: Sales of commercially manufactured facilities for commercial purposes in housing, raising or feeding animals or for housing related equipment. Estimate ( in millions): Unavailable 19. Building Materials and Equipment for Animal Enclosures and Housing Citation: G. S. 105- 164.13( 4c) b and c Description: Buildings, materials, supplies, fixtures, and equipment that become a part of and are used in the construction, repair, or improvement of an enclosure or a structure as specified in this subsection. Commercially manufactured equipment, and parts and accessories for the equipment, used in a facility that is exempt from tax in this subsection. Estimate ( in millions): Unavailable 20. Tobacco Farming Items Citation: G. S. 105- 164.13( 4d) and ( 4e) Description: ( a) lease or rental of tobacco sheets used in handling tobacco in the warehouse and transporting tobacco to and from the warehouse, ( b) metal flue sold for use in curing tobacco, whether the flue is attached to a handfired furnace or used in connection with a mechanical burner, ( c) bulk tobacco barn or rack, parts and accessories attached to the tobacco barn or rack, and any similar apparatus, part or accessory used to cure or dry tobacco or another crop, ( 4e) a grain, feed, or soybean storage facility, and parts and accessories attached to the facility. Estimate ( in millions): less than $ 0.1 Note: Volume is not likely to exceed the level for a loss of $ 100,000 or more. Sales and Use Tax - 70 - 21. Grain, Feed, and Soybean Storage Facilities Citation: G. S. 105- 164.13( 4e) Description: Sales of grain, feed, or soybean storage facilities and attached parts and accessories. Estimate ( in millions): Unavailable 22. Telephone Equipment Citation: G. S. 105- 164.13( 5b) Description: Sales to a telephone company of central office equipment, private branch exchange equipment, terminal equipment ( other than public pay telephone), switchboard equipment, and attached parts and accessories. Estimate ( in millions): $ 2.8 Data Source: Department of Revenue sales tax records; 2002 Economic Census 23. Radio and Television Broadcast Equipment Citation: G. S. 105- 164.13( 5c) Description: Sales of towers, broadcasting equipment, and attached parts and accessories to an FCC- licensed radio or television company. Estimate ( in millions): $ 1.3 Data Source: Department of Revenue sales tax records; 2002 Economic Census 24. Cable Service Broadcast Equipment Citation: G. S. 105- 164.13( 5d) Description: Sales of broadcasting equipment and attached parts and accessories, excluding cable, to a cable service provider. Estimate ( in millions): Unavailable 25. Aquacultural Products in Raw State Description: Exemption for sales of products of waters in their original or non-manufactured state when such sales are made by the producer in the capacity of producer. Fish and seafoods are likewise exempt when sold by the fisherman in that capacity. Citation: G. S. 105- 164.13( 7) Estimate ( in millions): Unavailable Note: No information on direct retail sales by producers for this category was available. Sales and Use Tax - 71 - 26. Tangible Property Purchased for Commercial Fishing Citation: G. S. 105- 164.13( 9) Description: Sales of boats, fuel oil, lubricating oils, machinery, equipment, nets rigging, paints, parts, accessories, and supplies used in commercial fishing. Estimate ( in millions): $ 1.5 Data Source: NC Fisheries Association, NC Division of Marine Fisheries; sample of NC corporate income tax returns 27. Items Used by Laundries and Dry- Cleaning Businesses Citation: G. S. 105- 164.13( 10) Description: Sales to commercial laundries or to pressing and dry- cleaning establishments of articles or materials used for the identification of garments being laundered or dry- cleaned, wrapping paper, bags, hangers, starch, soaps, detergents, cleaning fluids and other compounds or chemicals applied directly to the garments. Estimate ( in millions): $ 1.0 Data Source: 2002 Economic Census, US Census Bureau; sample of NC corporate income tax returns 28. Lubricants Used by Major Recycling Facility Citation: G. S. 105- 164.13( 10a) a and b Description: Sales to major recycling facility of lubricants and other additives for motor vehicles or machinery and supplies used at the facility and accessories. Estimate ( in millions): Unavailable 29. Electricity Used by Major Recycling Facility Citation: G. S. 105- 164.13( 10a) c Description: Sales to a major recycling facility of electricity used at the facility. Estimate ( in millions): Unavailable 30. Diesel Fuel for Railroads Citation: G. S. 105- 164.13( 11a) Description: Diesel fuel for railroad companies for use in rolling stock other than motor vehicles. Estimate ( in millions): Unavailable Sales and Use Tax - 72 - 31. Durable Medical Equipment Citation: G. S. 105- 164.13( 12) Description: Sales of prosthetic devices, mobility- enhancing equipment sold on a prescription, durable medical equipment sold on prescription, durable medical supplies sold on prescription. Estimate ( in millions): $ 30.0 Data Source: Centers for Medicare & Medicaid Services, US Department of Health and Human Services ( www. cms. gov) 32. Prescription Drugs and Insulin Citation: G. S. 105- 164.13( 13) Description: Drugs required by federal law to be dispensed only on prescription, over- the- counter drugs sold on prescription, insulin. Estimate ( in millions): $ 242.0 Data Source: Centers for Medicare & Medicaid Services, US Department of Health and Human Services ( www. cms. gov) 33. Chiropractors' Nutritional Supplements Citation: G. S. 105- 164.13( 13c) Description: Nutritional supplements sold by a chiropractic physician at a chiropractic office to a patient as part of the patient's plan of treatment. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue sales and use tax records; 1997 and 2002 Economic Census data for Health Care and Social Assistance Industries 34. Public School Books Citation: G. S. 105- 164.13( 14) Description: Sales of public school books on the adopted list, the selling price of which is set by State contract. Estimate ( in millions): $ 2.6 Data Source: State revenue from sales of textbooks from 2003- 04 Statistical Report, NC Department of Public Instruction Sales and Use Tax - 73 - 35. Accounts of Sales Charged Off for Income Purposes Citation: G. S. 105- 164.13( 15) Description: Accounts of purchasers, representing taxable sales, on which the sales and use tax has been paid, that are found to be worthless and actually charged off for income tax purposes may be deducted from gross sales. In the case of a municipality that sells electricity, the account may be deducted if it meets all the conditions for charge- off that would apply if the municipality were subject to income tax. Estimate ( in millions): Unavailable 36. Sales by Blind Merchants Citation: G. S. 105- 164.13( 20) Description: Sales by blind merchants operating under supervision of the Department of Health and Human Services. Estimate ( in millions): $ 0.5 Data Source: Services for the Blind, NC Department of Health and Human Services 37. Lease or Rental of Films for Exhibition Citation: G. S. 105- 164.13( 21) Description: Lease or rental of motion picture films used for exhibition purposes where the lease or rental of such property is an established business or part of an established business. Estimate ( in millions): $ 2.8 Data Source: Sample of income tax returns for movie theaters; Department of Revenue privilege tax records 38. Lease or Rental of Films, Transcriptions and Recordings to Broadcasters Citation: G. S. 105- 164.13( 22) Description: Lease or rental of films, motion picture films, transcriptions and recordings to radio stations and television stations operating under a certificate from the Federal Communications Commission. Estimate ( in millions): Unavailable Sales and Use Tax - 74 - 39. Audiovisual Masters Citation: G. S. 105- 164.13( 22a) Description: Sales of audiovisual masters made or used by a production company in making images for first generation reproduction. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue Sales and Use Tax records; NC Film Office 40. Packaging Items for Manufacturers, Producers and Retailers Citation: G. S. 105- 164.13( 23) a Description: Sales of the following packaging items: wrapping paper, cloth, plastic bags, labels, wrapping twine, packages and containers, cartons, cores, cones or spools, wooden boxes, baskets, coops and barrels, including paper cups, napkins and drinking straws and like articles sold to manufacturers, producers and retailers, when such materials constitute a part of the sale of tangible personal property. Estimate ( in millions): $ 52.8 Data Source: Packaging costs from 1997 economic census ( manufacturers) and 2002 Business Expenses Survey ( retailers, wholesalers) 41. Packaging Returned to Seller Description: Packaging that is required to be returned to seller. Citation: G. S. 105- 164.13( 23) b Estimate ( in millions): $ 0.1 Note: Prior to the enactment of this exemption, these items were being taxed as reusable containers. In practice, many of these containers contained ingredient materials that were exempt from taxation. The sellers of the products were taxed on the lease of the containers. 42. Food Sold by a Public or Private School Cafeteria Citation: G. S. 105- 164.13( 26) Description: Food sold not for profit by public or private school cafeterias within school building during the regular school day. Estimate ( in millions): $ 11.1 Data Source: Common Core of Data, National Center for Education Statistics; statistical report from NC Dept. of Public Instruction Note: Includes Item # 43. Sales and Use Tax - 75 - 43. Food Sold by a Public School Cafeteria to Certain Child Care Centers Citation: G. S. 105- 105.164.13( 26a) Description: sales of food sold not for profit by a public school cafeteria to a child care center that participates in the Child and Adult Care Food Program. Estimate ( in millions): included in item # 42 44. Food Sold in Dining Rooms Operated by Educational Institution Citation: G. S. 105- 164.13( 27) Description: Sales of food served to students in dining rooms regularly operated by State or private education institutions or student organizations thereof. Estimate ( in millions): $ 22.0 Data Source: Statistical Abstract of Higher Education in North Carolina, University of North Carolina 45. Certain Sales of Newspapers Citation: G. S. 105- 164.13( 28) Description: Sales of newspapers by newspaper street vendors, by newspaper carriers making door- to- door deliveries and by means of vending machines and sales of magazines by magazine vendors making door- to- door sales. Estimate ( in millions): $ 11.8 Data Source: Department of Revenue Sales and Use Tax records 46. Vending Machine One- Cent Sales Citation: G. S. 105- 164.13( 30) Description: Sales from vending machines when sold by the owner or lessee of said machines at a price of $ 0.01 per sale. Estimate ( in millions): less than $ 0.1 Note: Volume is not likely to exceed the level for a $ 100,000 loss. 47. Meals for the Elderly Citation: G. S. 105- 164.13( 31) Description: Sales of meals not for profit to elderly and incapacitated persons by charitable or religious organizations not operated for profit which are entitled to the refunds provided by G. S. 105- 164.14( b), when such meals are delivered to the purchasers at their places of abode. Estimate ( in millions): less than $ 0.1 Data Source: Sales of Meals on Wheels data from Wake, Buncombe and Forsyth Counties Sales and Use Tax - 76 - 48. Food Sold by a Church or Religious Organization Citation: G. S. 105- 164.13( 31a) Description: Food sold by a church or religious organization when proceeds are used for religious purposes. Estimate ( in millions): Unavailable 49. Sales by Nonprofits Whose Proceeds Go to the State Citation: G. S. 105- 164.13( 34) Description: Sales of items by a nonprofit civic, charitable, educational, scientific or literary organization when the net proceeds of the sales will be given to the State of North Carolina or to one of its agencies or instrumentalities, or to one or more nonprofit charitable organizations, one of whose purposes is to serve as a conduit through which such net proceeds will flow to the State or to one or more of its agencies or instrumentalities. Estimate ( in millions): Unavailable 50. Sales by Nonprofits Conducted Annually Citation: G. S. 105- 164.13( 35) Description: Sales by nonprofits conducted annually when the proceeds are used for the organization's activities. The products sold must be delivered to the purchaser within 60 days after the first solicitation of any sale made during the organization's annual sales period. Estimate ( in millions): $ 1.0 Data Source: Annual reports of Girl Scout Councils 51. Advertising Supplements Sold with Newspapers Citation: G. S. 105- 164.13( 36) Description: Advertising supplements and any other printed matter ultimately to be distributed with newspaper. Estimate ( in millions): $ 4.0 Data Source: 2002 Economic Census, US Census Bureau Sales and Use Tax - 77 - 52. Food Stamp Purchases Citation: G. S. 105- 164.13( 38) Description: Food and other items lawfully purchased under the Food Stamp Program and supplemental foods lawfully purchased with a food instrument issued under the Special Supplemental Food Program and supplemental foods purchased for direct distribution by the Special Supplemental Food Program. Estimate ( in millions): $ 33.1 Data Source: Food Stamp Program, US Department of Agriculture estimates of NC food stamps receipts through 2003. Estimate for 2004 based on the reported 14% increase in the number of Food Stamp recipients in NC between July 2003 and July 2004. 53. Components of Free Distribution Periodicals Citation: G. S. 105- 164.13( 39) Description: Sales of paper, ink, and other tangible persona
Object Description
Description
Title | North Carolina biennial tax expenditure report |
Other Title | Biennial tax expenditure report |
Date | 2005-10 |
Description | 2005 |
Digital Characteristics-A | 413.86 KB; 117 p. |
Digital Format | application/pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | North Carolina Biennial Tax Expenditure Report 2005 Tax Research Division North Carolina Biennial Tax Expenditure Report 2005 Tax Research Division October 2005 275 copies of this report were printed at a cost of $ 248.50, or $ 0.90 per copy. Table of Contents List of Tables ...................................................................................................................... vi Introduction................................................................................................................... ..... 1 Defining Tax Expenditures for This Study .......................................................................... 1 Measuring the Fiscal Effects of Tax Expenditures................................................................ 2 Privilege Taxes ( Article 2).................................................................................................... 7 Tax Base Information ........................................................................................................ 7 Exemptions from 3% gross receipts tax............................................................................... 7 Preferential rate for 3% gross receipts tax.......................................................................... 10 Exemptions from license fee of $ 50.00 for attorneys- at- law and other professionals............. 10 Exemptions from loan agency annual privilege tax of $ 250 ................................................ 11 Exemptions from $ 15 per ton tax on unrecycled newsprint................................................. 11 Tobacco Tax ( Article 2A)................................................................................................... 12 Tax Base Information ...................................................................................................... 12 Expenditures ................................................................................................................... 12 Alcoholic Beverage License and Excise Taxes ( Article 2C) ................................................ 13 Tax Base Information ...................................................................................................... 13 Expenditures ................................................................................................................... 13 Franchise Tax ( Article 3) ................................................................................................... 