NORTH CAROLINA GENERAL ASSEMBLY

1967 SESSION

 

 

CHAPTER 1110

SENATE BILL 183

 

 

AN ACT TO MAKE TECHNICAL REVISIONS TO CHAPTERS 105, 119, 18 AND 53A OF THE GENERAL STATUTES PERTAINING TO THE REVENUE LAWS OF NORTH CAROLINA.

 

The General Assembly of North Carolina do enact:

 

Section 1.  The Inheritance Tax Article of the Revenue Act, being Article 1 of Chapter 105 of the General Statutes, is hereby amended by:

(a)        Rewriting and subdividing the first paragraph of subdivision (5) of G.S. 105-2 to read as follows:

"(5)         (a)     For purposes of this Article, the term 'general power of appointment' means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate; except that:

1.         A power to consume, invade or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support or maintenance of the decedent shall not be deemed a general power of appointment.

2.         A power of appointment which is exercisable by the decedent only in conjunction with another person:

a.         If the power is not exercisable by the decedent except in conjunction with the creator of the power, such power shall not be deemed a general power of appointment.

b.         If the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of the decedent, such power shall not be deemed a general power of appointment. For the purposes of this clause a person who, after the death of the decedent, may be possessed of a power of appointment (with respect to the property subject to the decedent's power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power.

c.         If (after the application of clauses a. and b.) the power is a general power of appointment and is exercisable in favor of such other person, such power shall be deemed a general power of appointment only in respect of a fractional part of the property subject to such power, such part to be determined by dividing the value of such property by the number of such persons (including the decedent) in favor of whom such power is exercisable.

d.         For purposes of clauses b. and c., a power shall be deemed to be exercisable in favor of a person if it is exercisable in favor of such person, his estate, his creditors, or the creditors of his estate.

"(b)      Whenever any person shall have a general power of appointment with respect to any interest in property, such persons shall, for the purposes of this Article, be deemed the owner of such interest and accordingly:"; and by deleting the designations "a.", "b." and "c." from lines 11, 16, 23, respectively, of subdivisions (5) of G.S. 105-2 and substituting therefor the numerals "1.", "2." and "3.".

(b)        Section 105-19 of the General Statutes of North Carolina is hereby amended by striking out the words "the legacy or devise" immediately following the word "if" and immediately preceding the word "subject" in line 1 thereof and by substituting in lieu thereof the following words: "any transfer,"; and further by striking out the word "given" immediately after the word "be" and immediately before the word "to" in line 1 thereof and substituting in lieu thereof the word "made".

Sec. 2.  The Franchise Tax Article of the Revenue Act, being Article 3 of Subchapter I of Chapter 105 of the North Carolina General Statutes is hereby amended by:

(a)        Rewriting subsection (a) of G.S. 105-122 to read as follows: "(a) Every corporation, domestic and foreign, incorporated, or, by an Act, domesticated under the laws of this State or doing business in this State, except as otherwise provided in this Article or schedule, shall, on or before the fifteenth day of the third month following the end of its income year, annually, make and deliver to the Commissioner of Revenue in such form as he may prescribe a full, accurate and complete report and statement signed by either its president, vice president, treasurer, assistant treasurer, secretary or assistant secretary, containing such facts and information as may be required by the Commissioner of Revenue as shown by the books and records of the corporation at the close of such income year.

"There shall be annexed to the return required by this subsection the affirmation of the officer signing the return in the following form: 'Under penalties prescribed by law, I hereby affirm that to the best of my knowledge and belief this return, including any accompanying schedules and statements, is true and complete. If prepared by a person other than taxpayer, his affirmation is based on all information of which he has any knowledge.' "

(b)        Deleting the first five lines of subsection (c) of G.S. 105-122 and rewriting subdivision (c)(1) of that Section to read as follows:

"(c)       (1)        After ascertaining and determining the amount of its capital stock, surplus and undivided profits, as provided herein, every such corporation permitted to allocate and apportion its net income for income tax purposes under the provisions of Article 4 of this chapter shall apportion said capital stock, surplus and undivided profits to this State through use of the fraction computed for apportionment of its business income under said Article.

      "Provided, that although a corporation is authorized by the Tax Review Board to apportion its business income by use of an alternative formula or method, the corporation may not use such alternative formula or method for apportioning its capital stock, surplus and undivided profits unless specifically authorized to do so by order of the Tax Review Board.

      "Provided, further, that a corporation which is required to pay an income tax to this State on its entire net income shall apportion its entire capital stock, surplus and undivided profits to this State."; deleting subdivision (2) of subsection (c) of G.S. 105-122 and by redesignating subdivisions (3) and (4) of that subsection as subdivisions "(2)" and "(3)" respectively.

