§ 105-122. Franchise or privilege tax on domestic and foreign corporations. - North Carolina Statutes

§ 105‑122.  Franchise orprivilege tax on domestic and foreign corporations.

(a)        (Effective fortaxable years beginning before January 1, 2009) Every corporation, domesticand foreign, incorporated, or, by an act, domesticated under the laws of thisState or doing business in this State, except as otherwise provided in thisArticle, shall, on or before the fifteenth day of the third month following theend of its income year, annually make and deliver to the Secretary in the formprescribed by the Secretary a full, accurate, and complete report and statementsigned by either its president, vice‑president, treasurer, assistanttreasurer, secretary or assistant secretary, containing the facts andinformation required by the Secretary as shown by the books and records of thecorporation at the close of the income year.

There shall be annexed to thereturn required by this subsection the affirmation of the officer signing thereturn.

(a)        (Effective fortaxable years beginning on or after January 1, 2009) An annualfranchise or privilege tax is imposed on a corporation doing business in thisState. The tax is determined on the basis of the books and records of thecorporation as of the close of its income year. A corporation subject to thetax must file a return under affirmation with the Secretary at the place and inthe manner prescribed by the Secretary. The return must be signed by thepresident, vice‑president, treasurer, or chief financial officer of thecorporation. The return is due on or before the fifteenth day of the fourthmonth following the end of the corporation's income year.

(b)        Determination ofCapital Base. – A corporation taxed under this section shall determine thetotal amount of its issued and outstanding capital stock, surplus, andundivided profits. No reservation or allocation from surplus or undividedprofits is allowed except as provided below:

(1)        Definite and accruedlegal liabilities.

(1a)      (Effective fortaxable years beginning on or after January 1, 2010) Billings in excess ofcosts that are considered a deferred liability under the percentage ofcompletion method of revenue recognition.

(2)        Taxes accrued,dividends declared, and reserves for depreciation of tangible assets aspermitted for income tax purposes.

(3)        When includingdeferred tax liabilities, a corporation may reduce the amount included in itsbase by netting against that amount deferred tax assets. The reduction may notdecrease deferred tax liabilities below zero (0).

(4)        Reserves for thecost of any air‑cleaning device or sewage or waste treatment plant,including waste lagoons, and pollution abatement equipment purchased orconstructed and installed which reduces the amount of air or water pollutionresulting from the emission of air contaminants or the discharge of sewage andindustrial wastes or other polluting materials or substances into the outdooratmosphere or streams, lakes, or rivers, upon condition that the corporationclaiming such deductible liability shall furnish to the Secretary a certificatefrom the Department of Environment and Natural Resources or from a local airpollution control program for air‑cleaning devices located in an areawhere the Environmental Management Commission has certified a local airpollution control program pursuant to G.S. 143‑215.112 certifying thatthe Environmental Management Commission or local air pollution control programhas found as a fact that the air‑cleaning device, waste treatment plantor pollution abatement equipment purchased or constructed and installed asabove described has actually been constructed and installed and that such plantor equipment complies with the requirements of the Environmental ManagementCommission or local air pollution control program with respect to such devices,plants or equipment, that such device, plant or equipment is being effectivelyoperated in accordance with the terms and conditions set forth in the permit,certificate of approval, or other document of approval issued by theEnvironmental Management Commission or local air pollution control program andthat the primary purpose thereof is to reduce air or water pollution resultingfrom the emission of air contaminants or the discharge of sewage and waste andnot merely incidental to other purposes and functions.

(5)        Reserves for thecost of purchasing and installing equipment or constructing facilities for thepurpose of recycling or resource recovering of or from solid waste or for thepurpose of reducing the volume of hazardous waste generated shall be treated asdeductible for the purposes of this section upon condition that the corporationclaiming such deductible liability shall furnish to the Secretary a certificatefrom the Department of Environment and Natural Resources certifying that theDepartment of Environment and Natural Resources has found as a fact that theequipment or facility has actually been purchased, installed or constructed,that it is in conformance with all rules and regulations of the Department ofEnvironment and Natural Resources, and the recycling or resource recovering isthe primary purpose of the facility or equipment.

(6)        Reserves for thecost of constructing facilities of any private or public utility built for thepurpose of providing sewer service to residential and outlying areas shall betreated as deductible for the purposes of this section; the deductibleliability allowed by this section shall apply only with respect to suchpollution abatement plants or equipment constructed or installed on or afterJanuary 1, 1955.

(7)        The cost of treasurystock.

(8)        In the case of aninternational banking facility, the capital base shall be reduced by the excessof the amount as of the end of the taxable year of all assets of aninternational banking facility which are employed outside the United Statesover liabilities of the international banking facility owed to foreign persons.For purposes of such reduction, foreign persons shall have the same meaning asdefined in G.S. 105‑130.5(b)(13)d.