14 Brief Background and Tax Base Information..................................................................... 14 Exemptions..................................................................................................................... 17 Deductions..................................................................................................................... 19 Tax Credits ..................................................................................................................... 21 Caps ............................................................................................................................... 21 Corporation Income Tax ( Article 4. Part 1) ....................................................................... 22 Brief Description and Tax Base Information...................................................................... 22 Exemptions..................................................................................................................... 26 Deductions..................................................................................................................... 28 Tax Credits ..................................................................................................................... 33 Tax Incentives for New and Expanding Businesses ( Article 3A) ........................................ 38 Table of Contents - iv - Business and Energy Tax Credits ( Article 3B) ................................................................... 41 Tax Incentives for Recycling Facilities ( Article 3C) ........................................................... 43 Historic Rehabilitation Tax Credits ( Article 3D) ............................................................... 44 Low- Income Housing Tax Credits ( Article 3E).................................................................. 45 Research and Development Tax Credits ( Article 3F) ......................................................... 46 Tax Incentives for Major Computer Manufacturing Facilities ( Article 3G)....................... 47 Individual Income Tax ( Article 4, Part 2) .......................................................................... 48 Brief Description and Tax Base Information...................................................................... 48 Exemptions..................................................................................................................... 51 Deductions..................................................................................................................... 51 Tax Credits ..................................................................................................................... 54 Sales and Use Tax ( Article 5) ............................................................................................. 59 Tax Base Information ...................................................................................................... 59 Exemptions..................................................................................................................... 65 Preferential tax rates ........................................................................................................ 82 Credits........................................................................................................................ ... 83 Highway Use Tax ( Article 5A) ........................................................................................... 84 Tax Base Information ...................................................................................................... 84 Expenditures ................................................................................................................... 84 Scrap Tire Disposal Tax ( Article 5B) ................................................................................. 87 Tax Base Information ...................................................................................................... 87 Expenditures ................................................................................................................... 87 White Goods Disposal Tax ( Article 5C) ............................................................................. 88 Tax Base Information ...................................................................................................... 88 Expenditures ................................................................................................................... 88 Piped Natural Gas Tax ( Article 5E) ................................................................................... 89 Tax Base Information ...................................................................................................... 89 Expenditures ................................................................................................................... 89 Gift Taxes ( Article 6) ......................................................................................................... 90 Tax Base Information ...................................................................................................... 90 Expenditures ................................................................................................................... 90 Table of Contents - v - Taxes on Insurance Companies ( Article 8B) ...................................................................... 91 Tax Base Information ...................................................................................................... 91 Expenditures ................................................................................................................... 91 Excise Stamp Tax on Conveyances ( Article 8E) ................................................................. 93 Tax Base Information ...................................................................................................... 93 Expenditures ................................................................................................................... 93 Excise Tax on Motor Fuels ( Article 36C) and Alternative Fuels ( Article 36D) ................... 95 Tax Base Information ...................................................................................................... 95 Expenditures ................................................................................................................... 95 Appendix: Tax Exclusions and Exemptions That Are Not Proper Tax Expenditures ........ 99 Privilege Tax................................................................................................................... 99 Bank Annual Privilege Tax .............................................................................................. 99 Tobacco Tax ................................................................................................................... 99 Alcoholic Beverage License and Excise Taxes ................................................................ 100 Franchise Tax................................................................................................................ 101 Corporation Income Tax ................................................................................................ 101 Individual Income Tax................................................................................................... 103 Sales and Use Tax ......................................................................................................... 104 Highway Use Tax.......................................................................................................... 107 Tax on Insurance Companies.......................................................................................... 108 Excise Tax on Motor Fuels and Alternative Fuels ............................................................ 108 Index.......................................................................................................................... .... 110 Table of Contents - vi - List of Tables Table 1. Summary of Tax Expenditures.......................................................................................... 3 Table 2. Forty Largest Tax Expenditures ........................................................................................ 4 Table 3. Franchise Tax Expenditure Estimates ............................................................................. 15 Table 4. Corporate Income Tax Expenditure Estimates................................................................ 24 Table 5. Individual Income Tax Expenditure Estimates ............................................................... 49 Table 6. Carry- Over Provisions for Individual Income Tax.......................................................... 58 Table 7. Sales and Use Tax Expenditure Estimates ...................................................................... 60 North Carolina Biennial Tax Expenditure Report 2005 Introduction In compliance with the requirements of Section 105- 256 of the General Statutes of North Carolina, the Department of Revenue has prepared this report of tax expenditures contained in the Revenue Laws of North Carolina as amended through 2005. The listing of expenditures and measurements of their respective costs will allow legislative review of their impact on the State’s economy and on government revenues. Defining Tax Expenditures for This Study A “ tax expenditure” is defined as an exemption, exclusion, deduction, allowance, credit, refund, preferential tax rate or other device which reduces the amount of tax revenue which otherwise would be collected. Tax expenditures are created to give economic assistance to certain groups of producers or consumers in the economy or to promote other policy goals. This report does not purport to evaluate the various expenditures as to equity or desirability from a public policy standpoint. This report concentrates on those tax expenditures that the General Assembly can alter. There are some tax expenditures that are not subject to legislative action. For instance, Constitutional restrictions forbid taxing the federal government’s purchases, as well as certain transactions involving interstate trade and trade on Indian Reservations. Also, specific exemptions or exclusions that are made in order to avoid duplicate taxation of an activity are not considered to be tax expenditures. For example, S- corporations are not taxed on profits that are transferred to shareholders, who subsequently pay income taxes on these dividends. These types of tax expenditures are listed in the Appendix. There are several other important tax breaks that are not considered tax expenditures for this report. Some exemptions and exclusions are necessary to define the appropriate base that is being taxed. For example, North Carolina’s choice of Federal Taxable Income ( FTI) as the starting point for income tax calculations is not considered an expenditure, even though FTI is generally lower than other measures of income. The sales tax presents the most ambiguous cases of when exemptions should be included as tax expenditures for this report. The sales tax is generally considered to be a tax on “ retail” purchases. Transactions involving the purchase of intermediate goods that will be further processed into a final good are properly exempted from the sales tax. It is arguable whether purchases of machinery, fuel or similar inputs used in production of final goods should be taxed. Since there is no consensus on this point, we include estimates of tax exemptions on machinery. Sales tax exemptions that are excluded from estimation are included in the Appendix. Introduction - 2 - The term “ preferential tax rate” has been interpreted to mean any rate that is less than the basic rate that applies to the largest number of taxpayers. In some instances higher rates are used on a relatively small number of taxpayers. In such cases, the lower general rates are not listed as preferential. Nor are graduated tax rates, such as those contained in the individual income tax, the estate tax, and the gift tax. Also, no preferential status is acknowledged when distinctly different bases are taxed at different rates under the same tax schedule. For example, under the alcoholic beverage taxes, different rates and bases are used to tax beer, wine, and spirituous liquor. Measuring the Fiscal Effects of Tax Expenditures It should be noted at the outset of this report that the fiscal effects of tax expenditures are sometimes difficult to quantify. Several methods for estimating the costs of expenditures are used. The most accurate source of information comes from actual tax returns that provide direct evidence of when certain expenditures are taken and the amounts of those expenditures. For example, we are able to use personal income tax and corporate income tax returns from 2002 and 2001 respectively to precisely measure the use of certain tax deductions and tax credits. In some cases, we may not have data on tax returns for specific tax expenditures, but we do have good estimates for several expenditures combined. For example, retailers must list on their sales and use tax returns the amount of sales subject to the special 1% rate. Based on this, our estimates of several expenditures receiving this rate can be summed up and rescaled to get closer to the actual amounts. Sometimes, needed data are more timely and extensive at the national level than at the state level. When this occurs, the state- level data are estimated by determining North Carolina’s share of national activity. In these cases, several assumptions must be made to derive the final estimates. Therefore, these estimates are far less reliable than those that can be measured directly. For most national economic data, the share of North Carolina’s activities will consistently be in the range of 2 ½ % to 3%, which also corresponds to North Carolina’s share of population and gross domestic product ( GDP). Therefore, national statistics are often multiplied by 2.75% to estimate North Carolina’s value. However, when it is apparent that North Carolina’s data are not typical of national activity, such as textile or pharmaceutical manufacturing, attempts are made to use more representative proportions. In some cases, sufficient data were not available to allow estimation of the value of an expenditure. In these cases the expenditure estimate is designated as “ unavailable.” For a small number of credits, the provision was utilized by so few taxpayers that reporting the size of the expenditure would jeopardize taxpayer confidentiality. The estimates for these items were reported as a group. Introduction - 3 - Table 1 Summary of Tax Expenditure Estimates for 2004 by Tax Category Tax Number of Expenditures Sum of Estimates of $ 100,000 and Over ( Millions of Dollars) Number Estimated to Be Less than $ 100,000 Number with Unavailable Estimate Privilege Tax 19 11.9 9 1 Tobacco Products Tax 3 2.5 1 0 Alcoholic Beverage Tax 2 2.4 1 0 Franchise Tax 20 276.0 0 8 Corporation Income Tax 47 380.5 13 5 Various Tax Incentives ( Articles 3A through 3G) 21 165.0 6 0 Individual Income Tax 27 765.0 6 1 Sales and Use Tax 77 1,754.1 6 18 Highway Use Tax 10 15.3 2 3 Scrap Tire Disposal Tax 1 0.0 0 1 White Goods Disposal Tax 1 0.0 1 0 Piped Natural Gas Tax 1 3.9 0 0 Gift Taxes 3 21.2 0 0 Taxes on Insurance Companies 5 127.6 0 1 Excise Stamp Tax on Conveyances 8 8.5 2 2 Excise Taxes on Motor Fuels 14 36.4 3 1 Totals 259 3,570.3 50 41 Introduction - 4 - Table 2 Forty Largest Tax Expenditures in North Carolina in 2004 Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 1 Sales and Use Tax 65 164.13B Food Exemption 416.8 2 Individual Income Tax 5 134.6( b)( 5b) Government Retirement Income under Bailey Settlement 246.0 3 Sales and Use Tax 32 164.13( 13) Prescription Drugs and Insulin 242.0 4 Franchise Tax 19 120.2( b)( 1) Cap for Holding Companies 200.0 5 Sales and Use Tax 68 164.14( b) Refund of Sales Taxes to Nonprofits 183.0 6 Individual Income Tax 4 134.6( b)( 3) Social Security Benefits in Excess of Federal Limit 179.4 7 Individual Income Tax 22 151.24 Credit for Children 134.3 8 Sales and Use Tax 11 164.13( 2a) a Feeds, Litter and Medications for Farming 128.0 9 Corporation Income Tax 26 130.8 Net Economic Losses 127.4 10 Sales and Use Tax 76 164.4( 4a) Electricity to Commercial Businesses and Residences 107.1 11 Corporation Income Tax 47 Tax Expenditures Combined for Confidentiality 100.1* 12 Taxes on Insurance Companies 2 228.5( c)( 2) Premiums