Bill Summary – FastDemocracy

H.B. 228
                          GENERAL ASSEMBLY OF NORTH CAROLINA
                                                                                               Feb 28, 2023
                                      SESSION 2023                                       HOUSE PRINCIPAL CLERK
     H                                                                                                  D
                                   HOUSE BILL DRH50010-SVxf-3B
     Short Title:   Rev. Laws Tech., Clarifying, & Admin. Chngs.                                  (Public)
     Sponsors:      Representative Bradford.
     Referred to:
                                A BILL TO BE ENTITLED
 AN ACT TO MAKE VARIOUS TECHNICAL, CLARIFYING, AND ADMINISTRATIVE
    CHANGES TO THE REVENUE LAWS.
 The General Assembly of North Carolina enacts:
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 PART I. CORPORATE AND INDIVIDUAL INCOME TAX CHANGES
             SECTION 1.1. G.S. 105-228.90(b)(7) reads as rewritten:
             "(7) Code. – The Internal Revenue Code as enacted as of April 1, 2021, January 1,
                     2023, including any provisions enacted as of that date that become effective
                     either before or after that date."
             SECTION 1.2. G.S. 105-122(b)(2) reads as rewritten:
             "(2) An addition for the amount of indebtedness the corporation owes to a parent,
                     a subsidiary, an affiliate, or a noncorporate entity in which the corporation or
                     group of corporations owns directly or indirectly more than fifty percent
                     (50%) of the capital interest of the noncorporate entity, unless the
                     indebtedness creates qualified interest expense, as defined in
                     G.S. 105-130.7B(b)(4).G.S. 105-130.7B(b)(4)a.                            through
                     G.S. 105-130.7B(b)(4)d."
             SECTION 1.3. G.S. 105-153.4 is amended by adding a new subsection to read:
     "(d1) Sole Proprietorships. – In order to calculate the numerator of the fraction provided in
 subsection (b) of this section for an individual that operates a business in one or more other states,
 the amount of an individual's total net income of the business, as modified in G.S. 105-153.5 and
 G.S. 105-153.6, that is includable in the numerator is determined in accordance with the
 provisions of G.S. 105-130.4. As used in this subsection, total net income means the entire gross
 income of the business less all expenses, taxes, interest, and other deductions allowable under
 the Code that were incurred in the operation of the business."
             SECTION 1.4. G.S. 105-153.9 is amended by adding a new subsection to read:
     "(c) The credit allowed under this section may not exceed the amount of tax imposed by
 this Part for the taxable year reduced by the sum of all credits allowed, except payments of tax
 made by or on behalf of the taxpayer."
             SECTION 1.5.(a) G.S. 105-154(d) reads as rewritten:
     "(d) Payment of Tax on Behalf of Nonresident Owner or Partner. – If a business conducted
 in this State is owned by a nonresident individual or by a partnership having one or more
 nonresident members, the business shall report information concerning the earnings of the
 business in this State, the distributive share of the income of each nonresident owner or partner,
 and any other information required by the Secretary. The distributive share of the income of each
                                  *DRH50010-SVxf-3B*
     General Assembly Of North Carolina                                                      Session 2023
 nonresident partner includes any guaranteed payments made to the partner. The business shall
 pay with the return the tax on each nonresident owner or partner's share of the income computed
 at the rate levied on individuals under G.S. 105-153.7. The business may deduct the payment for
 each nonresident owner or partner from the owner or partner's distributive share of the income
 of the business in this State. The Secretary may enforce the business's liability for the tax on each
 nonresident owner or partner's share of the income by sending the business a notice of proposed
 assessment in accordance with G.S. 105-241.9. If the nonresident partner is not an individual and
 the partner has executed an affirmation that (i) the partner will pay the tax with its corporate,
 partnership, trust, or estate income tax return, or (ii) the partner is not subject to State income tax
 under this Article, the business is not required to pay the tax on the partner's share. In this case,
 the business shall include a copy of the affirmation with the report required by this subsection.
 The affirmation must be annually filed by the nonresident partner and submitted by the due date
 of the report required in this subsection. Otherwise, the business is required to pay the tax on the
 nonresident partner's share. Notwithstanding the provisions of G.S. 105-241.7(b), the business
 may not request a refund of an overpayment made on behalf of a nonresident owner or partner if
 the business has previously filed the return and paid the tax due. The nonresident owner or partner
 may, on its own income tax return, request a refund of an overpayment made on its behalf by the
 business within the provisions of G.S. 105-241.6. This subsection does not apply to a partnership
 with respect to any taxable period for which it is a taxed partnership.partnership unless the taxed
 partnership has a partner described in G.S. 105-154.1(a)(5). If a taxed partnership has a partner
 described in G.S. 105-154.1(a)(5), this subsection applies to the taxed partnership with respect
 to the partner described in G.S. 105-154.1(a)(5)."
