The North Carolina General Assembly overrode Gov. Bev Perdue’s veto (TAXDAY, 2011/06/14, S.26) and enacted a budget bill that adopts federal adjusted gross income rather than federal taxable income as the starting point for computing North Carolina personal income tax, enacts a new net business income tax deduction, and retroactively modifies the capital stock base for purposes of determining a taxpayer’s corporate franchise tax liability. The new starting point and deduction are effective beginning with the 2012 tax year. Notably 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 is 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 no longer incorporates the federal standard deduction or personal exemption amounts and, therefore, no longer requires the corresponding North Carolina adjustments beginning with the 2010 tax year. The standard deduction amount will 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 will 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 will equal $2,000.
Reserves for amortization of intangible assets as permitted for income tax purposes are 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, Laws 2011, effective as noted above