Received from Annuities 95.0 13 Individual Income Tax 6 134.6( b)( 6) Private Retirement Plans and Government Pensions 68.8 Introduction - 5 - Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 14 Sales and Use Tax 77 164.21B Credit for Local Cable Television Franchise Taxes 65.3 15 Corporation Income Tax 11 130.5( b)( 1) US Obligation Interest 63.7 16 Sales and Use Tax 69 164.14( c) Refund of Sales Taxes to Local Government 62.5 17 Sales and Use Tax 7 164.4C( c)( 13) Internet Access Charges 53.5 18 Sales and Use Tax 40 164.13( 23) a Packaging Items for Manufacturers, Producers and Retailers 52.8 19 Sales and Use Tax 10 164.13( 1) and ( 1a) Items Sold to Farmers 51.1 20 Franchise Tax 1 125( a)( 1) Charitable Nonprofits 50.2 21 Corporation Income Tax 3 130.11( a)( 3) Certain Charitable Organizations 49.3 22 Low- Income Housing Tax Credits 2 129.42 Credit for Low- Income Housing 47.1 23 Sales and Use Tax 63 164.13( 51) Water Delivered Through Main Pipes 43.5 24 Tax Incentives for New and Expanding Businesses 2 129.9 Credit for Investing in Machinery and Equipment 42.9** 25 Individual Income Tax 15 151.11 Credit for Child Care and Certain Employment- Related Expenses 41.2 26 Sales and Use Tax 52 164.13( 38) Food Stamp Purchases 33.1 27 Sales and Use Tax 31 164.13( 12) Durable Medical Equipment 30.0 28 Sales and Use Tax 64 164.13A Tips on Meals and Beverages 29.7 Introduction - 6 - Rank Tax Item Citation Short Title 2004 estimate ( millions of dollars) 29 Sales and Use Tax 6 164.4C( c)( 12) Information Services 26.1 30 Taxes on Insurance Companies 3 228.5( c)( 3) Premiums Related to Funding Agreements 26.0 31 Business and Energy Tax Credit 1 129.16 Credit for Investing in Business Property 24.6** 32 Sales and Use Tax 71 164.4( a)( 1a) Manufactured Homes 23.7 33 Individual Income Tax 24 151.26 Charitable Contributions by Nonitemizers 23.1 34 Sales and Use Tax 44 164.13( 27) Food Sold in Dining Rooms Operated by Educational Institution 22.0 35 Individual Income Tax 27 Carry- Over Provisions 21.0 36 Sales and Use Tax 74 164.4( 1f) Electricity to Farmers, Manufacturers and Commercial Laundries 20.6 37 Sales and Use Tax 4 164.4C( c)( 9) Sales, Installation, Repair of Telecommunications Property 19.7 38 Sales and Use Tax 53 164.13( 39) Components of Free Distribution Periodicals 19.4 39 Gift Taxes 1 188( d) Annual Exclusion Amount 18.0 40 Individual Income Tax 16 151.12 Credit for Certain Real Property Donations 15.6 * Includes items grouped to protect confidentiality of taxpayer information. See text for this item for more details. ** 2003 value. Privilege Taxes - 7 - Privilege Taxes ( Article 2) Tax Base Information Privilege taxes are imposed for the privilege of carrying on business or doing a remunerative act within the state. Privilege taxes on corporations are discussed under the “ franchise tax” article. There is no standard tax base or tax rate for privilege taxes that covers all businesses or activities. However, in order to determine preferential tax rates and exclusions, the tax rate is assumed to be 3% when the tax base is gross receipts and $ 50 when there is a flat licensing fee. Exemptions from 3% gross receipts tax 1. Low Admission Fee Citation: G. S. 105- 37.1( a)( 1) Description: Giving, offering or managing dance or athletic contests with admissions below $. 50. Estimate ( in millions): less than $ 0.1 Note: There would have to be over 6.6 million tickets sold for this to be above $ 100,000. 2. Charitable Performances by Uncompensated Local Talent Citation: G. S. 105- 40( 1) Description: Performances by local talent exclusively, for the benefit of religious, charitable, benevolent or educational purposes, as long as no compensation is paid to the local talent. Estimate ( in millions): Unavailable 3. North Carolina Symphony Society Citation: G. S. 105- 40( 2) Description: NC Symphony Society, Inc., as specified in G. S. 140- 10.1. Estimate ( in millions): $ 0.1 Data Source: Estimate based on total budget of $ 8.5 million reported by the North Carolina Symphony Society. A report from 2002 by the Symphony Orchestra Institute estimated that US symphonies in this budget range covered an average of 40% of their expenses from sales. Privilege Taxes - 8 - 4. Agricultural Fairs Citation: G. S. 105- 40( 3) Description: Exhibits, shows, attractions, and amusements operated by a society or association organized under the provisions of Chapter 106 of the General Statutes where the society or association has obtained a permit from the Secretary of Revenue to operate without the payment of taxes. Estimate ( in millions): $ 1.2 Data Source: List of county fairs and attendance from North Carolina Association of Agricultural Fairs. Note: Per person receipts based on average gate price of $ 10 and additional $ 10 for amusements. 5. Outdoor Historical Dramas Citation: G. S. 105- 40( 4) Description: Outdoor historical dramas, as specified in Article 19C of Chapter 143 of the General Statutes. Estimate ( in millions): $ 0.1 Data Source: Institute of Outdoor Drama at the University of North Carolina at Chapel Hill 6. Events at Primary and Secondary Schools Citation: G. S. 105- 40( 5) Description: Elementary and secondary school athletic contests, dances and other amusements. Estimate ( in millions): $ 6.7 Data Source: Estimates based on 2002 data from the National Center for Educational Statistics. North Carolina’s revenues from student activities were not directly available. Estimates were made by averaging revenues in nearby states ( Alabama, South Carolina, and Tennessee) and adjusting by the number of schools and the number of students in North Carolina. 7. First $ 1,000 of Charitable Amusements Citation: G. S. 105- 40( 6) Description: First $ 1,000 of gross receipts from amusements promoted and managed by civic organizations when the entire proceeds are used exclusively for civic and charitable purposes and not to defray the expenses of conducting the amusement. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue amusement tax records Note: Each event would receive a $ 30 tax break. There would have to be over 3,300 events for the loss to exceed $ 100,000. Privilege Taxes - 9 - 8. Youth Athletic Contests Citation: G. S. 105- 40( 6a) Description: Youth athletic contest with an admission price of $ 10 or less sponsored by an entity exempt from State income tax. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue amusement tax records 9. Amusements at Nonprofit Arts Centers Citation: G. S. 105- 40( 7) Description: Amusements promoted by a corporation exempt from income tax that operates a center for the performing or visual arts ─ the exempt events must be held at the center. Estimate ( in millions): $ 0.2 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. 10. Amusements Promoted by Nonprofit Arts Organization Citation: G. S. 105- 40( 7a) Description: Exemption for all exhibitions, performances, and entertainments promoted and managed by nonprofit arts organization. Estimate ( in millions): $ 0.2 Data Source: Revenues from exempt arts groups provided by 2002 Economic Census. The share of ticket sales are from the Theatre Communications Group and 2002 Census ( for promoters). Note: The estimate is net of related estimated expenditures in this section. 11. Arts Festivals Citation: G. S. 105- 40( 10) Description: Arts festivals of less than 7 days, no more than twice a year, held outdoors on public property by an income tax- exempt person. Estimate ( in millions): $ 0.2 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. Privilege Taxes - 10 - 12. Community Festivals Citation: G. S. 105- 40( 11) Description: Community festivals held by a person exempt from income tax, no more than one per calendar year, no more than seven days, involving a variety of exhibitions, the majority of which are open to the public. Estimate ( in millions): less than $ 0.1 Data Source: Estimate based on expected receipts of major qualifying events and festivals. Expected receipts or attendance were obtained from Southern Festivals website ( http:// southfest. com), specific event’s websites or local newspaper coverage of events. 13. Amusements by Teen Centers Citation: G. S. 105- 40( 8) Description: Persons exempt from income tax who are operating a teen center. Estimate ( in millions): less than $ 0.1 Note: Likely to be small given amounts in other amusement categories. Preferential rate for 3% gross receipts tax 14. 1% Tax on Motion Pictures Citation: G. S. 105- 38.1( a) Description: 1% gross receipts tax on motion pictures ─ if a person offers entertainment that includes both a motion picture and another type of amusement, the total gross receipts will be taxed at the normal rate. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue amusement tax records Exemptions from license fee of $ 50.00 for attorneys- at- law and other professionals 15. Professionals over 75 Years Old Citation: G. S. 105- 41( b)( 1) Description: Exemption from license fee for attorneys or other professionals who are over 75 years old. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses and US Census demographic data Privilege Taxes - 11 - 16. Individuals Practicing Art of Healing Citation: G. S. 105- 41( b)( 2) Description: Exemption from license fee for individuals who practice the art of healing for a fee, if the person is an adherent of an established church or religious organization and confines the healing practice to prayer or spiritual means. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses 17. Blind Individuals Citation: G. S. 105- 41( b)( 3) Description: Exemption from license fee for blind individuals. Estimate ( in millions): less than $ 0.1 Data Source: Derived from Department of Revenue list of licenses and US Census demographic data Exemptions from loan agency annual privilege tax of $ 250 18. Savings Institutions Citation: G. S. 105- 102.3 Description: Exemption from bank privilege tax for savings institutions under Chapter 54B, 54C or Home Owners' Loan Act of 1933. Estimate ( in millions): $ 0.2 Data Source: North Carolina Commission on Banks and Federal Depositors' Insurance Corporation Exemptions from $ 15 per ton tax on unrecycled newsprint 19. Unavailability of Recycled Newsprint Citation: G. S. 105- 102.6( e) Description: Exemption from tax on unrecycled paper if recycled newsprint is unavailable due to ( 1) high price, ( 2) lack of comparable quality or ( 3) time constraints. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records Tobacco Tax - 12 - Tobacco Tax ( Article 2A) Tax Base Information The tax rate on a pack of cigarettes increased from 5¢ to 30¢ on September 1, 2005 and will increase to 35¢ on July 1, 2006. Other tobacco products will be taxed at the rate of 3% of the price of the products as of September 1, 2005. ( Prior to this date, the tax rate was 2%.) During Fiscal Year 2004- 05, $ 43.0 million was collected from this tax. Expenditures 1. Discount for Timely Reports ─ Cigarettes Citation: G. S. 105- 113.21( a1) Description: A distributor who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): $ 2.5 Data Source: Department of Revenue tax records Note: This deduction was effective August 1, 2004. The estimate includes Item # 3. The actual amount of $ 0.2 million was inflated to provide an estimate at the tax rates that apply after September 1, 2005 and were also adjusted for a full calendar year. 2 Unsalable Cigarettes and Cigars Citation: G. S. 105- 113.21( b) and 105- 113.39( b) Description: Refund for stale or otherwise unsalable cigarettes and cigars upon which the tax has been paid. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records 3. Discount for Timely Reports ─ Other Tobacco Products Citation: G. S. 105- 113.39 Description: A wholesale dealer or retail dealer who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): included in item # 1 Alcoholic Beverage License and Excise Taxes - 13 - Alcoholic Beverage License and Excise Taxes ( Article 2C) Tax Base Information An excise tax of 53.177¢ per gallon is levied on the sale of malt beverages. An excise tax of 21¢ per liter is levied on the sale of unfortified wine and an excise tax of 24¢ per liter is levied on the sale of fortified wine. An excise tax of 25% is levied on liquor sold in ABC stores. During Fiscal Year 2004- 05, $ 189.7 million was collected from this tax. Expenditures 1. Discount for Timely Reports Citation: G. S. 105- 113.85 Description: A wholesaler or importer who files a timely report and sends a timely payment may deduct from the amount due a discount of 2%. Estimate ( in millions): $ 2.4 Data Source: Department of Revenue tax records Note: This deduction was effective August 1, 2004. The actual amount of $ 0.8 million was adjusted for a full calendar year. 2. Sacramental Wine Citation: G. S. 105- 113.87( a) Description: Refund for wine used for sacramental purposes. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue tax records Franchise Tax - 14 - Franchise Tax ( Article 3) Brief Background and Tax Base Information The franchise tax is a privilege tax on corporations operating in North Carolina. The tax is currently $ 1.50 for every $ 1000 of the largest of the following three measures: 1. the total amount of 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 For tax year 2002, 61% of C- corporations paying the franchise tax used the first of these measures as the taxable amount, while 26% of corporations used the second and 12% used the third. For corporations doing business both in and outside North Carolina, the share of capital stock due to North Carolina is calculated by the same method used for the corporation income tax: the average of the corporation’s shares of property, payroll and sales, with the sales factor double- weighted. The minimum franchise tax is $ 35.00. For tax year 2002, 40% of C- corporations and 47% of S- corporations paid the minimum amount. In Fiscal Year 2004- 05, North Carolina collected $ 629.8 million in franchise taxes. Franchise Tax - 15 - Table 3 2004 NC Franchise Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 114( b)( 2) Limited Liability Companies Unavailable 2 125( a)( 1) Charitable Nonprofits 50.2 3 125( a)( 3) Local Mutual Nonprofits 2.2 4 125( a)( 4) Cooperative Marketing Associations 0.2 5 125( a)( 5) Production Credit Association 0.5 6 125( a)( 6) Nonprofit Clubs 2.0 7 125( a)( 7) Chambers of Commerce 0.9 8 125( a)( 8) Homeowners' Associations 2.3 9 125( a)( 9) Miscellaneous Nonprofits 2.3 10 125( a) Real Estate Mortgage Investment Conduits Unavailable 11 122( b) Deduction from Capital Stock for Investments in Pollution Abatement Unavailable 12 122( b) Deduction from Capital Stock for Investments in Hazardous Waste Abatement Unavailable Franchise Tax - 16 - Item Citation Short Title 2004 Estimate ( millions of dollars) 13 122( b) Deduction from Capital Stock for Facilities Used for Residential Sewer Services Unavailable 14 122( b) Treasury Stock 8.0 15 122( d) Deduction from Property Investment for Expenses Related to Purchases of Real Estate Unavailable 16 122( d) Deduction from Property Investment for Waste Abatement Investments Unavailable 17 122( d) Deduction from Property Investment for Investments in Rural Sewer Services Unavailable 18 125( b) Real Estate Investment Trusts and Regulated Investment Corporations 3.0 19 122( d1) Piped Natural Gas Credit 4.4 20 120.2( b)( 1) Cap for Holding Companies 200.0 Franchise Tax - 17 - Exemptions 1. Limited Liability Companies Citation: G. S. 105- 114( b)( 2) Description: Limited liability companies are exempt from the franchise tax because the definition for corporation in this Article explicitly excludes them. However, under G. S. 105- 114.1( b), the assets of a limited liability company are included in the tax bases of corporations that own more than 50% of the LLC. Estimate ( in millions): Unavailable 2. Charitable Nonprofits Citation: G. S. 105- 125( a)( 1) Description: Charitable, religious, fraternal, benevolent, scientific or educational nonprofit. Estimate ( in millions): $ 50.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 3. Local Mutual Nonprofits Citation: G. S. 105- 125( a)( 3) Description: Mutual ditch or irrigation association, mutual or cooperative telephone association, mutual canning association, cooperative breeding association or similar corporation of a purely local character deriving receipts solely from assessments, dues, or fees collected from members for the sole purpose of meeting expenses. Estimate ( in millions): $ 2.