Every corporation doingbusiness in this State which is a parent, subsidiary, or affiliate of anothercorporation shall add to its capital stock, surplus, and undivided profits allindebtedness owed to a parent, subsidiary, or affiliated corporation as a partof its capital used in its business and as a part of the base for franchise taxunder this section. If any part of the capital of the creditor corporation iscapital borrowed from a source other than a parent, subsidiary, or affiliate,the debtor corporation, which is required under this subsection to include inits tax base the amount of debt by reason of being a parent, subsidiary, oraffiliate of the creditor corporation, may deduct from the debt included aproportionate part determined on the basis of the ratio of the borrowed capitalof the creditor corporation to the total assets of the creditor corporation. Ifthe creditor corporation is also taxable under the provisions of this section,the creditor corporation is allowed to deduct from the total of its capital,surplus, and undivided profits the amount of any debt owed to it by a parent,subsidiary or affiliated corporation to the extent that the debt has beenincluded in the tax base of the parent, subsidiary, or affiliated debtorcorporation reporting for taxation under the provisions of this section.

(b1)      Definitions. – Thefollowing definitions apply in subsection (b) of this section:

(1)        Affiliate. – Thesame meaning as specified in G.S. 105‑130.6.

(2)        Indebtedness. – Allloans, credits, goods, supplies, or other capital of whatsoever naturefurnished by a parent, subsidiary, or affiliated corporation, other thanindebtedness endorsed, guaranteed, or otherwise supported by one of thesecorporations.

(3)        Parent. – The samemeaning as specified in G.S. 105‑130.6.

(4)        Subsidiary. – Thesame meaning as specified in G.S. 105‑130.6.

(c)        Repealed by SessionLaws 2007‑491, s. 2, effective January 1, 2008.

(c1)      Apportionment. – Acorporation that is doing business in this State and in one or more otherstates must apportion its capital stock, surplus, and undivided profits to thisState. A corporation must use the apportionment method set out in subdivision(1) of this subsection unless the Department has authorized it to use adifferent method under subdivision (2) of this subsection. The portion of acorporation's capital stock, surplus, and undivided profits determined byapplying the appropriate apportionment method is considered the amount ofcapital stock, surplus, and undivided profits the corporation uses in itsbusiness in this State.

(1)        Statutory. – Acorporation that is subject to income tax under Article 4 of this Chapter mustapportion its capital stock, surplus, and undivided profits by using thefraction it applies in apportioning its income under that Article. Acorporation that is not subject to income tax under Article 4 of this Chaptermust apportion its capital stock, surplus, and undivided profits by using thefraction it would be required to apply in apportioning its income if it weresubject to that Article. The apportionment method set out in this subdivisionis considered the statutory method of apportionment and is presumed to be thebest method of determining the amount of a corporation's capital stock,surplus, and undivided profits attributable to the corporation's business inthis State.

(2)        Alternative. – Acorporation that believes the statutory apportionment method set out insubdivision (1) of this subsection subjects a greater portion of its capitalstock, surplus, and undivided profits to tax under this section than isattributable to its business in this State may make a written request to theSecretary for permission to use an alternative method. The request must set outthe reasons for the corporation's belief and propose an alternative method. Thecorporation has the burden of establishing by clear, cogent, and convincingproof that the statutory apportionment method subjects a greater portion of thecorporation's capital stock, surplus, and undivided profits to tax under thissection than is attributable to its business in this State and that theproposed alternative method is a better method of determining the amount of thecorporation's capital stock, surplus, and undivided profits attributable to thecorporation's business in this State.

TheSecretary must issue a written decision on a corporation's request for analternative apportionment method. If the decision grants the request, it mustdescribe the alternative method the corporation is authorized to use and statethe tax years to which the alternative method applies. A decision may apply tono more than three tax years. A corporation may renew a request to use analternative apportionment method by following the procedure in thissubdivision. A decision of the Secretary on a request for an alternativeapportionment method is final and is not subject to administrative or judicialreview. A corporation authorized to use an alternative method may apportion itscapital stock, surplus, and undivided profits in accordance with thealternative method or the statutory method.

