North Carolina biennial tax expenditure report

              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
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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
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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
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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
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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
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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
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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
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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