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 4. Cooperative Marketing Associations Citation: G. S. 105- 125( a)( 4) Description: Cooperative marketing associations that operate solely for the purpose of marketing the products of members or other farmers and returns proceeds of sales to members and farmers, less operating costs. Estimate ( in millions): $ 0.2 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) Franchise Tax - 18 - 5. Production Credit Association Citation: G. S. 105- 125( a)( 5) Description: Nonprofit production credit association under federal Farm Credit Act of 1933. Estimate ( in millions): $ 0.5 Data Source: Based on assets of the four farm credit associations in North Carolina 6. Nonprofit Clubs Citation: G. S. 105- 125( a)( 6) Description: Clubs organized and operated exclusively for pleasure, recreation, or other nonprofit purposes, a civic league operated solely for the promotion of social welfare, a business league, or a board of trade. Estimate ( in millions): $ 2.0 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 7. Chambers of Commerce Citation: G. S. 105- 125( a)( 7) Description: Chamber of commerce or merchants' association, not organized for profit. Estimate ( in millions): $ 0.9 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) 8. Homeowners' Associations Citation: G. S. 105- 125( a)( 8) Description: Condominium association, homeowners' association, or cooperative housing corporation not organized for profit. Estimate ( in millions): $ 2.3 Data Source: Based on IRS data compiled by the National Center for Charitable Statistics ( NCCS) and additional information from Department of Revenue 2002 corporate income tax records Franchise Tax - 19 - 9. Miscellaneous Nonprofits Citation: G. S. 105- 125( a)( 9) Description: Other organization exempt from federal income tax under the Code. Estimate ( in millions): $ 2.3 Data Source: Estimate for credit unions from NC Department of Commerce, Credit Union Division Annual Report ( 2003). Share of assets taxable for franchise tax derived from comparison to savings banks in Department of Revenue records. 10. Real Estate Mortgage Investment Conduits Citation: G. S. 105- 125( a) Description: An entity that qualifies as a real estate mortgage investment conduit, as defined in section 860D of the Code, is exempt from franchise taxes. Estimate ( in millions): Unavailable Deductions 11. Deduction from Capital Stock for Investments in Pollution Abatement Citation: G. S. 105- 122( b) Description: Deduction for cost of air- cleaning device or sewage or waste treatment plant and pollution abatement equipment. Estimate ( in millions): Unavailable 12. Deduction from Capital Stock for Investments in Hazardous Waste Abatement Citation: G. S. 105- 122( b) Description: Deduction for cost of purchasing equipment or constructing facilities for the purpose of recycling or reducing hazardous wastes. Estimate ( in millions): Unavailable 13. Deduction from Capital Stock for Facilities Used for Residential Sewer Services Citation: G. S. 105- 122( b) Description: Deduction for the cost of constructing facilities used to provide sewer services to residential and outlying areas. Estimate ( in millions): Unavailable Franchise Tax - 20 - 14. Treasury Stock Citation: G. S. 105- 122( b) Description: Treasury stock shall not be considered in computing the capital stock, surplus and undivided profits as the basis for franchise tax, but shall be excluded proportionately. Estimate ( in millions): $ 8.0 Data Source: Department of Revenue 2001 C- Corp records 15. Deduction from Property Investment for Expenses Related to Purchases of Real Estate Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments of reserves for depreciation and any indebtedness incurred by virtue of the purchase of any real estate and any improvements. Estimate ( in millions): Unavailable 16. Deduction from Property Investment for Waste Abatement Investments Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments of cost of air- cleaning device or sewage or waste treatment plant. Estimate ( in millions): Unavailable 17. Deduction from Property Investment for Investments in Rural Sewer Services Citation: G. S. 105- 122( d) Description: Deduction from tangible property investments for the cost of constructing facilities built to provide sewer service to residential and outlying areas. Estimate ( in millions): Unavailable 18. Real Estate Investment Trusts and Regulated Investment Corporations Citation: G. S. 105- 125( b) Description: Deduction for market value of a real estate investment trust or regulated investment corporation of investments in the stocks, bonds or debts of other entities. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue 2002 C- Corp records Franchise Tax - 21 - Tax Credits 19. Piped Natural Gas Credit Citation: G. S. 105- 122( d1) Description: Tax credit of one- half amount of piped natural gas tax. The credit allowed may not exceed the tax amount reduced by all credits. Estimate ( in millions): $ 4.4 Data Source: Department of Revenue 2002 and 2003 C- Corp and S- Corp records Caps 20. Cap for Holding Companies Citation: G. S. 105- 120.2( b)( 1) Description: Maximum tax of $ 75,000 for holding companies. A holding company is any corporation which receives during its taxable year more than 80% of its gross income from corporations in which it owns directly or indirectly more than 50% of the outstanding voting stock. Estimate ( in millions): $ 200.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 22 - Corporation Income Tax ( Article 4. Part 1) Brief Description and Tax Base Information The corporation income tax is a tax on the profits of C- corporations operating in North Carolina. The tax rate is 6.9% of the corporation’s State net income. For corporations doing business both in and outside North Carolina, the share of business income taxable to North Carolina is calculated by the following formula: the average of the corporation’s ratios of capital stock, payroll and sales within North Carolina to the company’s totals of these factors, with the sales factor double- weighted. For a few types of companies, the sales factor only is used. These companies include building or construction contractors, securities dealers, loan companies, or corporations that receive more than 50% of their ordinary gross income from intangible property. The corporation tax’s base is net income, or profits, since most operating costs can be deducted. There is no minimum tax, so that corporations with negative profits pay no corporation income taxes. Based on 2002 tax returns, two- thirds of corporations filing North Carolina C- Corporation tax returns had no tax liability. This creates a special problem in measuring individual tax expenditures since some companies that claim them would still have negative incomes if they were not allowed that particular deduction. ( The tax expenditure is non- binding for these companies.) In the measurement of tax expenditures in this section, attempts were made to include only companies for which the tax expenditure reduces tax liability. S- corporations may also claim the credits and deductions in this section for nonresident shareholders who elect not to file individual income tax returns in North Carolina. In Fiscal Year 2004- 05, North Carolina collected $ 1.27 billion in corporate income taxes. Corporation Income Tax - 23 - Table 4 2004 NC Corporate Income Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 130.11( a)( 1) Fraternal Beneficiary Societies less than 0.1 2 130.11( a)( 2) Certain Cooperative Companies 12.5 3 130.11( a)( 3) Certain Charitable Organizations 49.3 4 130.11( a)( 4) Nonprofit Business Associations 0.7 5 130.11( a)( 5) Nonprofit Promoters of Social Welfare 0.3 6 130.11( a)( 6) Nonprofit Clubs 0.6 7 130.11( a)( 7) Local Mutual Nonprofits less than 0.1 8 130.11( a)( 8) Nonprofit Agricultural Marketing Memberships 0.1 9 130.11( a)( 9) Certain Agricultural Associations included in item # 8 10 130.11( a)( 11) Homeowners' Association 0.4 11 130.5( b)( 1) US Obligation Interest 63.7 12 130.5( b)( 1a) NC Obligation Interest 1.0 13 130.5( b)( 7) Depreciation of Certain Facilities 0.0 14 130.5( b)( 8) Net Capital Losses Not Deductible from Federal Taxable Income 3.0 15 130.5( b)( 9) Shareholders of a Regulated Investment Company Unavailable 16 130.5( b)( 12) Reforestation and Cultivation of Trees less than 0.1 17 130.5( b)( 13) Income from International Banking Facility included in item # 47 18 130.5( b)( 14) Basis Adjustment for Federal Tax Credit Unavailable Corporation Income Tax - 24 - Item Citation Short Title 2004 Estimate ( millions of dollars) 19 130.5( b)( 15) Marketing Assessments on Tobacco 0.0 20 130.5( b)( 16) Natural Gas Expansion Surcharges Unavailable 21 130.5( b)( 18) Earnings of Certain Trusts included in item # 47 22 130.5( b)( 19) Income from Hurricane Floyd Reserve Fund less than 0.1 23 130.5( b)( 22) Disaster Relief Reserve Payments 1.5 24 130.5( c)( 2) Percentage Depletion over Cost Depletion 1.4 25 130.6A( e) Expenses Related to Nontaxed Dividends for Bank Holding Company included in item # 47 26 130.8 Net Economic Losses 127.4 27 130.9( 1) Charitable Contributions Outside NC 4.6 28 130.9( 1)-( 3) Charitable Contributions Within NC 4.0 29 130.10 Amortization of Pollution Abatement Facilities and Equipment Unavailable 30 130.10A Amortization of Equipment Mandated by OSHA Unavailable 31 130.6A( f) Credit for Bank Holding Companies Related to Expenses on Nontaxed Earnings included in item # 47 32 130.6A( g) Credit for Electric Power Holding Companies Related to Expenses on Nontaxed Earnings included in item # 47 33 130.22 Rental Units for Handicapped Persons 0.0 Corporation Income Tax - 25 - Item Citation Short Title 2004 Estimate ( millions of dollars) 34 130.25 Equipment for Cogenerating Power Plant 0.0 35 130.28 Construction of Renewable Energy Equipment Facility 0.0 36 130.34 Credit for Certain Real Property Donations 0.1 37 130.36 Conservation Tillage Equipment Credit less than 0.1 38 130.37 Credit for Gleaned Crops less than 0.1 39 130.39 Credit for Low- Income Residential Telephone Service 3.8 40 130.41 Credit for Costs at NC Ports 0.4 41 130.43 Credit for S& L Supervisory Fees 0.2 42 130.44 Credit for Poultry Composting Facility 0.0 43 130.45 Credit for Manufacturing Cigarettes for Exportation included in item # 47 44 130.46 Alternative Cigarette Export Credit included in item # 47 45 130.47 Film Industry Production Expenses 5.4 46 163.011 Credit for Qualified Investments less than 0.1 47 Tax Expenditures Combined for Confidentiality 100.1 Corporation Income Tax - 26 - Exemptions 1. Fraternal Beneficiary Societies Citation: G. S. 105- 130.11( a)( 1) Description: Exemption for fraternal beneficiary societies, orders or associations ( a) operating under the lodge system or providing benefits to members of a lodge system and ( b) providing for the payment of life, sick, accident, or other benefits of the organization or their dependents. Estimate ( in millions): less than $ 0.1 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 8) organizations. 2. Certain Cooperative Companies Citation: G. S. 105- 130.11( a)( 2) Description: Exemption for nonprofit cooperative banks without capital stock and electric and telephone membership corporations organized under Chapter 117 of the General Statutes. Estimate ( in millions): $ 12.5 Data Source: National Center for Charitable Statistics; “ 2003 Annual Report of State Chartered Credit Unions,” Credit Union Division, NC Department of Commerce Note: Based on data for IRC 501( c)( 12) and 501( c)( 14) organizations. 3. Certain Charitable Organizations Citation: G. S. 105- 130.11( a)( 3) Description: Exemption for cemetary corporations and corporations organized for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Estimate ( in millions): $ 49.3 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 3) and 501( c)( 13) organizations Corporation Income Tax - 27 - 4. Nonprofit Business Associations Citation: G. S. 105- 130.11( a)( 4) Description: Exemption for business leagues, chambers of commerce, merchants' associations or boards of trade not organized for profit. Estimate ( in millions): $ 0.7 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 6) organizations. 5. Nonprofit Promoters of Social Welfare Citation: G. S. 105- 130.11( a)( 5) Description: Exemption for civic leagues or organizations not organized for profit, but operated for the promotion of social welfare. Estimate ( in millions): $ 0.3 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 4) organizations. 6. Nonprofit Clubs Citation: G. S. 105- 130.11( a)( 6) Description: Exemption for nonprofit clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes. Estimate ( in millions): $ 0.6 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 7) organizations. 7. Local Mutual Nonprofits Citation: G. S. 105- 130.11( a)( 7) Description: Exemption for farmers' or other mutual hail, cyclone, or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations of a purely local nature. Estimate ( in millions): less than $ 0.1 Data Source: Data on county farm mutual insurance companies, NC Department of Insurance Corporation Income Tax - 28 - 8. Nonprofit Agricultural Marketing Memberships Citation: G. S. 105- 130.11( a)( 8) Description: Exemption for farmers' , fruit growers' or like organization for the purposes of marketing member products. Estimate ( in millions): $ 0.1 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Note: Based on data for IRC 501( c)( 5) organizations. The estimate includes Item # 9. 9. Certain Agricultural Associations Citation: G. S. 105- 130.11( a)( 9) Description: Exemption for mutual associations formed under G. S. 54- 111 through 54- 128 to conduct agricultural business on the mutual plan and marketing associations organized under G. S. 54- 129 through 54- 158. Estimate ( in millions): included in item # 8 10. Homeowners' Association Citation: G. S. 105- 130.11( a)( 11) Description: Exemption for nonprofit condominium associations, homeowners' associations, or cooperative housing corporation. Estimate ( in millions): $ 0.4 Data Source: National Center for Charitable Statistics; “ Charities and Other Tax- Exempt Organizations, 2001,” Statistics on Income, IRS Deductions 11. US Obligation Interest Citation: G. S. 105- 130.5( b)( 1) Description: Deductions for interest upon the obligations of the US or its possessions, to the extent included in federal taxable income. Estimate ( in millions): $ 63.7 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 29 - 12. NC Obligation Interest Citation: G. S. 105- 130.5( b)( 1a) Description: Deductions for interest on the obligations of this State, a political subdivision of this State, or a commission, an authority, or another agency of this State or of a political subdivision of this State, or a nonprofit educational institution. Estimate ( in millions): $ 1.0 Data Source: Department of Revenue 2001 C- Corp sample records 13. Depreciation of Certain Facilities Citation: G. S. 105- 130.5( b)( 7) Description: Deduction for depreciation of emergency facilities acquired prior to Jan 1, 1955. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 C- Corp sample records 14. Net Capital Losses Not Deductible from Federal Taxable Income Citation: G. S. 105- 130.5( b)( 8) Description: Deduction for the amount of losses realized on the sale or disposition of assets not allowed under section 1211( a) of the Code. Estimate ( in millions): $ 3.0 Data Source: Department of Revenue 2001 C- Corp sample records 15. Shareholders of a Regulated Investment Company Citation: G. S. 105- 130.5( b)( 9) Description: Deduction of the portion of undistributed capital gains of a regulated investment company for which a shareholder in the company takes a federal credit or deduction under Section 852 of the Code. Estimate ( in millions): Unavailable 16. Reforestation and Cultivation of Trees Citation: G. S. 105- 130.5( b)( 12) Description: Deduction for reasonable expenses, in excess of deductions allowed under the Code, paid for reforestation and cultivation of commercially grown trees. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 C- Corp sample records Corporation Income Tax - 30 - 17. Income from International Banking Facility Citation: G. S. 105- 130.5( b)( 13) Description: Deduction of the eligible income of an international banking facility to the extent included in determining federal taxable income. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 C- Corp sample records 18. Basis Adjustment for Federal Tax Credit Citation: G. S. 105- 130.5( b)( 14) Description: Deduction for the amount that the basis of a depreciable asset is reduced due to Federal tax credit. Estimate ( in millions): Unavailable 19. Marketing Assessments on Tobacco Citation: G. S. 105- 130.5( b)( 15) Description: Deduction for the amount paid, pursuant to 7 U. S. C. § 1445- 2, as marketing assessments on tobacco grown by a corporation in North Carolina. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp records and USDA’s Farm Service Agency ( FSA) data through 2003 Note: The federal provisions on which the marketing assessments were based have been repealed in the American Jobs Creation Act of 2004. 20. Natural Gas Expansion Surcharges Citation: G. S. 105- 130.5( b)( 16) Description: Deduction for the amount of natural gas expansion surcharges collected by a natural gas local distribution company. Estimate ( in millions): Unavailable 21. Earnings of Certain Trusts Citation: G. S. 105- 130.5( b)( 18) Description: Deduction of earnings on a trust for settlement of an agreement by two or more manufacturers with the State for potential claims against the manufacturers. Estimate ( in millions): included in item # 47 Corporation Income Tax - 31 - 22. Income from Hurricane Floyd Reserve Fund Citation: G. S. 105- 130.5( b)( 19) Description: Deduction for the amount paid to taxpayer from the Hurricane Floyd Reserve Fund. Estimate ( in millions): less than $ 0.1 Note: Not likely to be significant in 2004. 23. Disaster Relief Reserve Payments Citation: G. S. 105- 130.5( b)( 22) Description: Deduction for amounts paid to taxpayers for hurricane relief from the Disaster Relief Reserve Fund, not to include amounts paid for goods and services provided. Estimate ( in millions): $ 1.5 Data Source: Fiscal Research Division fiscal note. The estimate is based on expected payments to compensate for lost crop income. Note: The estimate includes the amount for similar provision in Individual Income Tax Item # 12. 24. Percentage Depletion over Cost Depletion Citation: G. S. 105- 130.5( c)( 2) Description: Federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property which has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes. Estimate ( in millions): $ 1.4 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 25. Expenses Related to Nontaxed Dividends for Bank Holding Company Citation: G. S. 105- 130.6A( e) Description: Cap for bank holding companies of $ 11,000,000 as a result of the limitation of 105- 130.6A( c). Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 32 - 26. Net Economic Losses Citation: G. S. 105- 130.8 Description: Deduction for net economic losses in any or all of the 15 preceding income years. Estimate ( in millions): $ 127.4 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 27. Charitable Contributions Outside NC Citation: G. S. 105- 130.9( 1) Description: Deduction for charitable contributions. The amount of deduction for this item may not exceed 5% of the taxpayer's net income. Estimate ( in millions): $ 4.6 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: This estimate includes only contributions made to donees outside NC; see item # 29 for deduction for donees in NC. 28. Charitable Contributions Within NC Citation: G. S. 105- 130.9( 1)-( 3) Description: Deductions for contributions to the State of North Carolina, its counties and municipalities and any agency or instrumentality of these institutions, in addition to contributions made to educational institutions located in North Carolina. For companies with income allocable outside North Carolina, charitable contributions to donees inside NC may be deducted fully from taxable income allocated to North Carolina. Estimate ( in millions): $ 4.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: Allowing companies with income allocable outside North Carolina to receive 100% deduction for contributions to NC donees ( instead of their apportionment percentage) cost the State $ 1.7 million of the $ 4.0 million estimate. 29. Amortization of Pollution Abatement Facilities and Equipment Citation: G. S. 105- 130.10 Description: In lieu of any depreciation allowance, a corporation may opt to deduct amortization of air- cleaning devices, waste treatment facilities, recycling facilities, equipment or plant used to provide sewer service to residential and outlying areas. Estimate ( in millions): Unavailable Corporation Income Tax - 33 - 30. Amortization of Equipment Mandated by OSHA Citation: G. S. 105- 130.10A Description: In lieu of any depreciation allowance, a corporation may opt to deduct amortization of equipment mandated by the Occupational Safety and Health Act ( OSHA), including the cost of planning, acquiring, constructing, modifying, and installing said equipment. Estimate ( in millions): Unavailable Tax Credits 31. Credit for Bank Holding Companies Related to Expenses on Nontaxed Earnings Citation: G. S. 105- 130.6A( f) Description: Credit for bank holding companies of $ 2 million if they are eligible for the cap in 105- 130.6A( e). See item # 25. Estimate ( in millions): included in item # 47 32. Credit for Electric Power Holding Companies Related to Expenses on Nontaxed Earnings Citation: G. S. 105- 130.6A( g) Description: After calculating the adjustment for expenses related to dividends under G. S. 105- 130.5( c)( 3), each electric power holding company must calculate the amount of additional tax that results from the expense adjustment for the taxable year. The electric power holding company is allowed a credit for the following taxable year equal to one- half of this amount of additional tax. Estimate ( in millions): included in item # 47 33. Rental Units for Handicapped Persons Citation: G. S. 105- 130.22 Description: Credit for corporate owners of multifamily rental units for handicapped persons of $ 550 per unit constructed. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 34. Equipment for Cogenerating Power Plant Citation: G. S. 105- 130.25 Description: Credit of 10% of the costs to purchase and install electrical or mechanical equipment for a cogenerating power plant. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 34 - 35. Construction of Renewable Energy Equipment Facility Citation: G. S. 105- 130.28 Description: Credit against corporate income tax for 25% of costs of construction of a renewable energy equipment facility. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records and information from the NC Solar Center 36. Credit for Certain Real Property Donations Citation: G. S. 105- 130.34 Description: Credit of 25% for donations of real property for public beach access, public access to water or trails, fish and wildlife conservation, or other similar land conservation purposes. The credit may not exceed $ 500,000. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 37. Conservation Tillage Equipment Credit Citation: G. S. 105- 130.36 Description: Credit of 25% of the cost of conservation tillage equipment used in a farm business, including tree farming. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 38. Credit for Gleaned Crops Citation: G. S. 105- 130.37 Description: Credit of 10% of the market price of the quantity of gleaned crops for companies that allow gleaning of their crop. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 35 - 39. Credit for Low- Income Residential Telephone Service Citation: G. S. 105- 130.39 Description: Credit for corporation that provides local telephone service to low-income residential consumers at reduced rates. The credit is equal to the difference between what the companies actually charged these customers and the amount they would have charged at normal rates. Estimate ( in millions): $ 3.8 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 40. Credit for Costs at NC Ports Citation: G. S. 105- 130.41 Description: Credit for loading or unloading cargo at a State- owned port terminal at Wilmington or Morehead City. Estimate ( in millions): $ 0.4 Data Source: Department of Revenue 2003 tax records 41. Credit for S& L Supervisory Fees Citation: G. S. 105- 130.43 Description: Credit for savings and loan supervisory fees assessed by the Commissioner of Banks of the Department of Commerce. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 42. Credit for Poultry Composting Facility Citation: G. S. 105- 130.44 Description: Credit for 25% of the installation, materials and equipment costs of constructing poultry composting facility. Estimate ( in millions): 0.0 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Corporation Income Tax - 36 - 43. Credit for Manufacturing Cigarettes for Exportation Citation: G. S. 105- 130.45 Description: Credit of up to $ 6,000,000 is allowed a company that exports cigarettes to a foreign country through the North Carolina State Ports. The amount of the credit depends on the volume of cigarettes exported compared to the volume in a base year. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 44. Alternative Cigarette Export Credit Citation: G. S. 105- 130.46 Description: Credit of up to $ 10,000,000 is allowed a company that exports cigarettes to a foreign country through the North Carolina State Ports. The amount of the credit depends on the employment level at the company compared to the employment level in 2004. Estimate ( in millions): included in item # 47 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records 45. Film Industry Production Expenses Citation: G. S. 105- 130.47 Description: A film or television production company that spends at least $ 250,000 in North Carolina on productions during the tax year is allowed a credit equal to 15% of the qualifying expenses. Estimate ( in millions): $ 5.4 Data Source: Fiscal Research Division fiscal note based on Department of Commerce data on expenses of film companies. The estimate includes individual income tax item # 25. 46. Credit for Qualified Investments Citation: G. S. 105- 163.011 Description: A tax credit is allowed to corporations investing in the equity securities of a North Carolina Enterprise Corporation, a limited partnership in which a North Carolina Enterprise Corporation is the only general partner, or a qualified investment organization. The credit is equal to 25% of the amount invested, but may not exceed $ 750,000. Unused credits may be carried forward 5 years. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2001 and 2002 C- Corp and S- Corp records Note: See Individual Income Tax, Item # 26. Corporation Income Tax - 37 - 47. Tax Expenditures Combined for Confidentiality Citation: G. S. 105- 129.27; G. S. 105- 129.28; G. S. 105- 130.5( b)( 13); G. S. 105- 130.5( b)( 18); G. S. 105- 130.6A( e), ( f), ( g); G. S. 105- 130.45; G. S. 105- 130.46; G. S. 105- 134.6( b)( 15) Description: All of these tax expenditures are utilized by a small enough number of taxpayers that it would compromise taxpayer confidentiality to report them separately. Estimate ( in millions): $ 100.1 Data Source: Department of Revenue Corporate Income and Franchise Tax records Note: Includes Corporate Income Tax Items 17, 21, 25, 31, 32, 43, 44; Individual Income Tax Item 10; and Tax Incentives for Recycling Facilities Items 1 and 2. Tax Incentives for New and Expanding Businesses - 38 - Tax Incentives for New and Expanding Businesses ( Article 3A) The amounts of tax expenditures in this section are based on the figures published in the 2005 William S. Lee Act report from the NC Department of Revenue. That report covers returns processed in 2004, most of which were tax year 2003 forms. 1. Credit for Creating Jobs Citation: G. S. 105- 129.8 Description: A taxpayer that meets the eligibility requirements set out in G. S. 105- 129.4, has 5 or more full- time employees, and hires an additional full- time employee to fill a new position located in this State is allowed a credit for creating a new full- time job. Estimate ( in millions): $ 10.6 Data Source: Department of Revenue NC- 478 tax credit records 2. Credit for Investing in Machinery and Equipment Citation: G. S. 105- 129.9 Description: A taxpayer that has purchased or leased eligible machinery and equipment and places them in service in this State is allowed a credit equal to the applicable percentage of the excess of the eligible investment amount over the applicable threshold. Estimate ( in millions): $ 42.9 Data Source: Department of Revenue NC- 478 tax credit records 3. Technology Commercialization Credit Citation: G. S. 105- 129.9A Description: A taxpayer may receive a 15% or 20% credit for machinery and equipment investments that are directly related to production based on technology developed by and licensed from a research university or are used to produce resources essential to the taxpayer's production based on technology developed by and licensed from a research university. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Tax Incentives for New and Expanding Businesses - 39 - 4. Research and Development Credit Citation: G. S. 105- 129.10 Description: A taxpayer that claims a federal income tax credit under Section 41( a) of the Code for increasing research activities is allowed a credit equal to either 5% of the State's apportioned share of the taxpayer's expenditures for increasing research activities or 25% of the State’s apportioned share of the federal credit. Estimate ( in millions): $ 9.5 Data Source: Department of Revenue NC- 478 tax credit records 5. Worker Training Credit Citation: G. S. 105- 129.11 Description: A taxpayer that provides worker training for 5 or more of its employees is allowed a credit equal to the wages paid to the eligible employees during the training. Estimate ( in millions): $ 1.4 Data Source: Department of Revenue NC- 478 tax credit records 6. Credit for Investing in Central Office or Aircraft Facility Property Citation: G. S. 105- 129.12 Description: If a taxpayer that has purchased or leased real property in this State begins to use the property as a central office or aircraft facility, the taxpayer is allowed a credit equal to 7% of the eligible investment amount. Estimate ( in millions): $ 1.9 Data Source: Department of Revenue NC- 478 tax credit records 7. Credit for Substantial Investment in Other Property Citation: G. S. 105- 129.12A Description: If a taxpayer that has purchased or leased real property in an enterprise tier 1 or 2 area begins to use the property in an eligible business, the taxpayer is allowed a credit equal to 30% of the eligible investment amount if all of the requirements of GS 105- 129.4 are met. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Tax Incentives for New and Expanding Businesses - 40 - 8. Credit for Development Zone Projects Citation: G. S. 105- 129.13 Description: A taxpayer who contributes cash or property to a development zone agency for an improvement project in a development zone is allowed a credit equal to 25% of the value of the contribution. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue NC- 478 tax credit records Business and Energy Tax Credits - 41 - Business and Energy Tax Credits ( Article 3B) The estimates for the following tax expenditures are based on reports produced by the NC Department of Revenue covering returns processed from April 1, 2004 through March 31, 2005, most of which were tax year 2003 forms. 1. Credit for Investing in Business Property Citation: G. S. 105- 129.16 Description: If a taxpayer that has purchased or leased business property places it in service in this State, the taxpayer is allowed a credit equal to 4.5% of the cost of the property, up to a credit of $ 4,500. This credit was repealed for activity after January 1, 2002. Estimate ( in millions): $ 24.6 Data Source: Department of Revenue records Note: The expenditure represents installments of previously- earned credits. 2. Credit for Investing in Renewable Energy Property Citation: G. S. 105- 129.16A Description: If a taxpayer that has constructed, purchased, or leased renewable energy property places it in service in this State, the taxpayer is allowed a credit equal to 35% of the cost of the property. Estimate ( in millions): $ 2.0 - $ 5.0 Data Source: Department of Revenue records 3. Credit for Investing in Dry- Cleaning Equipment That Does Not Use a Hazardous Substance Citation: G. S. 105- 129.16C Description: If a taxpayer that has purchased or leased qualified dry- cleaning equipment places it in service in this State for commercial purposes, the taxpayer is allowed a credit equal to 20% of the cost of the equipment. