North Carolina § 105-114 - Nature of taxes; definitions.

§ 105-114. Nature of taxes; definitions.

Repealed by Session Laws 2017-204, s. 1.1, effective August 11, 2017. Scope. - The tax levied in this Article upon corporations is a privilege tax levied upon: Corporations organized under the laws of this State for the existence of the corporate rights and privileges granted by their charters, and the enjoyment, under the protection of the laws of this State, of the powers, rights, privileges and immunities derived from the State by the form of such existence; and Corporations not organized under the laws of this State for doing business in this State and for the benefit and protection which these corporations receive from the government and laws of this State in doing business in this State. Condition for Doing Business. - If the corporation is organized under the laws of this State, the payment of the tax levied by this Article is a condition precedent to the right to continue in the corporate form of organization. If the corporation is not organized under the laws of this State, payment of this tax is a condition precedent to the right to continue to engage in doing business in this State. Tax Year. - The tax levied in this Article is for the income year of the corporation in which the taxes become due. No Double Taxation. - G.S. 105-122 does not apply to holding companies taxed under G.S. 105-120.2. Definitions. - The following definitions apply in this Article: City. - Defined in G.S. 105-228.90. Code. - Defined in G.S. 105-228.90. Corporation. - A domestic corporation, a foreign corporation, an electric membership corporation organized under Chapter 117 of the General Statutes or doing business in this State, or an association that is organized for pecuniary gain, has capital stock represented by shares, whether with or without par value, and has privileges not possessed by individuals or partnerships. The term includes a mutual or capital stock savings and loan association or building and loan association chartered under the laws of any state or of the United States. The term includes a limited liability company or a partnership that elects to be taxed as a corporation under the Code, but does not otherwise include a limited liability company or a partnership. Doing business. - Each and every act, power, or privilege exercised or enjoyed in this State, as an incident to, or by virtue of the powers and privileges granted by the laws of this State. Income year. - Defined in G.S. 105-130.2(10). (Effective for taxable years beginning on or after January 1, 2017, and applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return) Total assets. - The sum of all cash, investments, furniture, fixtures, equipment, receivables, intangibles, and any other items of value owned by a person or a business entity. Recodified as G.S. 105-114.1 by Session Laws 2002-126, s. 30G.2(b), effective January 1, 2003. Critical Infrastructure Disaster Relief. - A nonresident business that solely performs disaster-related work in this State during a disaster response period at the request of a critical infrastructure company is not considered to be doing business in this State for purposes of this Article. The definitions and provisions in G.S. 166A-19.70A apply in this subsection. History (1939, c. 158, s. 201; 1943, c. 400, s. 3; 1945, c. 708, s. 3; 1965, c. 287, s. 16; 1967, c. 286; 1969, c. 541, s. 6; 1973, c. 1287, s. 3; 1983, c. 713, s. 66; 1985, c. 656, s. 7; 1985 (Reg. Sess., 1986), c. 853, s. 1; 1987, c. 778, s. 1; 1987 (Reg. Sess., 1988), c. 1015, s. 2; 1989, c. 36, s. 2; 1989 (Reg. Sess., 1990), c. 981, s. 2; 1991, c. 30, s. 2; c. 689, s. 250; 1991 (Reg. Sess., 1992), c. 922, s. 3; 1993, c. 12, s. 4; c. 354, s. 11; c. 485, s. 5; 1997-118, s. 4; 1998-98, ss. 60, 76; 1999-337, s. 20; 2000-173, s. 8; 2001-327, s. 2(b); 2002-126, s. 30G.2(b); 2005-435, s. 59.2(a); 2006-66, s. 24A.2(a); 2006-162, ss. 3(b), 22; 2008-107, s. 28.7(a); 2014-3, ss. 14.1, 14.26; 2015-6, s. 2.3; 2015-241, s. 32.15(a); 2016-5, s. 1.7(a); 2017-204, s. 1.1; 2018-5, s. 38.2(a); 2019-187, s. 1(e).) Editor's Note. - Session Laws 1998-98, s. 1(i) provides: "This section repeals any law that would otherwise exempt savings and loan associations, as defined in G.S. 54B-4 , from the franchise tax imposed in Article 3 of Chapter 105 of the General Statutes." The subdivision designation (b)(1) was assigned by the Revisor of Statutes, the designation in Session Laws 1997-118, s. 4, having been (b)(01); former subdivision (b)(1) was renumbered as (b)(1a) at the direction of the Revisor of Statutes. The definition of "Income year," referred to in subdivision (b)(4) of this section, is found at G.S. 105-130.2 (4a). Session Laws 1993, c. 354, s. 12 originally enacted the definition of "Income