On September 22, 2023, the 2023 Appropriations Act passed the NC General Assembly and became law on October 3, 2023. Taxpayers should be aware of the changes and their effective dates.
Personal Income Tax Rate Reduction
Effective for taxable years beginning on or after January 1, 2024, the personal income tax rate will gradually reduce over a 3-year period. The rate will decrease to 4.5% in 2024, 4.25% in 2025, and 3.99% all tax years thereafter. Further reductions may occur between 2027 and 2034 if total general fund revenue for North Carolina reaches specified trigger amounts.
Transportation Commerce Tax Enactment
Effective for taxable years beginning on or after July 1, 2025, a new transportation commerce tax will be imposed on for-hire ground transport services. The excise tax will be imposed on gross receipts derived from each for-hire ground transport service provided by a for-hire ground transport service provider. Ground transport services include transportation network companies such as taxi services, Lyft, and Uber. Exclusive-ride service will be taxed at 1.5% and shared-ride services at 1%. The tax applies to the extent that a passenger boards the vehicle in North Carolina, regardless of whether the service is completed. The new commerce tax will be collected and remitted by the for-hire ground transport service provider in the same manner as sales and use tax and the tax is passed on to the customer.
Franchise Tax Cap
Franchise tax will be capped at $500 on the first $1 million of a C-corporation’s tax base. Additionally, the corporation will pay $1.50 per $1,000 of tax base in excess of $1 million. Franchise tax should not be less than $200 and should not be more than $150,000. The franchise tax cap is effective for taxable years beginning on or after January 1, 2025, and applicable to the calculation of franchise tax reported on 2024 and later corporate income tax returns.
Taxed Partnership Eligibility
Effective for taxable years beginning on or after January 1, 2022, certain trusts and corporations were added to the list of permissible owners of a partnership electing to be taxed at the entity level for the state and local tax (SALT) cap workaround. Trusts that do not have as a beneficiary any person other than an individual, estate, trust, or organization described in IRC § 1361(c)(6) are now eligible. Additionally, the legislation clarified that entities classified as a corporation for federal tax purposes are eligible.
Sales Tax Exemptions and Refunds
Several exemptions and refunds have updated for sales and use tax across a variety of areas.
Continuing Care Retirement Communities – Effective for taxable years beginning on or after November 1, 2023, a sales tax exemption will be provided for items (other than alcoholic beverages) sold by a provider of continuing health care to its residents.
Breast Pumps & Breast Pump Accessories – Effective for taxable years beginning on or after November 1, 2023, a sales tax exemption will be provided for the sales of breast pumps (including repair and replacement parts), breast pump kits, and breast pump collection and storage supplies.
Professional Motorsports Teams Exemption Sunset Date Extended – The sunset date set for the sales and use tax exemption for sales to professional motorsports racing teams or a related member of the team for use in competition in a sanctioned series has been extended from January 1, 2024, to January 1, 2028.
Professional Motorsports Teams Refunds – Sunset Dates Extended – Sunset date for motorsports teams, sanctioning bodies, or a related member of such a team or body for aviation fuel used to travel to or from a motorsports event in North Carolina has been extended from January 1, 2024, to January 1, 2029. Sunset date for professional motorsports teams or a related member of a team for tangible personal property (other than tires or accessories that comprise any part of a professional motorsports vehicle) has been extended from January 1, 2023, to January 1, 2028.
Aviation Gasoline and Jet Fuel – The sunset date set for the sales and use tax exemption for sales of aviation gasoline and jet fuel to an interstate air business for use in a commercial aircraft has been extended from January 1, 2024, to January 1, 2029.
Aviation Sales Tax Exemption – Effective for taxable years beginning on or after November 1, 2023, the tax treatment of parts and accessories used in the repairs and maintenance of certain aircraft will be aligned with the tax treatment of repair and maintenance services for that same qualified aircraft. A “qualified aircraft” is now defined as aircrafts with a maximum take-off weight of 2,000 pounds and above.
Fuel & Consumables used by Boats Exemption Expanded – Effective for taxable years beginning on or after November 1, 2023, the exemption is expanded to include vessels engaged in the transportation of freight in intrastate, interstate, or foreign commerce when in intracoastal waterways, sounds, or rivers.
Tobacco Products Tax
Effective for taxable years beginning on or after July 1, 2025, the taxation method for snuff will change from cost-based to weight-based and expand the tax base to include alternative nicotine products. Snuff will be taxed at $0.40/ounce, and a proportionate rate on all fractional parts of an ounce. The excise tax is computed based on net weight listed on the package by the manufacturer. Alternative nicotine products (contains nicotine, does not contain tobacco or vapor products, and is intended for human consumption) will be taxed at $0.10/container containing up to 20 units and at a rate of a half-cent per unit for any amount over 20 units.
Legacy Airport Property Tax Exclusion
Effective for taxable years beginning on or after July 1, 2024, legacy airports will qualify for a property tax exclusion on 50% of the appraised value of real and personal property located at a qualifying airport. The property must be used customarily for aviation purposes at the airport or for commercial activities typically located at and associated with airport activities. A qualifying airport is:
- Designated as a legacy airport by the NC Department of Transportation
- A general aviation airport
- Located within the corporate limits of a municipality, and
- An airport that had an economic output of $850 million or more, as published by the Division of Aviation in the NC Department of Transportation’s biennial economic impact study (dated January 2023).
Repeal of Privilege Tax on Professionals
Effective for taxable years beginning on or after July 1, 2024, the $50 state privilege tax has been repealed for certain professionals such as attorneys, physicians, engineers, real estate agents, accountants, and others (see G.S. 105-41 and G.S. 93-12(12)).
Please contact the professionals at Gilliam Bell Moser with any questions.