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue records Business and Energy Tax Credits - 42 - 4. Credit for Constructing Renewable Fuel Facilities Citation: G. S. 105- 129.16D Description: A taxpayer that constructs and installs and places in service in this State a qualified commercial facility for dispensing renewable fuel is allowed a credit equal to 15% of the cost to the taxpayer of constructing and installing the part of the dispensing facility, including pumps, storage tanks, and related equipment, that is directly and exclusively used for dispensing or storing renewable fuel. The credit must be taken in 3 annual installments. Estimate ( in millions): 0.0 Data Source: Department of Revenue records; NC Legislative Fiscal Note for HB 1636 ( 2003- 04 session) Tax Incentives for Recycling Facilities - 43 - Tax Incentives for Recycling Facilities ( Article 3C) Data for the estimates in this section were derived from evaluation of 2001 C-Corporation and S- Corporation tax returns. 1. Credit for Investing in Large or Major Recycling Facility Citation: G. S. 105- 129.27 Description: An owner that purchases or leases machinery and equipment for a major recycling facility in this State is allowed a credit equal to 50% of the amount payable by the owner during the taxable year to purchase or lease the machinery and equipment. Estimate ( in millions): included in item # 47 of Corporate Income Tax list Data Source: Department of Revenue 2002 and 2003 records 2. Credit for Reinvestment Citation: G. S. 105- 129.28 Description: A major recycling facility that is accessible by neither ocean barge nor ship and that transports materials to the facility or products away from the facility is allowed a credit against the income tax equal to its additional transportation and transloading expenses incurred due to its inability to use ocean barges or ships. The credit is capped at $ 10.4 million for 2004 and is refundable. Estimate ( in millions): included in item # 47 of Corporate Income Tax list Data Source: Department of Revenue 2003 records Historic Rehabilitation Tax Credits - 44 - Historic Rehabilitation Tax Credits ( Article 3D) Data for the estimates in this section were derived from evaluation of 2001 C-Corporation and S- Corporation tax returns, in addition to 2003 Individual income tax returns. 1. Credit for Rehabilitating Income- Producing Historic Structure Citation: G. S. 105- 129.35 Description: A taxpayer who is allowed a federal income tax credit under Section 47 of the Code for making qualified rehabilitation expenditures for a certified historic structure located in this State is allowed a credit equal to 20% of the expenditures that qualify for the federal credit. Estimate ( in millions): $ 4.0 Data Source: Department of Revenue records 2. Credit for Rehabilitating Nonincome- Producing Historic Structure Citation: G. S. 105- 129.36 Description: A taxpayer who is not allowed a federal income tax credit under Section 47 of the Code and who makes rehabilitation expenses for a State-certified historic structure located in this State is allowed a credit equal to 30% of the rehabilitation expenses. To qualify for the credit, the taxpayer's expenses must exceed $ 25,000 within a 24- month period. Estimate ( in millions): $ 7.0 Data Source: Department of Revenue records Low- Income Housing Tax Credits - 45 - Low- Income Housing Tax Credits ( Article 3E) The amounts of credits taken come from reports produced by the NC Department of Revenue 1. Credit for Low- Income Housing Awarded a Federal Credit Allocation before Jan. 1, 2003 Citation: G. S. 105- 129.41 Description: A taxpayer that is allowed a federal income tax credit for low- income housing under Section 42 of the Code with respect to a qualified North Carolina low- income building is allowed a credit equal to a percentage of the federal credit. Estimate ( in millions): included in next item 2. Credit for Low- Income Housing Awarded on or after Jan. 1, 2003 Citation: G. S. 105- 129.42 Description: A taxpayer that is allowed a federal income tax credit for low- income housing under Section 42 of the Code to construct or substantially rehabilitate a qualified North Carolina low- income housing development is allowed a credit equal to a percentage of the development's qualified basis. Estimate ( in millions): $ 47.1 Data Source: Department of Revenue records Research and Development Tax Credits - 46 - Research and Development Tax Credits ( Article 3F) 1. Credit for North Carolina Research and Development Citation: G. S. 105- 129.55( a) Description: A taxpayer thas has qualified North Carolina research expenses for the taxable year is allowed a credit equal to a percentage of the expenses, determined by the following criteria: ( 1) if the taxpayer is a small business, the applicable percentage is 3%; ( 2) for expenses with respect to research performed in an enterprise tier one, two, or three area, the percentage is 3%; ( 3) for expenses not covered under ( 1) or ( 2), the credit is 1% of expenses up to $ 50 million, 2% of additional expenses up to $ 200 million, and 3% of additional expenses above $ 200 million. Estimate ( in millions): $ 12.5 Data Source: NC Legislative Fiscal Note for HB 1631 or SB 1115 ( 2003- 04 Session) Note: This credit is effective for business activities occurring on or after May 1, 2005. The estimate is based on the expected amount if the credit had been in effect in 2004. This credit is a close substitute for Item # 4 under “ Tax Incentives for New and Expanding Businesses,” and it is likely that some taxpayers that are currently taking that credit would prefer to switch to this one. However, the estimate above does not reflect any substitution away from the other credit. 2. Credit for NC University Research Expenses Citation: G. S. 105- 129.55( b) Description: A taxpayer that has NC university research expenses for the taxable year is allowed a credit equal to 15% of the expenses. Estimate ( in millions): included in item # 1 Note: This credit is effective for business activities occurring on or after May 1, 2005. Tax Credit for Computer Manufacturing Facilities - 47 - Tax Incentives for Major Computer Manufacturing Facilities ( Article 3G) 1. Tax Incentives for Major Computer Manufacturing Facilities Citation: G. S. 105- 129.64 Description: A taxpayer that is expected to add at least 1,200 employees within five years to a computer manufacturing and distribution facility and invests, directly or indirectly, $ 100 million in constructing the facility is eligible for a credit against its franchise and income taxes. The credit is $ 10 million for 2005. For taxable years beginning in 2006, the amount of the credit is determined based on the levels of employment and production at the facility. Estimate ( in millions): 0.0 Data Source: NC Legislative Fiscal Note for SB 2 ( 2004 Extra Session) Note: This credit is effective for tax years beginning on or after January 1, 2005. The estimate is based on the expected amount if the credit had been in effect in 2004. The Legislature’s Fiscal Note estimated a $ 10 million cost for 2005. Individual Income Tax - 48 - Individual Income Tax ( Article 4, Part 2) Brief Description and Tax Base Information The individual income tax is the largest component of the State’s general revenues. In fiscal year 2004- 05, the State collected over $ 8.4 billion from this tax. There are currently four marginal tax rates: 6%, 7%, 7.75% and 8.25%. The highest tax rate is scheduled to expire beginning with the 2008 tax year. Tax brackets vary by marital status and by whether an individual is either ( 1) the head of a household, ( 2) elderly, or ( 3) blind. The base of the individual income tax is federal taxable income. This implies that all federal tax deductions are passed on to the state. However, certain provisions have been “ decoupled” from the federal Code. Specifically, the amounts of the personal deduction and exemptions allowable on North Carolina income are not adjusted for inflation, unlike the federal levels. In addition, there are different provisions for deductions for accelerated depreciation for the years 2002- 2004. Deductions and tax credits estimated in this report reduced North Carolina personal income taxes by $ 780 million in 2004. This does not include the tax deductions available via the federal Code, such as the standard deduction and personal exemptions, deductions for mortgage interest payments, charitable deductions for itemizers, etc. Individual Income Tax - 49 - Table 5 2004 NC Individual Income Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 158 Certain Individuals upon Death less than 0.1 2 134.6( b)( 1) US and NC Obligation Interest 13.4 3 134.6( b)( 2) Disposition of Certain Obligations 0.1 4 134.6( b)( 3) Social Security Benefits in Excess of Federal Limit 179.4 5 134.6( b)( 5b) Government Retirement Income under Bailey Settlement 246.0 6 134.6( b)( 6) Private Retirement Plans and Government Pensions 68.8 7 134.6( b)( 10) Basis Adjustment for Disposed Property Unavailable 8 134.6( b)( 11) Severance Wages 9.7 9 134.6( b)( 14) Erroneous Conviction and Imprisonment less than 0.1 10 134.6( b)( 15) Interest Earned on Certain Trusts included in corporate income tax item # 47 11 134.6( b)( 16) Hurricane Floyd Reserve Fund less than 0.1 12 134.6( b)( 18) Disaster Relief Reserve Payments included in corporate income tax item # 23 13 134.7( a)( 4) Net Economic Losses $ 3.0 to $ 5.0 14 151.1 Construction of Dwellings for Handicapped Persons 0.1 15 151.11 Credit for Child Care and Certain Employment- Related Expenses 41.2 Individual Income Tax - 50 - Item Citation Short Title 2004 Estimate ( millions of dollars) 16 151.12 Credit for Certain Real Property Donations 15.6 17 151.13 Credit for Conservation Tillage Equipment less than 0.1 18 151.14 Credit for Gleaned Crops 0.1 19 151.18 Credit for the Disabled 0.7 20 151.21 Credit for Property Taxes Paid on Farm Machinery 1.5 21 151.22 Use of North Carolina Ports less than 0.1 22 151.24 Credit for Children 134.3 23 151.25 Construction of Poultry Composting Facility less than 0.1 24 151.26 Charitable Contributions by Nonitemizers 23.1 25 151.29 Film Industry Production Expenses included in corporate income tax item # 45 26 163.011 Investments in Qualified Businesses 6.0 27 Carry- Over Provisions 21.0 Individual Income Tax - 51 - Exemptions 1. Certain Individuals upon Death Citation: G. S. 105- 158 Description: Certain armed forces personnel and other individuals are exempted from taxation on all income for the year in which they died. Estimate ( in millions): less than $ 0.1 Data Source: Number of military deaths from Department of Defense Deductions 2. US and NC Obligation Interest Citation: G. S. 105- 134.6( b)( 1) Description: Deduction for interest on obligations of US, North Carolina, and nonprofit educational institutions. Estimate ( in millions): $ 13.4 Data Source: Department of Revenue 2003 Individual Income Tax records Note: Although not separately stated, the deductible amount for interest on State and local obligations would likely be less than $ 1 million. 3. Disposition of Certain Obligations Citation: G. S. 105- 134.6( b)( 2) Description: Deduction for gain from disposition of obligations issued before July 1, 1995, to the extent exempt from tax. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2003 Individual Income Tax records 4. Social Security Benefits in Excess of Federal Limit Citation: G. S. 105- 134.6( b)( 3) Description: Deduction for benefits received under Title II of the Social Security Act and amounts received from retirement annuities or pensions paid under the provisions of the Railroad Retirement Act of 1937. Estimate ( in millions): $ 179.4 Data Source: Department of Revenue 2003 Individual Income Tax records Individual Income Tax - 52 - 5. Government Retirement Income under Bailey Settlement Citation: G. S. 105- 134.6( b)( 5b) Description: Exemption for State, local or federal government retirement plans to the extent the amount is exempt pursuant to a court order in settlement of Bailey v. State and Patton v. State. Estimate ( in millions): $ 246.0 Data Source: Department of Revenue 2003 Individual Income Tax records 6. Private Retirement Plans and Government Pensions Citation: G. S. 105- 134.6( b)( 6) Description: Deduction for private retirement plans up to $ 2,000 or a State, local or federal government pension up to $ 4,000. Estimate ( in millions): $ 68.8 Data Source: Department of Revenue 2003 Individual Income Tax records 7. Basis Adjustment for Disposed Property Citation: G. S. 105- 134.6( b)( 10) Description: Deduction for the amount that the basis of property disposed of exceeds the federal basis. Estimate ( in millions): Unavailable 8. Severance Wages Citation: G. S. 105- 134.6( b)( 11) Description: Deduction for severance wages received from an employer as the result of the taxpayer's permanent termination from employment through no fault of the employee. The amount of wages deducted may not exceed $ 35,000. Estimate ( in millions): $ 9.7 Data Source: Department of Revenue 2002 Individual Income Tax records and NC Employment Security Commission data on unemployment insurance claims through 2004 Individual Income Tax - 53 - 9. Erroneous Conviction and Imprisonment Citation: G. S. 105- 134.6( b)( 14) Description: Deduction for the amount paid to the taxpayer under G. S. 148- 84 for erroneous conviction and imprisonment. Estimate ( in millions): less than $ 0.1 Data Source: Industrial Commission of the North Carolina Department of Commerce 10. Interest Earned on Certain Trusts Citation: G. S. 105- 134.6( b)( 15) Description: Deduction for interest earned on a trust established by two or more manufacturers to pay for damages. Estimate ( in millions): included in Corporation Income Tax item # 47 Data Source: Department of Revenue 2003 Individual Income Tax records 11. Hurricane Floyd Reserve Fund Citation: G. S. 105- 134.6( b)( 16) Description: Deduction for amount paid from Hurricane Floyd Reserve Fund. Estimate ( in millions): less than $ 0.1 12. Disaster Relief Reserve Payments Citation: G. S. 105- 134.6( b)( 18) Description: Deduction for amounts paid to taxpayers for hurricane relief from the Disaster Relief Reserve Fund, not to include amounts paid for goods and services provided by taxpayer. Estimate ( in millions): included in Corporate Income Tax item # 23 Data Source: Fiscal Research Division fiscal note. The estimate is based on expected payments to compensate for lost crop income. 13. Net Economic Losses Citation: G. S. 105- 134.7( a)( 4) Description: Deductions for net economic losses in last 5 years, arising from business transactions, business capital, or business property. Estimate ( in millions): $ 3.0 to $ 5.0 Data Source: Department of Revenue 2003 Individual Income Tax records Individual Income Tax - 54 - Tax Credits 14. Construction of Dwellings for Handicapped Persons Citation: G. S. 105- 151.1 Description: An owner of multifamily rental units located in this State is allowed a credit against income tax equal to $ 550 for each dwelling unit constructed that conforms to Volume I- C of the NC Building Code. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 15. Credit for Child Care and Certain Employment- Related Expenses Citation: G. S. 105- 151.11 Description: A person who is allowed a credit against federal income tax for a percentage of employment- related expenses under Section 21 of the Code shall be allowed a proportional credit on State income taxes. The amount of expenses for which a credit is claimed may not exceed $ 2,400 for one qualifying household member or $ 4,800 for multiple qualifying members. Estimate ( in millions): $ 41.2 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 16. Credit for Certain Real Property Donations Citation: G. S. 105- 151.12 Description: Credit of 25% for donations of real property for public beach access, public access to water or trails, fish and wildlife conservation, or other similar land conservation purposes. The credit may not exceed $ 250,000. Estimate ( in millions): $ 15.6 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 17. Credit for Conservation Tillage Equipment Citation: G. S. 105- 151.13 Description: Credit for conservation tillage equipment. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Individual Income Tax - 55 - 18. Credit for Gleaned Crops Citation: G. S. 105- 151.14 Description: A credit of 10% of the market price of unharvested crops donated by the grower to a qualified organization. Any unused credit may be carried forward for the succeeding five years. Estimate ( in millions): $ 0.