North Carolina ~ Sales and Use Tax: Governor Signs North Carolina Competes Act

On September 30, 2015, Gov. Pat McCrory signed the North Carolina Competes Act that, among other provisions, enacts: (1) a sales and use tax exemption for sales of electricity and support equipment used at qualifying datacenters; (2) sales and use tax provisions relative to aviation; (3) a sales and use tax exemption for motor vehicle service contracts; and (4) an extension of sales tax preferences for motorsports teams. In addition, the legislation enacts compliance measures applicable to statewide taxes except motor fuel taxes.

Datacenter Infrastructure Act

Effective January 1, 2016, a sales and use tax exemption is enacted for sales of electricity and datacenter support equipment used at qualifying datacenters. “Datacenter support equipment” is property that is capitalized for tax purposes under the Internal Revenue Code and is used for one of the following purposes:

– to provide a service or function included in the business of an owner, user, or tenant of the datacenter;

– the generation, transformation, transmission, distribution, or management of electricity, including exterior substations, generators, transformers, unit substations, uninterruptible power supply systems, batteries, power distribution units, remote power panels, and other capital equipment used for these purposes;

– HVAC and mechanical systems, including chillers, cooling towers, air handlers, pumps, and other capital equipment used for these purposes;

– hardware and software for distributed and mainframe computers and servers, data storage devices, network connectivity equipment, and peripheral components and equipment; or

– to provide related computer engineering or computer science research.

A “qualifying datacenter” is defined, for these purposes, as a datacenter that satisfies each of the following requirements:

– the datacenter meets wage standard and health insurance requirements, as provided; and

– the Secretary of Commerce has made a written determination that at least $75 million in private funds has been or will be invested by one or more owners, users, or tenants of the datacenter within five years of the date the owner, user, or tenant makes its first real or tangible property investment in the datacenter on or after January 1, 2012 (investments in real or tangible property in the datacenter made prior to January 1, 2012, may not be included in the investment required by this subdivision).

Aviation

 

Effective January 1, 2016, the combined general rate applies to the gross receipts derived from the sale of aviation gasoline and jet fuel.

Also effective January 1, 2016, an exemption is enacted for sales of aviation gasoline and jet fuel to an interstate air business for use in a commercial aircraft. This provision sunsets January 1, 2020.

Effective September 30, 2015, and notwithstanding the existing statute which provides that the sales and use tax refund allowed to interstate passenger air carriers is repealed for purchases made on or after January 1, 2016, such a carrier is allowed a refund of the sales and use tax paid by it on fuel in excess of $1.25 million for the period beginning July 1, 2015, and ending December 31 2015.

Effective October 1, 2015, the 4.75% general rate of sales and use tax applies to:

– an aircraft (with a maximum tax of $2,500 per article); and

– a qualified jet engine.

Formerly, the sales tax rate applicable to aircraft was 3% with a tax cap of $1,500.

“Qualified aircraft” is defined as an aircraft with a maximum take-off weight of more than 9,000 pounds but not more than 15,000 pounds. A “qualified jet engine” is defined as an engine certified pursuant to Part 33 of Title 14 of the Code of Federal Regulations.

Effective October 1, 2015, exemptions are enacted for the sales price of a service contract applicable to a qualified aircraft or jet engine, as well as parts and accessories used in the repair or maintenance of such aircraft and jet engines.

Effective October 1, 2015, a person who purchases a qualified jet engine may apply to the Secretary of Revenue for a direct pay permit for the purchase of a qualified jet engine. A direct pay permit issued for a qualified jet engine is inapplicable to any purchase other than the purchase of a qualified jet engine. The maximum use tax on a qualified jet engine is $2,500. A person who purchases a qualified jet engine under a direct pay permit must file a return and pay the tax due monthly to the Secretary.

Motor Vehicle Service Contracts

 

Effective March 1, 2016, an exemption is enacted for a replacement item, repair part, or repair, maintenance, and installation services to maintain or repair tangible personal property or a motor vehicle pursuant to a manufacturer’s warranty or a dealer’s warranty. For these purposes, a “dealer’s warranty” is defined as an explicit warranty the seller of an item extends to the purchaser of the item as part of the purchase price of the item. A “manufacturer’s warranty” is defined as an explicit warranty the manufacturer of an item extends to the purchaser of the item as part of the purchase price of the item.

Motorsports Teams

 

Effective September 30, 2015, a sales and use tax exemption is enacted for the sale of an engine provided with an operator to a professional motorsports racing team or a related member of a team for use in competition in a sanctioned race series. This provision expires January 1, 2020. An “operator” is defined as a person provided with the lease or rental of tangible personal property or a motor vehicle to operate, drive, or maneuver the tangible personal property or motor vehicle and whose presence, skill, knowledge, and expertise are necessary to bring about a desired or appropriate effect. The person must do more than calibrate, test, analyze, research, probe, or monitor the tangible personal property or motor vehicle.

Effective September 30, 2015, but applicable retroactively to service contracts purchased on or after January 1, 2014, the existing sales and use tax exemption for service contracts applicable to items purchased by a professional motorsports racing team is clarified to specify that the exemption applies to a transmission, an engine, rear-end gears, and any other item purchased by such a team or a related member of a team for which the team may receive a sales tax refund, as provided. This provision expires January 1, 2020.

Effective September 30, 2015, the sunset dates for two sales and use tax refunds available to professional motor sports racing teams or related members of such teams are extended from January 1, 2016, to January 1, 2020. The two refunds affected are: (1) the refund available to professional motorsports racing teams, motorsports sanctioning bodies, or related members of such teams or bodies, for sales and use tax paid by such entities on aviation fuel used to travel to or from a motorsports event; and (2) the partial refund available to a professional motorsports racing team or related member of such a team for sales and use tax paid by it in North Carolina on tangible personal property, other than tires or accessories, that comprises any part of a professional motorsports vehicle.

Interest Waivers

 

For statewide taxes except motor fuel taxes, and effective September 30, 2015, the Secretary of Revenue may reduce or waive interest on taxes imposed prior to or during a period in which a taxpayer has declared bankruptcy. Formerly, there were no provisions for reduction or waiver of interest.

H.B. 117, Laws 2015, effective and applicable as noted

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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