(d)        After determiningthe proportion of its total capital stock, surplus and undivided profits as setout in subsection (c) of this section, which amount shall not be less thanfifty‑five percent (55%) of the appraised value as determined for advalorem taxation of all the real and tangible personal property in this Stateof each corporation nor less than its total actual investment in tangibleproperty in this State, every corporation taxed under this section shallannually pay to the Secretary of Revenue, at the time the report and statementare due, a franchise or privilege tax at the rate of one dollar and fifty cents($1.50) per one thousand dollars ($1,000) of the total amount of capital stock,surplus and undivided profits as provided in this section. The tax imposed in thissection shall not be less than thirty‑five dollars ($35.00) and shall befor the privilege of carrying on, doing business, and/or the continuance ofarticles of incorporation or domestication of each corporation in this State.Appraised value of tangible property including real estate is the ad valoremvaluation for the calendar year next preceding the due date of the franchisetax return. The term "total actual investment in tangible property"as used in this section means the total original purchase price orconsideration to the reporting taxpayer of its tangible properties, includingreal estate, in this State plus additions and improvements thereto less reservefor depreciation as permitted for income tax purposes, and also less anyindebtedness incurred and existing by virtue of the purchase of any real estateand any permanent improvements made thereon. In computing "total actualinvestment in tangible personal property" there shall also be deductedreserves for the entire cost of any air‑cleaning device or sewage orwaste treatment plant, including waste lagoons, and pollution abatementequipment purchased or constructed and installed which reduces the amount ofair or water pollution resulting from the emission of air contaminants or thedischarge of sewage and industrial wastes or other polluting materials orsubstances into the outdoor atmosphere or into streams, lakes, or rivers, uponcondition that the corporation claiming this deduction shall furnish to theSecretary a certificate from the Department of Environment and NaturalResources or from a local air pollution control program for air‑cleaningdevices located in an area where the Environmental Management Commission hascertified a local air pollution control program pursuant to G.S. 143‑215.112certifying that said Department or local air pollution control program hasfound as a fact that the air‑cleaning device, waste treatment plant orpollution abatement equipment purchased or constructed and installed as abovedescribed has actually been constructed and installed and that the device,plant or equipment complies with the requirements of the EnvironmentalManagement Commission or local air pollution control program with respect tothe devices, plants or equipment, that the device, plant or equipment is beingeffectively operated in accordance with the terms and conditions set forth inthe permit, certificate of approval, or other document of approval issued bythe Environmental Management Commission or local air pollution control programand that the primary purpose is to reduce air or water pollution resulting fromthe emission of air contaminants or the discharge of sewage and waste and notmerely incidental to other purposes and functions. The cost of constructingfacilities of any private or public utility built for the purpose of providingsewer service to residential and outlying areas is treated as deductible forthe purposes of this section; the deductible liability allowed by this sectionshall apply only with respect to pollution abatement plants or equipmentconstructed or installed on or after January 1, 1955.

(d1)      Credits. – Acorporation is allowed a credit against the tax imposed by this section for ataxable year equal to one‑half of the amount of tax payable during thetaxable year under Article 5E of this Chapter. The credit allowed by thissubsection may not exceed the amount of tax imposed by this section for thetaxable year, reduced by the sum of all other credits allowed against that tax,except tax payments made by or on behalf of the taxpayer.

(e)        Any corporationwhich changes its income year, and files a "short period" income taxreturn pursuant to G.S. 105‑130.15 shall file a franchise tax return inaccordance with the provisions of this section in the manner and as of the datespecified in subsection (a) of this section. Such corporation shall be entitledto deduct from the total franchise tax computed (on an annual basis) on suchreturn the amount of franchise tax previously paid which is applicable to theperiod subsequent to the beginning of the new income year.

(f)         The report,statement and tax required by this section shall be in addition to all otherreports required or taxes levied and assessed in this State.

(g)        Counties, citiesand towns shall not levy a franchise tax on corporations taxed under thissection.

(h)        Repealed by SessionLaws 1981 (Regular Session, 1982), c. 1211, s. 5.  (1939, c. 158, s. 210; 1941,c. 50, s. 4; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1947, c. 501, s. 3; 1951,c. 643, s. 3; 1953, c. 1302, s. 3; 1955, c. 1100, s. 2½; c. 1350, s. 17; 1957,c. 1340, s. 3; 1959, c. 1259, s. 3; 1963, c. 1169, s. 1; 1967, c. 286; c. 892,ss. 10, 11; c. 1110, s. 2; 1973, c. 476, s. 193; c. 695, s. 17; c. 1262, s. 23;c. 1287, s. 3; 1975, c. 764, s. 2; 1977, c. 771, s. 4; 1981, c. 704, s. 18; c.855, s. 3; 1981 (Reg. Sess., 1982), c. 1211, s. 5; 1985, c. 656, s. 40; 1985(Reg. Sess., 1986), c. 826, s. 6; c. 854, s. 1; 1987 (Reg. Sess., 1988), c.882, s. 4.3; 1989, c. 148, s. 1; c. 727, ss. 218(39), 219(27); 1991, c. 30, s.5; 1993, c. 532, s. 11; 1995 (Reg. Sess., 1996), c. 560, s. 1; 1997‑443,s. 11A.119(a); 1998‑22, ss. 8, 9; 1998‑98, ss. 72, 77; 1998‑217,s. 43; 1999‑337, s. 21; 2001‑427, s. 12(a); 2003‑416, s.5(j); 2006‑95, s. 1.1; 2006‑162, s. 2; 2007‑491, ss. 2, 10,11; 2008‑134, ss. 3(a), (b); 2009‑422, s. 1; 2009‑445, s. 2.)