United States

North Carolina: Legislature Overrides Governor’s Veto of Appropriations Bill; Enacts Additional Rate Reductions

Jul 10, 2017
From KPMG TaxWatch

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Senate Bill 257, the Appropriations Act of 2017, was vetoed by Governor Roy Cooper on June 27, 2017. On June 28, 2017, the Legislature voted to override the Governor’s veto. Senate Bill 257 adopts an additional corporate income tax rate reduction; North Carolina’s corporate tax rate has been reduced several times over the last few years.  Notably, the 3.0 percent rate that applies for tax years beginning on or after January 1, 2017 will be further reduced to 2.5 percent effective for tax years beginning on or after January 1, 2019. This rate reduction is automatic and is not contingent on state revenue collections meeting or exceeding certain thresholds. 

Senate Bill 257 also reduces the franchise tax for S corporations by essentially exempting the first $1 million of tax base. Specifically, the first $1 million of an S-Corporation’s tax base will be subject to the minimum tax of $200. The amount of the tax base that exceeds $1 million will be subject to the regular rate of $1.50 per $1000 of tax base. This change is effective for tax years beginning on or after January 1, 2019 and applies to the franchise tax reported on an S-Corporation’s 2018 and later tax returns.

On the personal income tax side, the tax rate is reduced from 5.499 percent to 5.25 percent effective for tax years beginning on or after January 1, 2019, and the standard deduction for individuals is increased.

Senate Bill 257 also makes various sales and use tax changes. Notably, the bill repeals the 1 percent privilege tax on mill machinery and mill machinery parts and accessories effective July 1, 2018 and creates new sales and use tax exemptions for such sales. The bill also directs the Revenue Laws Study Committee to study ways in which to clarify the scope of the sales and use tax exemption for mill machinery, as enacted by this Senate Bill 257, by modernizing and further defining the statutory language and by incorporating existing administrative interpretations of the Department of Revenue, to the extent the General Assembly desires to maintain those interpretations. Please contact Adam McLamb at 704-371-8216 with questions.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.