Bill Summary – FastDemocracy

FILED SENATE
                                                                                       Apr 6, 2021
                         GENERAL ASSEMBLY OF NORTH CAROLINA
                                                                S.B. 583
                                     SESSION 2021           PRINCIPAL CLERK
     S                                                                   D
                              SENATE BILL DRS45295-RBf-6
     Short Title:   Standard Deduction; Late Penalties; SALT Cap.                             (Public)
     Sponsors:      Senators Burgin and Edwards (Primary Sponsors).
     Referred to:
                                  A BILL TO BE ENTITLED
 AN ACT TO INCREASE THE STANDARD DEDUCTION TO THE FEDERAL STANDARD
    DEDUCTION AMOUNT, TO GRADUATE LATE PAYMENT PENALTIES, AND TO
    ALLOW CERTAIN PASS-THROUGH ENTITIES TO ELECT TO PAY TAX AT THE
    ENTITY LEVEL.
 The General Assembly of North Carolina enacts:
            SECTION 1.(a) G.S. 105-153.5(a)(1) reads as rewritten:
            "(1) Standard deduction amount. – The standard deduction amount is zero for a
                  person who is not eligible for a standard deduction under section 63 of the
                  Code. For all other taxpayers, the standard deduction amount is equal to the
                  amount listed in the table below based on the taxpayer's filing status:
                  Filing Status                                  Standard Deduction
                  Married, filing jointly/surviving spouse          $21,500$25,500
                  Head of Household                                   16,12519,125
                  Single                                              10,75012,750
                  Married, filing separately                         10,750.12,750."
            SECTION 1.(b) This section is effective for taxable years beginning on or after
 January 1, 2022.
            SECTION 2.(a) G.S. 105-153.5(a)(1), as amended by Section 1 of this act, reads as
 rewritten:
            "(1) Standard deduction amount. – The standard deduction amount is zero for a
                  person who is not eligible for a standard deduction under section 63 of the
                  Code. For all other taxpayers, the standard deduction amount is equal to the
                  amount listed in the table below based on the taxpayer's filing status:the
                  amount allowed as the basic standard deduction under section 63 of the Code
                  based on the taxpayer's filing status.
                  Filing Status                                  Standard Deduction
                  Married, filing jointly/surviving spouse               $25,500
                  Head of Household                                       19,125
                  Single                                                  12,750
                  Married, filing separately                            12,750."
            SECTION 2.(b) This section is effective for taxable years beginning on or after
 January 1, 2023.
            SECTION 3.(a) G.S. 105-236(a)(4) reads as rewritten:
            "(4) Failure to Pay Tax When Due. – In the case of failure to pay any tax when
                  due, without intent to evade the tax, the Secretary shall assess a penalty equal
                                   *DRS45295-RBf-6*
     General Assembly Of North Carolina                                                    Session 2021
                     to ten two percent (10%) (2%) of the tax. amount of the tax if the failure is for
                     not more than one month, with an additional two percent (2%) for each
                     additional month, or fraction thereof, during which the failure continues, not
                     exceeding ten percent (10%) in aggregate. This penalty does not apply in any
                     of the following circumstances:
                     a.      When the amount of tax shown as due on an amended return is paid
                             when the return is filed.
                     b.      When the Secretary proposes an assessment for tax due but not shown
                             on a return and the tax due is paid within 45 days after the later of the
                             following:
                             1.      The date of the notice of proposed assessment of the tax, if the
                                     taxpayer does not file a timely request for a Departmental
                                     review of the proposed assessment.
                             2.      The date the proposed assessment becomes collectible under
                                     one of the circumstances listed in G.S. 105-241.22(3) through
                                     (6), if the taxpayer files a timely request for a Departmental
                                     review of the proposed assessment."
             SECTION 3.(b) This section becomes effective January 1, 2022, and applies to
 penalties assessed on or after that date.
             SECTION 4.(a) G.S. 105-131(b) reads as rewritten:
     "(b) For the purpose of this Part, unless otherwise required by the context:
             …
             (11) "Taxed S Corporation" means an S Corporation for which a valid election
                     under G.S. 105-131.1A(a) is in effect."
             SECTION 4.(b) G.S. 105-131.1 reads as rewritten:
 "§ 105-131.1. Taxation of an S Corporation and its shareholders.
     (a)     An S Corporation shall not be subject to the tax levied under G.S. 105-130.3. A taxed
 S Corporation shall be subject to tax under G.S. 105-131.1A.
