§ 105-130.6A. Adjustment for expenses related to dividends. - North Carolina Statutes

§ 105‑130.6A. Adjustment for expenses related to dividends.

(a)        Definitions. – Theprovisions of G.S. 105‑130.6 govern the determination of whether acorporation is a subsidiary or an affiliate of another corporation. Inaddition, the following definitions apply in this section:

(1)        Affiliated group. – Agroup that includes a corporation, all other corporations that are affiliatesor subsidiaries of that corporation, and all other corporations that areaffiliates or subsidiaries of another corporation in the group.

(2)        Bank holdingcompany. – A holding company with an affiliate that is subject to the privilegetax on banks levied in G.S. 105‑102.3.

(3)        Dividends. – Dividendsreceived that are not taxed under this Part.

(4)        Electric powerholding company. – A holding company with an affiliate or a subsidiary that issubject to the franchise tax on electric power companies levied in G.S. 105‑116.

(5)        Expense adjustment.– The adjustment required by G.S. 105‑130.5(c)(3) for expenses related todividends not taxed under this Part.

(6)        Holding company. – Definedin G.S. 105‑120.2.

(b)        General Rule. – Forcorporations other than bank holding companies and electric power holdingcompanies, the adjustment under G.S. 105‑130.5(c)(3) for expenses relatedto dividends not taxed under this Part may not exceed an amount equal tofifteen percent (15%) of the dividends.

(c)        Bank HoldingCompanies. – For bank holding companies the adjustment under G.S. 105‑130.5(c)(3)for expenses related to dividends not taxed under this Part may not exceed anamount equal to twenty percent (20%) of the dividends.

(d)        Electric PowerHolding Companies. – For electric power holding companies, the adjustment underG.S. 105‑130.5(c)(3) for expenses related to dividends not taxed underthis Part may not exceed an amount equal to fifteen percent (15%) of its totalinterest expenses.

(e)        Cap for BankHolding Companies. – After calculating the expense adjustment as provided insubsection (c) of this section, each bank holding company must calculate theamount of additional tax that results from the expense adjustments for theholding company and for every corporation in the holding company's affiliatedgroup for the taxable year. If the expense adjustments result in additional taxexceeding eleven million dollars ($11,000,000) for a taxable year for theaffiliated group, the affiliated group may reduce the amount of the expenseadjustment so that the resulting additional tax does not exceed this maximum.This maximum applies once to each affiliated group each taxable year, whetheror not the group includes more than one bank holding company.

The members of the affiliatedgroup may allocate this reduction among themselves in their discretion. Inorder to take this reduction, each member of the affiliated group that isrequired to file a return under this Part and that has dividends for thetaxable year must provide a schedule with its return that lists every member ofthe group that has dividends, the amount of the dividends, and whether themember is a bank holding company. In addition, the schedule must show theexpense adjustments for those members whose additional tax as a result of theexpense adjustment constitutes the maximum amount. In addition, each membermust provide any other documentation required by the Secretary.

If the expense adjustment foran affiliated group is reduced under this subsection, and the return of amember of the group is later changed in a manner that reduces below the maximumthe amount of additional tax for the group resulting from the expenseadjustment, the Secretary may increase the expense adjustment for any member ofthe group in order to increase to the maximum the amount of additional tax forthe group resulting from the expense adjustment. In this situation, the amountof the increase is considered a forfeited tax benefit with respect to theaffiliated group for the purposes of G.S. 105‑241.8. The date of theforfeiture is the date of the change that triggers the Secretary's authority toincrease the expense adjustment. Any member whose expense adjustment theSecretary increases is liable for interest on the amount of the increase at therate established under G.S. G.S. 105‑241.21 computed from the date thetaxes would have been due if the expense adjustment had been calculatedcorrectly on the original return. The amount of the increase and the interestare due 60 days after the date of the forfeiture. A taxpayer that fails to paythe amount of the increase and interest by the due date is subject to thepenalties provided in G.S. 105‑236.

(f)         Credits for BankHolding Companies. – If the affiliated group of which a bank holding company isa member is eligible for the reduction provided in subsection (e) of thissection for a taxable year, the affiliated group is also eligible for a creditequal to two million dollars ($2,000,000). If the affiliated group of which abank holding company is a member is not eligible for the reduction provided insubsection (e) of this section for a taxable year, the affiliated group is eligiblefor a credit equal to the amount of additional tax that results from itsexpense adjustments in excess of the amount of additional tax that would resultfrom the expense adjustments if the expense adjustment of any bank holdingcompany in the group were equal to fifteen percent (15%) of the holdingcompany's dividends for that taxable year.

A credit allowed by thissubsection may be taken in four equal, annual installments beginning with thelater of the following taxable year or the taxpayer's taxable year beginning in2003. The members of the affiliated group may allocate a credit allowed by thissubsection among themselves in their discretion.

(g)        Credit for ElectricPower Holding Companies. – After calculating the adjustment for expensesrelated to dividends under G.S. 105‑130.5(c)(3), each electric powerholding company must calculate the amount of additional tax under this Partthat results from the expense adjustment for the taxable year. The electricpower holding company is allowed a credit for the following taxable year equalto one‑half of this amount of additional tax.

As an alternative to takingthis credit against its own tax liability, an electric power holding companymay elect to allocate the credit among the members of its affiliated group. Inthis case, the credit must be taken in four equal installments beginning in thelater of the following taxable year or the taxable year for which thetaxpayer's final return is due in 2004.

(h)        Limitation onCredits. – The credits provided in this section are allowed against the taxlevied in this Part and the franchise tax levied in Article 3 of this Chapter.A taxpayer may claim a credit against only one of the taxes against which it isallowed. Each taxpayer must elect the tax against which the credit will betaken when filing the return on which the first installment of the credit isclaimed. This election is binding. All installments and carryforwards of thecredit must be taken against the same tax.

In order for a member of anaffiliated group to take a credit, each member of the affiliated group that isrequired to file a return under this Part or under Article 3 of this Chaptermust attach a schedule to its return that shows for every member of the groupthe amount of the credit taken by it, the tax against which it is taken, andthe amount of the resulting tax. In addition, each member must provide anyother documentation required by the Secretary.

A credit allowed in thissection may not exceed the amount of tax against which it is taken for thetaxable year reduced by the sum of all credits allowable, except tax paymentsmade by or on behalf of the taxpayer. Any unused portion of the credit may becarried forward to succeeding taxable years. (2002‑136, s. 2; 2007‑491, s. 13.)