North Carolina ~ Corporate, Personal Income Taxes: Senate Passes Budget Bill With New IRC Starting Point and Other Changes

The North Carolina Senate passed its version of the budget bill that, if enacted, would adopt federal adjusted gross income rather than federal taxable income as the starting point for computing North Carolina personal income tax, enact a new net business income tax deduction, and retroactively modify the capital stock base for purposes of determining a taxpayer’s corporate franchise tax liability. The new starting point and deduction would be effective beginning with the 2012 tax year. Absent from the bill is the extension of the temporary income tax surcharge and the temporary increase in the sales and use tax rates that were enacted in 2009.

The new personal income tax net business income tax deduction would be equal to the first $50,000 of net business income minus any passive income the taxpayer receives during the taxable year. By adopting federal adjusted gross income as the starting point, North Carolina would no longer incorporate the federal standard deduction or personal exemption amounts and, therefore, would no longer require the corresponding North Carolina adjustments. The standard deduction amount would be set as follows depending on the taxpayer’s filing status:

— Married, filing jointly –$6,000

— Head of household –$4,400

— Single –$3,000

— Married, filing separately –$3,000

The personal exemption amount would be $2,500 for taxpayers with incomes up to the following limits:

— $100,000 for taxpayers filing married, filing jointly

— $80,000 for taxpayers filing as heads of household

— $60,000 for single taxpayers

— $50,000 for taxpayers filing married, filing separately

The personal exemption for taxpayers with incomes above these thresholds would equal $2,000.

Reserves for amortization of intangible assets as permitted for income tax purposes would deducted from the capital stock base for purposes of determining a taxpayer’s corporate franchise tax liability, effective retroactively to post-2006 tax years. Previously, the statute only authorized the deduction of reserves for depreciation of tangible assets in the capital stock base.

Subscribers can view the text of the bill.

H.B. 200, as passed by the North Carolina Senate on June 2, 2011, and ratified by the General Assembly on June 4, 2011

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