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 19. Credit for the Disabled Citation: G. S. 105- 151.18 Description: A taxpayer who ( 1) is retired on disability, ( 2) at the time of retirement was totally and permanently disabled, and ( 3) claims a federal income tax credit for the elderly and disabaled for the taxable year is allowed a credit equal to 1/ 3 of the amount of the federal credit. A credit is also available for a disabled dependent. Estimate ( in millions): $ 0.7 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 20. Credit for Property Taxes Paid on Farm Machinery Citation: G. S. 105- 151.21 Description: A credit is allowed to individual farmers and individual shareholders of S Corporations engaged in farming equal to the amount of property taxes paid on farm machinery, or attachments and repair parts for farm machinery. This credit is not to exceed $ 1,000 and may not be carried forward. Estimate ( in millions): $ 1.5 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 21. Use of North Carolina Ports Citation: G. S. 105- 151.22 Description: A credit is allowed to individuals utilizing North Carolina ports in either Wilmington or Morehead City equal to the excess of current year charges paid on exported, processed cargo over the average of the current year and the two previous years. This credit may not exceed 50% of tax due less all other credits. The cumulative amount of credit cannot exceed $ 100,000. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2003 tax records Individual Income Tax - 56 - 22. Credit for Children Citation: G. S. 105- 151.24 Description: An individual who is allowed a federal child tax credit under Section 24 of the Code and whose adjusted gross income ( AGI) is less than a specified amount is allowed a credit of $ 100 for each dependent child. The credit cannot exceed the individual's tax liability for the year reduced by all other credits. Estimate ( in millions): $ 134.3 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Note: The credit prior to January 1, 2004 was $ 75 per dependent. 23. Construction of Poultry Composting Facility Citation: G. S. 105- 151.25 Description: A taxpayer who constructs in this State a poultry composting facility is allowed a credit of 25% of the installation, materials, and equipment costs of construction paid during the year. This credit may not exceed $ 1,000 for any single installation. Estimate ( in millions): less than $ 0.1 Data Source: Department of Revenue 2003 tax records 24. Charitable Contributions by Nonitemizers Citation: G. S. 105- 151.26 Description: A taxpayer who elects the standard deduction on their Federal income tax is allowed a credit of 7% of the taxpayer's excess charitable contributions. Excess contributions are those over 2% of the taxpayer's federal adjusted gross income. Estimate ( in millions): $ 23.1 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records 25. Film Industry Production Credits Citation: G. S. 105- 151.29 Description: A film or television production company that spends at least $ 250,000 in North Carolina on productions during the tax year is allowed a credit equal to 15% of qualifying expenses. Estimate ( in millions): included in Corporate Income Tax item # 45 Data Source: Fiscal Research Division fiscal note. The estimate is based on Department of Commerce data on expenses of productions in North Carolina. Individual Income Tax - 57 - 26. Investments in Qualified Businesses Citation: G. S. 105- 163.011 Description: A credit is allowed to individuals investing in the equity securities or subordinated debt of a North Carolina Enterprise Corporation, a limited partnership in which a North Carolina Enterprise Corporation is the only general partner, a qualified business venture, a qualified grantee business, or a qualified investment organization, equal to 25% of the amount invested or $ 50,000, whichever is less. Unused credits may be carried forward for five years. The total amount of all tax credits allowed to taxpayers may not exceed $ 7,000,000. Estimate ( in millions): $ 6.0 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Note: The cap on total tax credits claimed for investments made prior to 2004 was $ 6,000,000. Individual Income Tax - 58 - Table 6 Carry- Over Provisions for NC Individual Income Tax Description of tax credit Length of carry forwards Other conditions Credit for construction of dwelling units for handicapped persons 1 year Credit for child care and certain employment- related expenses none Credit for certain real property donations 5 years Credit for conservation tillage equipment 5 years Credit for gleaned crops 5 years Credit for the disabled none Credit or partial refund for tax paid on certain federal retirement benefits 2 years Credit for property taxes paid on farm machinery none Maximum credit = $ 1,000 Credit for North Carolina State Ports Authority 5 years Cannot exceed 50% of tax liability; maximum=$ 2 million Credit for children none Credit for construction of a poultry composting facility none Maximum=$ 1,000 per facility Credit for charitable contributions by non- itemizers none 27. Carry- Over Provisions Description: Various individual income tax credits may be carried forward. Estimate ( in millions): $ 21.0 Data Source: Department of Revenue 2002 and 2003 Individual Income Tax records Sales and Use Tax - 59 - Sales and Use Tax ( Article 5) Tax Base Information The sales tax in North Carolina is imposed on retail sales ( including the value of leases and rentals) of tangible property occurring in the State and the use tax is imposed on purchases made outside the State if the property purchased is used in the State. Currently, the sales tax is 4 ½ %. Local governments are allowed to add 2 ½ % to the tax. Mecklenburg County has an additional ½ % tax. In addition to retail sales, the sales and use tax is imposed on several services, such as accommodation rentals and laundry and dry cleaning services. Telecommunications services are taxed at 6% until November 2005 and 7% thereafter. All these funds are paid to the State. However, the Department of Revenue must distribute 18.26% of the taxes collected to local governments each quarter, less $ 2,620,948. After January 1, 2006, the reimbursement rate to local governments changes to 18.03%. ( See G. S. 105- 164.44F.) Satellite services are taxed at 5% until November 2005 and 7% thereafter. The sales tax rate on spirituous liquor is 7% as of October 1, 2005. For Fiscal Year 2004- 05, sales and use tax receipts for the State ( excluding local receipts) were approximately $ 4.6 billion. Sales and Use Tax - 60 - Table 7 2004 NC Sales and Use Tax Expenditure Estimates Item Citation Short Title 2004 Estimate ( millions of dollars) 1 164.4C( c)( 5) Pay Telephone Services less than 0.1 2 164.4C( c)( 7) One- Way Paging Services 4.8 3 164.4C( c)( 8) Telephone Charges by a Hotel or Motel 1.2 4 164.4C( c)( 9) Sales, Installation, Repair of Telecommunications Property 19.7 5 164.4C( c)( 10) Directory and Yellow- Page Advertising 1.9 6 164.4C( c)( 12) Information Services 26.1 7 164.4C( c)( 13) Internet Access Charges 53.5 8 164.4C( c)( 16) Charges Related to NC Information Highway and Other Government Data Networks 1.0 9 164.4C( f) Out- of- State Call Centers 14.1 10 164.13( 1) and ( 1a) Items Sold to Farmers 51.1 11 164.13( 2a) a Feeds, Litter and Medications for Farming 128.0 12 164.13( 2a) b Pesticides, Rodenticides and Related Products for Farming 10.7 13 164.13( 2a) c Defoliants for Commercial Use included in item # 12 14 164.13( 2a) d Plant Growth Inhibitors included in item # 12 15 164.13( 2a) e Semen for Artificial Insemination less than 0.1 Sales and Use Tax - 61 - Item Citation Short Title 2004 Estimate ( millions of dollars) 16 164.13( 3) Certain Products of Forests and Mines by Producers Unavailable 17 164.13( 4b) Farm Products Requiring Ice Preservation For Further Sale Unavailable 18 164.13( 4c) a Manufactured Facilities for Commercial Housing of Animals Unavailable 19 164.13( 4c) b and c Building Materials and Equipment for Animal Enclosures and Housing Unavailable 20 164.13( 4d) Tobacco Farming Items less than 0.1 21 164.13( 4e) Grain, Feed, or Soybean Storage Facilities Unavailable 22 164.13( 5b) Telephone Equipment 2.8 23 164.13( 5c) Radio and Television Broadcast Equipment 1.3 24 164.13( 5d) Cable Service Broadcast Equipment Unavailable 25 164.13( 7) Aquacultural Products in Raw State Unavailable 26 164.13( 9) Tangible Property Purchased for Commercial Fishing 1.5 27 164.13( 10) Items Used by Laundries and Dry Cleaning Businesses 1.0 28 164.13( 10a) a and b Lubricants Used by Major Recycling Facility Unavailable 29 164.13( 10a) c Electricity Used by Major Recycling Facility Unavailable 30 164.13( 11a) Diesel Fuel for Railroads Unavailable Sales and Use Tax - 62 - Item Citation Short Title 2004 Estimate ( millions of dollars) 31 164.13( 12) Durable Medical Equipment 30.0 32 164.13( 13) Prescription Drugs and Insulin 242.0 33 164.13( 13c) Chiropractors' Nutritional Supplements 0.2 34 164.13( 14) Public School Books 2.6 35 164.13( 15) Accounts of Sales Charged Off for Income Purposes Unavailable 36 164.13( 20) Sales by Blind Merchants 0.5 37 164.13( 21) Lease or Rental of Films for Exhibition 2.8 38 164.13( 22) Lease or Rental of Films, Transcriptions and Recordings to Broadcasters Unavailable 39 164.13( 22a) Audiovisual Masters 0.2 40 164.13( 23) a Packaging Items for Manufacturers, Producers and Retailers 52.8 41 164.13( 23) b Packaging Returned to Seller 0.1 42 164.13( 26) Food Sold by a Public or Private School Cafeteria 11.1 43 105.164.13( 26a) Food Sold by a Public School Cafeteria to Certain Child Care Centers included in item # 42 44 164.13( 27) Food Sold in Dining Rooms Operated by Educational Institutions 22.0 45 164.13( 28) Certain Sales of Newspapers 11.8 Sales and Use Tax - 63 - Item Citation Short Title 2004 Estimate ( millions of dollars) 46 164.13( 30) Vending Machine One- Cent Sales less than 0.1 47 164.13( 31) Meals for the Elderly less than 0.1 48 164.13( 31a) Food Sold by a Church or Religious Organization Unavailable 49 164.13( 34) Sales by Nonprofits Whose Proceeds Go to the State Unavailable 50 164.13( 35) Sales by Nonprofits Conducted Annually 1.0 51 164.13( 36) Advertising Supplements Sold with Newspapers 4.0 52 164.13( 38) Food Stamp Purchases 33.1 53 164.13( 39) Components of Free Distribution Periodicals 19.4 54 164.13( 41) Mobile Classrooms Purchased by Boards of Education or Community Colleges 0.5 55 164.13( 43) Custom Computer Software 5.0 56 164.13( 43a) Software Delivered Electronically Unavailable 57 164.13( 45) Items Purchased by Interstate Air Carriers included in item # 58 58 164.13( 45a) Lubricants Used in Maintenance of Commercial Aircraft 4.0 59 164.13( 45b) Items Purchased by Interstate Air Couriers Unavailable 60 164.13( 46) Electricity to Municipalities Supplied by Federal Agency Unavailable 61 164.13( 49a) Delivery Charges of Direct Mail 0.3 Sales and Use Tax - 64 - Item Citation Short Title 2004 Estimate ( millions of dollars) 62 164.13( 50) Goods Sold Through Vending Machines 4.5 63 164.13( 51) Water Delivered Through Main Pipes 43.5 64 164.13A Tips on Meals and Beverages 29.7 65 164.13B Food Exemption 416.8 66 164.13C Sales and Use Tax Holiday 11.0 67 164.14( a1) Cap on Tax of Aviation Fuel for Interstate Air Carriers 5.0 68 164.14( b) Refund of Sales Taxes to Nonprofits 183.0 69 164.14( c) Refund of Sales Taxes to Local Government 62.5 70 164.14( k) Motor Sports Events Refunds Unavailable 71 164.4( a)( 1a) Manufactured Homes 23.7 72 164.4( a)( 8) Modular Homes 6.6 73 164.4( a)( 1b) Aircraft and Boats 12.7 74 164.4( 1f) Electricity to Farmers, Manufacturers and Commercial Laundries 20.6 75 164.4( 1h) Electricity to Aluminum Smelting Facility 0.0 76 164.4( 4a) Electricity to Commercial Businesses and Residences 107.1 77 164.21B Credit for Local Cable Television Franchise Taxes 65.3 Sales and Use Tax - 65 - Exemptions 1. Pay Telephone Services Citation: G. S. 105- 164.4C( c)( 5) Description: Receipts of a pay telephone provider from the sale of pay telephone services. Estimate ( in millions): less than $ 0.1 Note: Volume of sales is not likely to exceed the level for a tax revenue loss of $ 100,00 or more. 2. One- Way Paging Services Citation: G. S. 105- 164.4C( c)( 7) Description: Paging service, unless the service provides two- way communication. Estimate ( in millions): $ 4.8 Data Source: 2002 Economic Census data for telecommunications Note: The estimate has been adjusted to take into account the tax rates on telecommuncations that apply after January 1, 2006. Consequently, the estimate uses an effective State tax rate of 5.74% ( that is, the 7% rate less the 18.03% share distributed to the local governments). 3. Telephone Charges by a Hotel or Motel Citation: G. S. 105- 164.4C( c)( 8) Description: Charges for telephone service made by a hotel, motel, or another entity whose gross receipts are taxable under G. S. 105- 164.4( a)( 3) when the charges are incidental to the occupancy of the entity's accomodations. Estimate ( in millions): $ 1.2 Data Source: 2002 Economic Census data for accomodations Note: See the note on Item # 2. 4. Sales, Installation, Repair of Telecommunications Property Citation: G. S. 105- 164.4C( c)( 9) Description: Receipts from the sale, installation, maintenance or repair of tangible personal property. Estimate ( in millions): $ 19.7 Data Source: 2002 Economic Census data for telecommunications Note: See the note on Item # 2. Sales and Use Tax - 66 - 5. Directory and Yellow- Page Advertising Citation: G. S. 105- 164.4C( c)( 10) Description: Directory advertising and yellow- page classified listings. Estimate ( in millions): $ 1.9 Data Source: 2003 Economic Census data for telecommunications Note: See the note on Item # 2. 6. Information Services Citation: G. S. 105- 164.4C( c)( 12) Description: An information service is a service that can generate, acquire, store, transform, process, retrieve, use, or make available information through a communications service. Estimate ( in millions): $ 26.1 Data Source: 2002 Economic Census data for telecommuncations and internet service providers Note: Includes data transmission services, data storage services and data management services. See the note on Item # 2. 7. Internet Access Charges Citation: G. S. 105- 164.4C( c)( 13) Description: Internet access service, electronic mail service, electronic bulletin board service, or similar on- line services. Estimate ( in millions): $ 53.5 Data Source: 2002 Economic Census data for internet service providers Note: Includes web hosting services. See the note on Item # 2. 8. Charges Related to NC Information Highway and Other Government Data Networks Citation: G. S. 105- 164.4C( c)( 16) Description: Charges to a State agency or to a local unit of government for the North Carolina Information Highway and other data networks owned or leased by the State or unit of local government. Estimate ( in millions): $ 1.0 Data Source: ITS telecommunications revenues in 2003- 05 Certified Budget, Office of State Budget and Management; State Controller’s 2004 IT report Sales and Use Tax - 67 - 9. Out- of- State Call Centers Citation: G. S. 105- 164.4C( f) Description: The gross receipts tax on telecommunications service that originates outside this State, terminates in this State, and is provided by a call center that has a direct pay permit many not exceed $ 50,000. Estimate ( in millions): $ 14.1 Data Source: 1997 and 2002 Economic Census data for Telephone Call Centers, US Census Bureau Note: The cap effectively eliminates taxes on company revenues over $ 833,333. See the note on Item # 2. 