views
TAX ALERT
March 2017
SALT Tax Alert - North Carolina: More Proposed Tax Law Changes
Under General Assembly Consideration
John Iannotti, Partner | State & Local Tax Tony Buffkin, Director | State & Local Tax
Tom Yonchak, Senior Manager | State & Local Tax
North Carolina House Bill 356 was filed by House Finance Committee co-chairs on March 14, 2017, which continue North
Carolina’s recent trend toward lowering the tax burden on businesses as well individuals in the state in the following areas.
Increased Standard Deduction for Individuals
This proposal would continue the trend of lowering the state’s
individual income tax by increasing the standard deduction for
all four filing statuses from $17,500 to $18,500 for Married Filing
Joint, $14,000 to $14,800 for Head Of Household, and $8,750 to
$9,250 for both Head Of Household and Married Filing Separate
returns.
This increase in the standard deduction would be
effective for tax years beginning on or after January 1, 2018.
types potentially impacted by the new sales tax exemptions
include manufacturers, major recycling facilities, research
and development, software publishing, industrial machinery
refurbishing, companies operating at a port facility, metal
recyclers, precious metal extractors, metal fabricators and large
manufacturing & distribution facilities.
An additional, new sales tax exemption would be added for
repair or replacement parts for a “ready mix concrete mill”
whether the mill is free standing or attached to a vehicle. The
Repeal of the 1% Mill Machinery Tax
The proposed bill would create a full sales and use tax exemption
for certain machinery and other equipment that are currently
subject to the 1 percent privilege tax by repealing Article 5F in its
entirety and adding ten new sales tax exemptions for the items
that are currently subject to tax under Article 5F. The business
Assurance | Tax | Advisory | dhgllp.com
new exemptions would become effective July 1, 2017 and
would place North Carolina in line with neighboring states
(South Carolina, Virginia, Georgia and Tennessee) that provide
a full exemption for manufacturing machinery and equipment,
although the rules for applying the manufacturing exemptions
vary for each state.
views
base. The result would be that all entities subject to the
franchise tax would solely utilize the net worth base, which
was greatly simplified for taxable years beginning January
1, 2017. The elimination of both these alternative franchise
tax bases would greatly reduce the burden on corporations
employing significant tangible property in the state.
Interestingly, the bill also directs the Revenue Laws Study
Committee to conduct a review of how the Department of
Revenue has interpreted the relevant terms used in Article 5 such
as “manufacturing” and make recommendations for potential
statutory clarification of the items that should qualify and how
the new sales tax exemptions should be administered. North
Carolina currently has no statutory definition of “manufacturing”
If enacted, the proposed elimination of the two property
bases would not take effect until taxable years starting on or
after January 1, 2019, and would therefore be applicable for
2018 and later corporate tax returns.
and the term has been the subject of numerous controversies
with the Department of Revenue over the years.
Further Simplification of the Franchise Tax
Link:
Currently, the state’s franchise tax is imposed on corporate
http://www.ncleg.net/Applications/
taxpayers doing business in the state on the greater of their;
BillLookUp/LoadBillDocument.
• apportioned net worth (net worth base),
aspx?SessionCode=2017&DocNum=1358&SeqNum=0
• investment in North Carolina tangible property (tangible
property base), or
For more information on this proposed bill or any recent
updates, contact your tax advisor or one of the following
Dixon Hughes Goodman SALT leaders:
• 55 percent of their total North Carolina real and tangible
personal property tax appraised value (appraised value
base).
John Iannotti
Partner
704.367.7068
[email protected]
A deduction from the tangible property base used to be
allowed for indebtedness incurred and existing by virtue of the
purchase or permanent improvement of real estate located
in North Carolina; however, this deduction was repealed for
taxable years beginning January 1, 2017. The repeal of this
deduction has resulted in significant franchise tax increases
for many corporations owning North Carolina real estate.
Tom Yonchak
Senior Manager
704.367.7088
[email protected]
One of the more interesting proposals in the bill makes a
significant change to the Franchise Tax by eliminating both
the alternate appraised value base and the tangible property
Assurance | Tax | Advisory | dhgllp.com
2
Tony Buffkin, CMI
Director
704.367.7057
[email protected]