     (b)     Each Except with respect to a taxed S Corporation, each shareholder's pro rata share
 of an S Corporation's income attributable to the State and each resident shareholder's pro rata
 share of income not attributable to the State, shall be taken into account by the shareholder in the
 manner and subject to the adjustments provided in Parts 2 and 3 of this Article and section 1366
 of the Code and shall be subject to the tax levied under Parts 2 and 3 of this Article."
             SECTION 4.(c) Part 1A of Article 4 of Chapter 105 of the General Statutes is
 amended by adding a new section to read:
 "§ 105-131.1A. Taxation of S Corporation as a taxed pass-through entity.
     (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 revoke the
 election after the due date of the return including extensions.
     (b)     Taxable Income of Taxed S Corporation. – A tax is imposed for the taxable period on
 the North Carolina taxable income of a taxed S Corporation. The tax shall be levied, collected,
 and paid annually. The tax is imposed on the North Carolina taxable income at the rate levied in
 G.S. 105-153.7. The North Carolina taxable income of a taxed S Corporation is determined as
 follows:
             (1)     The North Carolina taxable income of a taxed S Corporation with respect to
                     such taxable period shall be equal to the sum of the following:
                     a.      Each shareholder's pro rata share of the taxed S Corporation's income
                             or loss, subject to the adjustments provided in G.S. 105-153.5 and
                             G.S. 105-153.6, attributable to the State.
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     General Assembly Of North Carolina                                                    Session 2021
                    b.         Each resident shareholder's pro rata share of the taxed S Corporation's
                               income or loss, subject to the adjustments provided in G.S. 105-153.5
                               and G.S. 105-153.6, not attributable to the State with respect to such
                               taxable period.
              (2)     Separately stated items of deduction are not included when calculating each
                      shareholder's pro rata share of the taxed S Corporation's taxable income. For
                      purposes of this subdivision, separately stated items are those items described
                      in section 1366 of the Code and the regulations under it.
              (3)     The adjustments required by G.S. 105-153.5(c3) are not included in the
                      calculation of the taxed S Corporation's taxable income.
     (c)      Tax Credit. – A taxed S Corporation that qualifies for a credit may apply each
 shareholder's pro rata share of the taxed S Corporation's credits against the shareholder's pro rata
 share of the taxed S Corporation's income tax imposed by subsection (b) of this section. An S
 Corporation must pass through to its shareholders any credit required to be taken in installments
 by this Chapter if the first installment was taken in a taxable period that the election under
 subsection (a) of this section was not in effect. An S Corporation shall not pass through to its
 shareholders any of the following:
              (1)     Any credit allowed under this Chapter for any taxable period the S
                      Corporation makes the election under subsection (a) of this section and the
                      carryforward of the unused portion of such credit.
              (2)     Any subsequent installment of such credit required to be taken in installments
                      by this Chapter after the S Corporation makes an election under subsection (a)
                      of this section and the carryforward of any unused portion of such installment.
     (d)      Tax Credit for Income Taxes Paid to Other States. – With respect to resident
 shareholders, a taxed S Corporation is allowed a credit against the taxes imposed by this section
 for income taxes imposed by and paid to another state or country on income taxed under this
 section. The credit allowed by this subsection is administered in accordance with the provisions
 of G.S. 105-153.9.
     (e)      Deduction Allowed for Shareholders of a Taxed S Corporation. – The shareholders
 of a taxed S Corporation are allowed a deduction as specified in G.S. 105-153.5(c3)(1). This
 adjustment is only allowed if the taxed S Corporation complies with the provisions of subsection
 (g) of this section.
     (f)      Addition Required for Shareholders of a Taxed S Corporation. – The shareholders of
 a taxed S Corporation must make an addition as provided in G.S. 105-153.5(c3)(2).
     (g)      Payment of Tax. – Except as provided in Article 4C of this Chapter, the full amount
 of the tax payable as shown on the return of the taxed S Corporation must be paid to the Secretary
 within the time allowed for filing the return. In the case of any overpayment by a taxed S
 Corporation of the tax imposed under this section, only the taxed S Corporation may request a
 refund of the overpayment. If the taxed S Corporation files a return showing an amount due with
 the return and does not pay the amount shown due, the Department may collect the tax from the
 taxed S Corporation pursuant to G.S. 105-241.22(1). The Secretary must issue a notice of
 collection for the amount of tax debt to the taxed S Corporation. If the tax debt is not paid to the
 Secretary within 60 days of the date the notice of collection is mailed to the taxed S Corporation,
 the shareholders of the S Corporation are not allowed the deduction provided in
 G.S. 105-153.5(c3)(1). The Secretary must send the shareholders a notice of proposed
 assessment in accordance with G.S. 105-241.9. For purposes of this subsection, the term "tax
 debt" has the same meaning as defined in G.S. 105-243.1(a).