              SECTION 1.5.(b) G.S. 105-154.1(a) is amended by adding a new subdivision to
 read:
              "(5) A partnership including an entity that is classified as a partnership for federal
                      income tax purposes."
              SECTION 1.5.(c) G.S. 105-154.1(b)(1) reads as rewritten:
              "(1) The North Carolina taxable income of a taxed partnership with respect to such
                      taxable period shall be equal to the sum of the following:following for partners
                      defined under G.S. 105-154.1(a)(1) through G.S. 105-154.1(a)(4):
                      …."
              SECTION 1.5.(d) G.S. 105-153.9, as amended by Section 1.4 of this act, is amended
 by adding the following new subsections to read:
      "(d) Except as otherwise provided in subdivision (a)(5) of this section with respect to a
 taxed partnership, for purposes of this section and G.S. 105-160.4, each resident partner is
 considered to have paid a tax imposed on the partner in an amount equal to the partner's
 distributive share of any income tax paid by the partnership to a state or the District of Columbia
 where the partnership was subject to an entity-level tax levied on the aggregate distributive share
 of the partnership's income allocable to one or more of its partners. A partnership is taxable in
 another state or the District of Columbia if the partnership's business activity in that state or the
 District of Columbia subjects the partnership to a net income tax or a tax measured by net income.
      (e)     Except as otherwise provided in subdivision (a)(4) of this section with respect to a
 taxed S Corporation, for purposes of this section and G.S. 105-160.4, each resident shareholder
 is considered to have paid a tax imposed on the shareholder in an amount equal to the
 shareholder's pro rata share of any income tax paid by the S Corporation to a state or the District
 of Columbia where the S Corporation was subject to an entity-level tax levied on the aggregate
 pro rata share of the S Corporation's income allocable to one or more of its shareholders. An S
 Corporation is taxable in another state or the District of Columbia if the S Corporation's business
 activity in that state or the District of Columbia subjects the S Corporation to a net income tax or
 a tax measured by net income. A taxpayer that claims a credit under this subsection may not also
     Page 2                                                                          DRH50010-SVxf-3B
     General Assembly Of North Carolina                                                    Session 2023
 claim a credit under G.S. 105-131.8 with respect to the same income tax paid by the S
 Corporation."
            SECTION 1.5.(e) This section is effective for taxable years beginning on or after
 January 1, 2022.
            SECTION 1.6.(a) The following statutes are repealed:
            (1)     G.S. 105-131.1A(b)(1)b.
            (2)     G.S. 105-131.1A(d)
            (3)     G.S. 105-153.9(a)(4)
            (4)     G.S. 105-153.9(a)(5)
            (5)     G.S. 105-154.1(b)(1)b.
            SECTION 1.6.(b) G.S. 105-131.1A(a) reads as rewritten:
     "(a) Taxed S Corporation Election. – An S Corporation may elect, on its timely filed
 annual return required under G.S. 105-131.7, to have the tax under this Article imposed on the S
 Corporation for any taxable period covered by the return. An S Corporation may not make or
 revoke the election after the due date of the return including extensions.return is filed."
            SECTION 1.6.(c) G.S. 105-153.5(c3) reads as rewritten:
     "(c3) Taxed Pass-Through Entities. – In calculating North Carolina taxable income, a
 taxpayer must make the following adjustments to the taxpayer's adjusted gross income:
            (1)     A taxpayer that is a shareholder of a taxed S Corporation may deduct the
                    amount of the taxpayer's pro rata share of income attributable to the State from
                    the taxed S Corporation to the extent it the income attributable to the State
                    was included in the taxed S Corporation's North Carolina taxable income and
                    was included in the taxpayer's adjusted gross income.income, subject to the
                    adjustments provided in G.S. 105-153.5 and G.S. 105-153.6, attributable to
                    the State.
            (1a) A resident taxpayer that is a shareholder of an S Corporation may deduct the
                    amount of the taxpayer's pro rata share of income not attributable to the State
                    from the S Corporation to the extent the income not attributable to the State
                    was included in the S Corporation's taxable income in another state or the
                    District of Columbia, was subject to an entity-level tax levied on the aggregate
                    pro rata share of the S Corporation's income allocable to one or more of its
                    shareholders, and was included in the taxpayer's adjusted gross income subject
                    to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6. An S
                    Corporation is taxable in another state or the District of Columbia if the S
                    Corporation's business activity in that state or the District of Columbia
                    subjects the S Corporation to a net income tax or a tax measured by net
                    income.