year" as subdivision (5); however, this definition was redesignated as subdivision (4a) at the direction of the Revisor of Statutes. Session Laws 2001-327, s. 2(a), as amended by Session Laws 2002-126, s. 30G.2(a), provides: "The General Assembly finds that most corporations engaged in business in this State comply with the State franchise tax on corporate assets. Some taxpayers, however, take advantage of an unintended loophole in the law and avoid franchise tax by transferring their assets to a controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on their assets. It is the intent of this section to apply the franchise tax equally to assets held by corporations and assets held by corporate-affiliated limited liability companies. It is also the intent of this section to provide that a criminal penalty applies to taxpayers who fraudulently evade the tax. "The General Assembly further finds that, after this loophole was closed in 2001, some taxpayers continue to avoid franchise tax by manipulating ownership of assets. One method is to interpose a controlled partnership between the corporation and the controlled limited liability company. This tax avoidance creates an unfair burden on corporate citizens that pay the franchise tax on all their assets. It is the intent of the General Assembly to apply the franchise tax equally to assets held by corporations and assets held by corporate-controlled entities." Session Laws 2015-241, s. 32.15(g), as amended by Session Laws 2016-5, s. 1.7(a), made subdivision (b)(5), as added by Session Laws 2015-241, s. 32.15(a), applicable to the calculation of franchise tax reported on the 2016 and later corporate income tax return. Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'" Session Laws 2015-241, s. 33.6, is a severability clause. Session Laws 2018-5, s. 38.2(j), made the amendment of subdivision (b)(2) of this section by Session Laws 2018-5, s. 38.2(a), effective beginning on or after January 1, 2019, and applicable to the calculation of franchise tax reported on the 2018 and later corporate income tax return. Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'" Session Laws 2018-5, s. 39.7, is a severability clause. Session Laws 2019-187, s. 3, made subsection (d), as added by Session Laws 2019-187, s. 1(e), effective August 1, 2019, and applicable to disaster declarations on or after that date. Effect of Amendments. - Session Laws 2005-435, s. 59.2(a), as amended by Session Laws 2006-162, s. 22, effective July 24, 2006, in subsection (a4), deleted "on the corporation" following "exceed the taxes levied" and added the language beginning "on the corporation or on a limited liability company" at the end. Session Laws 2006-66, s. 24A.2(a), effective for taxable years beginning on or after January 1, 2007, rewrote the last sentence in subdivision (b)(2). Session Laws 2006-162, s. 3(b), effective July 24, 2006, substituted "G.S. 105-130.2(4b)" for "G.S. 105-130.2(5)" in subdivision (b)(4). Session Laws 2008-107, s. 28.7(a), effective for taxable years beginning on or after January 1, 2009, substituted "corporation" for "C Corporation" in the last sentence of subdivision (b)(2). Session Laws 2014-3, ss. 14.1 and 14.26, effective May 29, 2014, made identical changes, substituting "G.S. 105-130.2(10)" for "G.S. 105-130.2(4b)" in subdivision (b)(4). Session Laws 2015-6, s. 2.3, effective April 9, 2015, repealed Session Laws 2014-3, s. 14.26. Session Laws 2015-241, s. 32.15(a), as amended by Session Laws 2016-5, s. 1.7(a), effective for taxable years beginning on or after January 1, 2017, added subdivision (b)(5). See editor's note for applicability. Session Laws 2017-204, s. 1.1, effective August 11, 2017, deleted former subsection (a), which defined "Nature of Taxes"; in subsection (a1), substituted "tax" for "taxes" near the beginning and substituted "is a privilege tax levied" for "are privilege or excise taxes levied" near the end; deleted "fiscal year of the State in which the taxes become due, except that the taxes levied in G.S. 105-122 are for the" preceding "income year" in subsection (a3); deleted the former last sentence in subsection (a4), which read: "G.S. 105-122 applies to a corporation taxed under another section of this Article only to the extent the taxes levied on the corporation in G.S. 105-122 exceed the taxes levied in other sections of this Article on the corporation or on a limited liability company whose assets must be included in the corporation's tax base under G.S. 105-114.1 "; and made stylistic changes. Session Laws 2018-5, s. 38.2(a), added "or a partnership" twice in the last sentence of subdivision (b)(2). For effective date and applicability, see editor's note. Session Laws 2019-187, s. 1(e), added subsection (d). For effective date and applicability, see editor's note.