     (h)      Basis. – The basis of both resident and nonresident shareholders of a taxed S
 Corporation in their stock and indebtedness of the taxed S Corporation shall be determined as if
 the election under subsection (a) of this section had not been made and each of the shareholders
 of the taxed S Corporation had properly taken into account each shareholder's pro rata share of
     DRS45295-RBf-6                                                                               Page 3
     General Assembly Of North Carolina                                                    Session 2021
 the taxed S Corporation's items of income, loss, and deduction in the manner required with
 respect to an S Corporation for which no such election is in effect."
             SECTION 4.(d) G.S. 105-131.7 is amended by adding a new subsection to read:
     "(g) Taxed S Corporation. – Subsections (b) through (f) of this section do not apply to an
 S Corporation with respect to any taxable period for which it is a taxed S Corporation under
 G.S. 105-131.1A."
             SECTION 4.(e) G.S. 105-131.8(a) reads as rewritten:
     "(a) For Except as otherwise provided in G.S. 105-153.9(a)(4) with respect to a taxed S
 Corporation, for purposes of G.S. 105-153.9 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 net income tax paid by the S Corporation to a state that does not measure
 the income of S Corporation shareholders by the income of the S Corporation. For purposes of
 the preceding sentence, the term "net income tax" means any tax imposed on or measured by a
 corporation's net income."
             SECTION 4.(f) G.S. 105-153.3 reads as rewritten:
 "§ 105-153.3. Definitions.
     The following definitions apply in this Part:
             …
             (18a) Taxed partnership. – A partnership for which a valid election under
                     G.S. 105-154.1 is in effect.
             (18b) Taxed pass-through entity. – A taxed S Corporation or a taxed partnership.
             (18c) Taxed S Corporation. – Defined in G.S. 105-131(b).
             …."
             SECTION 4.(g) G.S. 105-153.5 is amended by adding a new subsection to read:
     "(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 from the taxed S
                     Corporation to the extent it was included in the taxed S Corporation's North
                     Carolina taxable income and the taxpayer's adjusted gross 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 loss from the taxed S Corporation to the
                     extent it was included in the taxed S Corporation's North Carolina taxable
                     income and the taxpayer's adjusted gross income.
             (3)     A taxpayer that is a partner of a taxed partnership may deduct the amount of
                     the taxpayer's distributive share of income from the taxed partnership to the
                     extent it was included in the taxed partnership's North Carolina taxable income
                     and the taxpayer's adjusted gross income.
             (4)     A taxpayer that is a partner of a taxed partnership must add the amount of the
                     taxpayer's distributive share of loss from the taxed partnership to the extent it
                     was included in the taxed partnership's North Carolina taxable income and the
                     taxpayer's adjusted gross income."
             SECTION 4.(h) G.S. 105-153.9(a) reads as rewritten:
     "(a) An individual who is a resident of this State is allowed a credit against the taxes
 imposed by this Part for income taxes imposed by and paid to another state or country on income
 taxed under this Part, subject to the following conditions:
             …
             (4)     Shareholders of a taxed S Corporation shall not be allowed a credit under this
                     section for taxes paid by the taxed S Corporation to another state or country
                     on income that is taxed to the taxed S Corporation. For purposes of allowing
                     the credit under this section for taxes paid to another state or country by a
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     General Assembly Of North Carolina                                                    Session 2021
                     taxed S Corporation's shareholders, a shareholder's pro rata share of the
                     income of the taxed S Corporation shall be treated as income taxed to the
                     shareholder under this Part and a shareholder's pro rata share of the tax
                     imposed on the taxed S Corporation under G.S. 105-131.1A shall be treated
                     as tax imposed on the shareholder under this Part.
             (5)     Partners of a taxed partnership shall not be allowed a credit under this section
                     for taxes paid by the taxed partnership to another state or country on income
                     that is taxed to the taxed partnership. The taxed partnership as defined in
                     G.S. 105-153.3(18a) is entitled to a credit under this section for all such taxes
                     paid. For purposes of allowing the credit under this section for taxes paid to
                     another state