            (2)     A taxpayer that is a shareholder of a taxed S Corporation must add the amount
                    of the taxpayer's pro rata share of net taxable loss attributed to the State from
                    the taxed S Corporation to the extent it the net taxable loss was included in the
                    taxed S Corporation's North Carolina taxable income and was included in the
                    taxpayer's adjusted gross income.income, subject to the adjustments provided
                    in G.S. 105-153.5 and G.S. 105-153.6, attributable to the State.
            (3)     A taxpayer that is a partner of a taxed partnership may deduct the amount of
                    the taxpayer's share of distributive share of income attributable to the State
                    from the taxed partnership to the extent it the share of distributive income
                    attributable to the State was included in the taxed partnership's North Carolina
                    taxable income and was included in the taxpayer's adjusted gross
                    income.income, subject to the adjustments provided in G.S. 105-153.5 and
                    G.S. 105-153.6, attributable to the State.
     DRH50010-SVxf-3B                                                                            Page 3
     General Assembly Of North Carolina                                                      Session 2023
             (3a)     A resident taxpayer that is a partner of a partnership may deduct the amount
                      of the taxpayer's share of distributive income not attributable to the State from
                      the partnership to the extent the share of distributive income not attributable
                      to the State was included in the partnership's taxable income in another state
                      or the District of Columbia, was subject to an entity-level tax levied on the
                      aggregate distributive share of the partnership's income allocable to one or
                      more of its partners, and was included in the taxpayer's adjusted gross income
                      subject to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6. A
                      partnership is taxable in another state or the District of Columbia if the
                      partnership's business activity in that state or the District of Columbia subjects
                      the partnership to a net income tax or a tax measured by net income.
              (4)     A taxpayer that is a partner of a taxed partnership must add the amount of the
                      taxpayer's share of distributive share of taxable loss attributable to the State
                      from the taxed partnership to the extent it the share of distributive taxable loss
                      attributable to the State was included in the taxed partnership's North Carolina
                      taxable income and was included in the taxpayer's adjusted gross
                      income.income, subject to the adjustments provided in G.S. 105-153.5 and
                      G.S. 105-153.6, attributable to the State."
              SECTION 1.6.(d) G.S. 105-153.9, as amended by Sections 1.4, 1.5(d), and 1.6(a) of
 this act, reads as rewritten:
 "§ 105-153.9. Tax credits for income taxes paid to other states by individuals.
     …
     (d)      Except as otherwise provided in subdivision (a)(5) of this section with respect to a
 taxed partnership, for For purposes of this section and G.S. 105-160.4, each resident partner is
 considered to have paid a tax imposed on the partner in an amount equal to the partner's
 distributive share of any income tax paid by the partnership to a state or the District of Columbia
 where the partnership was subject to an entity-level tax levied on the aggregate distributive share
 of the partnership's income allocable to one or more of its partners. A partnership is taxable in
 another state or the District of Columbia if the partnership's business activity in that state or the
 District of Columbia subjects the partnership to a net income tax or a tax measured by net income.
     (e)      Except as otherwise provided in subdivision (a)(4) of this section with respect to a
 taxed S Corporation, for For purposes of this section and G.S. 105-160.4, each resident
 shareholder is considered to have paid a tax imposed on the shareholder in an amount equal to
 the shareholder's pro rata share of any income tax paid by the S Corporation to a state or the
 District of Columbia where the S Corporation was subject to an entity-level tax levied on the
 aggregate pro rata share of the S Corporation's income allocable to one or more of its
 shareholders. An S Corporation is taxable in another state or the District of Columbia if the S
 Corporation's business activity in that state or the District of Columbia subjects the S Corporation
 to a net income tax or a tax measured by net income. A taxpayer that claims a credit under this
 subsection may not also claim a credit under G.S. 105-131.8 with respect to the same income tax
 paid by the S Corporation.
     (f)      No credit is allowed under this section for taxes paid to another state or the District
 of Columbia on income eligible for the deduction provided in G.S. 105-153.5(c3)."
              SECTION 1.6.(e) G.S. 105-154.1(a), as amended by Section 1.5(b) of this act, reads
 as rewritten:
     "(a) Taxed Partnership Election. – A partnership may elect, on its timely filed annual
 return required under G.S. 105-154(c), to have the tax under this Article imposed on the
 partnership for any taxable period covered by the return. A partnership may not make or revoke
 the election after the due date of the return, including extensions. return is filed. This election
 cannot be made by a publicly traded partnership that is described in section 7704(c) of the Code
     Page 4                                                                          DRH50010-SVxf-3B
     General Assembly Of North Carolina                                                    Session 2023
 or by a partnership that has at any time during the taxable year a partner who is not one of the
 following:
             (1)    An individual.
             (2)    An estate.
             (3)    A trust described in section 1361(c)(2) of the Code.
             (4)    An organization described in section 1361(c)(6) of the Code.
             (5)    A partnership including an entity that is classified as a partnership for federal
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