10. Items Sold to Farmers Citation: G. S. 105- 164.13( 1) and ( 1a) Description: Various items sold for agricultural purposes: ( a) commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, potting soil, and seeds ( b) farm machinery, attachment and repair parts for farm machinery, and lubricants applied to farm machinery, ( c) horse or mule, ( d) fuel other than electricity, ( e) containers sold to a farmer used to transport or package products. Estimate ( in millions): $ 51.1 Data Source: Department of Revenue sales tax records; North Carolina Department of Agriculture and Consumer Services ( NCDACS); 2002 Economic Census; USDA Economic Research Service 11. Feeds, Litter and Medications for Farming Citation: G. S. 105- 164.13( 2a) a Description: Remedies, vaccines, medications, litter materials, and feeds for animals raised for commercial purposes. Estimate ( in millions): $ 128.0 Data Source: National Agriculture Statistics Service ( NSS), USDA; North Carolina Department of Agriculture and Consumer Services ( NCDACS) 12. Pesticides, Rodenticides and Related Products for Farming Citation: G. S. 105- 164.13( 2a) b Description: Rodenticides, insecticides, herbicides, fungicides and pesticides for use on plants grown for commercial purposes. Estimate ( in millions): $ 10.7 Data Source: National Agriculture Statistics Service ( NSS), USDA; North Carolina Department of Agriculture and Consumer Services ( NCDACS) Note: Includes Items # 13 and 14. Sales and Use Tax - 68 - 13. Defoliants for Commercial Use Citation: G. S. 105- 164.13( 2a) c Description: Defoliants for use on cotton or other crops grown from commercial purposes. Estimate ( in millions): included in item # 12 14. Plant Growth Inhibitors Citation: G. S. 105- 164.13( 2a) d Description: Plant growth inhibitors, regulators, or stimulators, including systemic and contact or other sucker control agents for tobacco and other crops grown for commercial purposes. Estimate ( in millions): included in item # 12 15. Semen for Artificial Insemination Citation: G. S. 105- 164.13( 2a) e Description: Sale of semen for artificial insemination. Estimate ( in millions): less than $ 0.1 Note: Although no direct information on semen sales were found, North Carolina is not a major cattle or dairy producer; the cost of artificial insemination of poultry and hogs is not likely to be large. Comparable estimates from other states were used to support estimate. 16. Certain Products of Forests and Mines by Producers Citation: G. S. 105- 164.13( 3) Description: Exemption for sales of products of forests and mines in their original or non- manufactured state when such sales are made by the producer in the capacity of producer. Estimate ( in millions): Unavailable Note: Although a portion of sales of these products will undergo further processing or be sold for resale, a sizable amount of goods will be sold at retail by the producer, especially products of the mine such as gravel sold to road contractors. Sales and Use Tax - 69 - 17. Farm Products Requiring Ice Preservation For Further Sale Citation: G. S. 105- 164.13( 4b) Description: Exemption for sales of products of a farm sold in their original state by the producer of the products if the producer is not primarily a retail merchant and ice is used to preserve agriculture, aquaculture and commercial fishery products until the products are sold at retail. Estimate ( in millions): Unavailable Note: No information on direct retail sales by farmers for this category was available. 18. Manufactured Facilities for Commercial Housing of Animals Citation: G. S. 105- 164.13( 4c) a Description: Sales of commercially manufactured facilities for commercial purposes in housing, raising or feeding animals or for housing related equipment. Estimate ( in millions): Unavailable 19. Building Materials and Equipment for Animal Enclosures and Housing Citation: G. S. 105- 164.13( 4c) b and c Description: Buildings, materials, supplies, fixtures, and equipment that become a part of and are used in the construction, repair, or improvement of an enclosure or a structure as specified in this subsection. Commercially manufactured equipment, and parts and accessories for the equipment, used in a facility that is exempt from tax in this subsection. Estimate ( in millions): Unavailable 20. Tobacco Farming Items Citation: G. S. 105- 164.13( 4d) and ( 4e) Description: ( a) lease or rental of tobacco sheets used in handling tobacco in the warehouse and transporting tobacco to and from the warehouse, ( b) metal flue sold for use in curing tobacco, whether the flue is attached to a handfired furnace or used in connection with a mechanical burner, ( c) bulk tobacco barn or rack, parts and accessories attached to the tobacco barn or rack, and any similar apparatus, part or accessory used to cure or dry tobacco or another crop, ( 4e) a grain, feed, or soybean storage facility, and parts and accessories attached to the facility. Estimate ( in millions): less than $ 0.1 Note: Volume is not likely to exceed the level for a loss of $ 100,000 or more. Sales and Use Tax - 70 - 21. Grain, Feed, and Soybean Storage Facilities Citation: G. S. 105- 164.13( 4e) Description: Sales of grain, feed, or soybean storage facilities and attached parts and accessories. Estimate ( in millions): Unavailable 22. Telephone Equipment Citation: G. S. 105- 164.13( 5b) Description: Sales to a telephone company of central office equipment, private branch exchange equipment, terminal equipment ( other than public pay telephone), switchboard equipment, and attached parts and accessories. Estimate ( in millions): $ 2.8 Data Source: Department of Revenue sales tax records; 2002 Economic Census 23. Radio and Television Broadcast Equipment Citation: G. S. 105- 164.13( 5c) Description: Sales of towers, broadcasting equipment, and attached parts and accessories to an FCC- licensed radio or television company. Estimate ( in millions): $ 1.3 Data Source: Department of Revenue sales tax records; 2002 Economic Census 24. Cable Service Broadcast Equipment Citation: G. S. 105- 164.13( 5d) Description: Sales of broadcasting equipment and attached parts and accessories, excluding cable, to a cable service provider. Estimate ( in millions): Unavailable 25. Aquacultural Products in Raw State Description: Exemption for sales of products of waters in their original or non-manufactured state when such sales are made by the producer in the capacity of producer. Fish and seafoods are likewise exempt when sold by the fisherman in that capacity. Citation: G. S. 105- 164.13( 7) Estimate ( in millions): Unavailable Note: No information on direct retail sales by producers for this category was available. Sales and Use Tax - 71 - 26. Tangible Property Purchased for Commercial Fishing Citation: G. S. 105- 164.13( 9) Description: Sales of boats, fuel oil, lubricating oils, machinery, equipment, nets rigging, paints, parts, accessories, and supplies used in commercial fishing. Estimate ( in millions): $ 1.5 Data Source: NC Fisheries Association, NC Division of Marine Fisheries; sample of NC corporate income tax returns 27. Items Used by Laundries and Dry- Cleaning Businesses Citation: G. S. 105- 164.13( 10) Description: Sales to commercial laundries or to pressing and dry- cleaning establishments of articles or materials used for the identification of garments being laundered or dry- cleaned, wrapping paper, bags, hangers, starch, soaps, detergents, cleaning fluids and other compounds or chemicals applied directly to the garments. Estimate ( in millions): $ 1.0 Data Source: 2002 Economic Census, US Census Bureau; sample of NC corporate income tax returns 28. Lubricants Used by Major Recycling Facility Citation: G. S. 105- 164.13( 10a) a and b Description: Sales to major recycling facility of lubricants and other additives for motor vehicles or machinery and supplies used at the facility and accessories. Estimate ( in millions): Unavailable 29. Electricity Used by Major Recycling Facility Citation: G. S. 105- 164.13( 10a) c Description: Sales to a major recycling facility of electricity used at the facility. Estimate ( in millions): Unavailable 30. Diesel Fuel for Railroads Citation: G. S. 105- 164.13( 11a) Description: Diesel fuel for railroad companies for use in rolling stock other than motor vehicles. Estimate ( in millions): Unavailable Sales and Use Tax - 72 - 31. Durable Medical Equipment Citation: G. S. 105- 164.13( 12) Description: Sales of prosthetic devices, mobility- enhancing equipment sold on a prescription, durable medical equipment sold on prescription, durable medical supplies sold on prescription. Estimate ( in millions): $ 30.0 Data Source: Centers for Medicare & Medicaid Services, US Department of Health and Human Services ( www. cms. gov) 32. Prescription Drugs and Insulin Citation: G. S. 105- 164.13( 13) Description: Drugs required by federal law to be dispensed only on prescription, over- the- counter drugs sold on prescription, insulin. Estimate ( in millions): $ 242.0 Data Source: Centers for Medicare & Medicaid Services, US Department of Health and Human Services ( www. cms. gov) 33. Chiropractors' Nutritional Supplements Citation: G. S. 105- 164.13( 13c) Description: Nutritional supplements sold by a chiropractic physician at a chiropractic office to a patient as part of the patient's plan of treatment. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue sales and use tax records; 1997 and 2002 Economic Census data for Health Care and Social Assistance Industries 34. Public School Books Citation: G. S. 105- 164.13( 14) Description: Sales of public school books on the adopted list, the selling price of which is set by State contract. Estimate ( in millions): $ 2.6 Data Source: State revenue from sales of textbooks from 2003- 04 Statistical Report, NC Department of Public Instruction Sales and Use Tax - 73 - 35. Accounts of Sales Charged Off for Income Purposes Citation: G. S. 105- 164.13( 15) Description: Accounts of purchasers, representing taxable sales, on which the sales and use tax has been paid, that are found to be worthless and actually charged off for income tax purposes may be deducted from gross sales. In the case of a municipality that sells electricity, the account may be deducted if it meets all the conditions for charge- off that would apply if the municipality were subject to income tax. Estimate ( in millions): Unavailable 36. Sales by Blind Merchants Citation: G. S. 105- 164.13( 20) Description: Sales by blind merchants operating under supervision of the Department of Health and Human Services. Estimate ( in millions): $ 0.5 Data Source: Services for the Blind, NC Department of Health and Human Services 37. Lease or Rental of Films for Exhibition Citation: G. S. 105- 164.13( 21) Description: Lease or rental of motion picture films used for exhibition purposes where the lease or rental of such property is an established business or part of an established business. Estimate ( in millions): $ 2.8 Data Source: Sample of income tax returns for movie theaters; Department of Revenue privilege tax records 38. Lease or Rental of Films, Transcriptions and Recordings to Broadcasters Citation: G. S. 105- 164.13( 22) Description: Lease or rental of films, motion picture films, transcriptions and recordings to radio stations and television stations operating under a certificate from the Federal Communications Commission. Estimate ( in millions): Unavailable Sales and Use Tax - 74 - 39. Audiovisual Masters Citation: G. S. 105- 164.13( 22a) Description: Sales of audiovisual masters made or used by a production company in making images for first generation reproduction. Estimate ( in millions): $ 0.2 Data Source: Department of Revenue Sales and Use Tax records; NC Film Office 40. Packaging Items for Manufacturers, Producers and Retailers Citation: G. S. 105- 164.13( 23) a Description: Sales of the following packaging items: wrapping paper, cloth, plastic bags, labels, wrapping twine, packages and containers, cartons, cores, cones or spools, wooden boxes, baskets, coops and barrels, including paper cups, napkins and drinking straws and like articles sold to manufacturers, producers and retailers, when such materials constitute a part of the sale of tangible personal property. Estimate ( in millions): $ 52.8 Data Source: Packaging costs from 1997 economic census ( manufacturers) and 2002 Business Expenses Survey ( retailers, wholesalers) 41. Packaging Returned to Seller Description: Packaging that is required to be returned to seller. Citation: G. S. 105- 164.13( 23) b Estimate ( in millions): $ 0.1 Note: Prior to the enactment of this exemption, these items were being taxed as reusable containers. In practice, many of these containers contained ingredient materials that were exempt from taxation. The sellers of the products were taxed on the lease of the containers. 42. Food Sold by a Public or Private School Cafeteria Citation: G. S. 105- 164.13( 26) Description: Food sold not for profit by public or private school cafeterias within school building during the regular school day. Estimate ( in millions): $ 11.1 Data Source: Common Core of Data, National Center for Education Statistics; statistical report from NC Dept. of Public Instruction Note: Includes Item # 43. Sales and Use Tax - 75 - 43. Food Sold by a Public School Cafeteria to Certain Child Care Centers Citation: G. S. 105- 105.164.13( 26a) Description: sales of food sold not for profit by a public school cafeteria to a child care center that participates in the Child and Adult Care Food Program. Estimate ( in millions): included in item # 42 44. Food Sold in Dining Rooms Operated by Educational Institution Citation: G. S. 105- 164.13( 27) Description: Sales of food served to students in dining rooms regularly operated by State or private education institutions or student organizations thereof. Estimate ( in millions): $ 22.0 Data Source: Statistical Abstract of Higher Education in North Carolina, University of North Carolina 45. Certain Sales of Newspapers Citation: G. S. 105- 164.13( 28) Description: Sales of newspapers by newspaper street vendors, by newspaper carriers making door- to- door deliveries and by means of vending machines and sales of magazines by magazine vendors making door- to- door sales. Estimate ( in millions): $ 11.8 Data Source: Department of Revenue Sales and Use Tax records 46. Vending Machine One- Cent Sales Citation: G. S. 105- 164.13( 30) Description: Sales from vending machines when sold by the owner or lessee of said machines at a price of $ 0.01 per sale. Estimate ( in millions): less than $ 0.1 Note: Volume is not likely to exceed the level for a $ 100,000 loss. 47. Meals for the Elderly Citation: G. S. 105- 164.13( 31) Description: Sales of meals not for profit to elderly and incapacitated persons by charitable or religious organizations not operated for profit which are entitled to the refunds provided by G. S. 105- 164.14( b), when such meals are delivered to the purchasers at their places of abode. Estimate ( in millions): less than $ 0.1 Data Source: Sales of Meals on Wheels data from Wake, Buncombe and Forsyth Counties Sales and Use Tax - 76 - 48. Food Sold by a Church or Religious Organization Citation: G. S. 105- 164.13( 31a) Description: Food sold by a church or religious organization when proceeds are used for religious purposes. Estimate ( in millions): Unavailable 49. Sales by Nonprofits Whose Proceeds Go to the State Citation: G. S. 105- 164.13( 34) Description: Sales of items by a nonprofit civic, charitable, educational, scientific or literary organization when the net proceeds of the sales will be given to the State of North Carolina or to one of its agencies or instrumentalities, or to one or more nonprofit charitable organizations, one of whose purposes is to serve as a conduit through which such net proceeds will flow to the State or to one or more of its agencies or instrumentalities. Estimate ( in millions): Unavailable 50. Sales by Nonprofits Conducted Annually Citation: G. S. 105- 164.13( 35) Description: Sales by nonprofits conducted annually when the proceeds are used for the organization's activities. The products sold must be delivered to the purchaser within 60 days after the first solicitation of any sale made during the organization's annual sales period. Estimate ( in millions): $ 1.0 Data Source: Annual reports of Girl Scout Councils 51. Advertising Supplements Sold with Newspapers Citation: G. S. 105- 164.13( 36) Description: Advertising supplements and any other printed matter ultimately to be distributed with newspaper. Estimate ( in millions): $ 4.0 Data Source: 2002 Economic Census, US Census Bureau Sales and Use Tax - 77 - 52. Food Stamp Purchases Citation: G. S. 105- 164.13( 38) Description: Food and other items lawfully purchased under the Food Stamp Program and supplemental foods lawfully purchased with a food instrument issued under the Special Supplemental Food Program and supplemental foods purchased for direct distribution by the Special Supplemental Food Program. Estimate ( in millions): $ 33.1 Data Source: Food Stamp Program, US Department of Agriculture estimates of NC food stamps receipts through 2003. Estimate for 2004 based on the reported 14% increase in the number of Food Stamp recipients in NC between July 2003 and July 2004. 53. Components of Free Distribution Periodicals Citation: G. S. 105- 164.13( 39) Description: Sales of paper, ink, and other tangible persona |
OCLC number | 16577296 |