(c)        Rewriting G.S. 105-123 as the same appears after having been amended by Chapter 286 of the Session Laws of 1967 to read as follows:

"§ 105-123.  New Corporations. (a) No corporation shall be permitted to do business in this State without paying the franchise tax levied in this Article. When a corporation is incorporated, domesticated or commences business in this State, it shall on or before the sixtieth day following the date of its incorporation, domestication or commencement of business in this State make and deliver to the Commissioner of Revenue in such form as he may prescribe a full, accurate and complete return and statement signed by either its president, vice president, treasurer, assistant treasurer, secretary or assistant secretary containing such facts and information as may be required by the Commissioner of Revenue in the administration of the tax levied under this Article. There shall be annexed to the return the affirmation of the officer signing the same, which shall be in the form prescribed in G.S. 105-122.

"Every corporation subject to the provisions of this Section shall pay a franchise tax of ten dollars ($10.00) which shall be due at the time the return is due and which shall be for the period from date of incorporation, domestication or commencement of business in this State through the last day of the then current income year. In no case shall such period exceed 53 weeks.

"(b)      Any corporation failing to file the return or pay the tax provided for in subsection (a) of this Section within the time specified shall be subject to all penalties and remedies as by law prescribed."

(d)        Deleting from line 2 of G.S. 105-125 the following references: "§§ 105-122 and 105-123", and inserting in lieu thereof the words "this Article"; and by inserting after the word "to" and preceding the word "religious" in line 2 of G.S. 105-125 the word and punctuation "charitable,".

(e)        Deleting from line 9 of the second paragraph of subsection (b) of G.S. 105-122 the reference "§ 105-143" and by substituting in lieu thereof the reference "§ 105-130.6".

Sec. 3.  The Income Tax Article of the Revenue Act, being Article 4 of Subchapter I of Chapter 105 of the General Statutes is hereby amended by:

(a)        Adding at the beginning of said Article a new division to be designated as "DIVISION I. CORPORATION INCOME TAX", to be composed of General Statute Sections 105-130 through 105-130.21;

(b)        Rewriting G.S. 105-130 to read as follows:

"§ 105-130.  Short Title. This division of the income tax Article shall be known and may be cited as the Corporation Income Tax Act.

(c)        Adding new Sections to be designated 105-130.1 through 105-130.21 and to read as follows:

"§ 105-130.1.  Purpose. The general purpose of this division is to impose a tax for the use of the State government upon the net income of every domestic corporation and of every foreign corporation doing business in this State.

"The tax imposed upon the net income of corporations in this division is in addition to all other taxes imposed under this subchapter.

"§ 105-130.2.  Definitions. For the purpose of this division, and unless otherwise required by the context:

(1)        The word 'taxpayer' includes any corporation subject to the tax imposed by this division.

(2)        The word 'corporation' includes joint-stock companies or associations and insurance companies.

(3)        The words 'domestic corporation' mean any corporation organized under the laws of this State.

(4)        The words 'foreign corporation' mean any corporation other than a domestic corporation.

(5)        The words 'income year' or 'taxable year' mean the calendar year or the fiscal year upon the basis of which the net income is computed under this division; provided, that if no fiscal year has been established, they mean the calendar year, except that in the case of a return made for a fractional part of a year under the provisions of this division or under rules or regulations prescribed by the Commissioner of Revenue, the words 'income year' or 'taxable year' mean the period for which such return is made.

(6)        The words 'fiscal year' mean an income year, ending on the last day of any month other than December. A corporation which pursuant to the provisions of the Federal Internal Revenue Code of 1954 has elected to compute its income tax liability to the United States on the basis of an annual period varying from 52 to 53 weeks shall compute its taxable income for the purposes of this division on the basis of the same period used by such corporation in accordance with the Federal Internal Revenue Code of 1954 in computing its tax liability to the United States for such income year.

"§ 105-130.3.  Corporations. Every corporation doing business in this State shall pay annually an income tax equivalent to six per cent (6%) of its net income or the portion thereof allocated and apportioned to this State. The net income or net loss of such corporation shall be the same as 'taxable income' as defined in the Internal Revenue Code in effect on the effective date of this division, subject to the adjustments provided in G.S. 105-130.5.

"If the entire business of the corporation is done within this State or if the corporation is not taxable in another state within the meaning of subdivision (2) of G.S. 105-130.4, the tax shall be measured by the entire net income of the corporation for the income year.

"If the business of the corporation is taxable both within and without this State, its entire net income or net loss shall be allocated and apportioned in accordance with the provisions of G.S. 105-130.4.

"§ 105-130.4.  Allocation and Apportionment of Income for Corporations.

"(1)      As used in this Section, unless the context otherwise requires:

a.         'Business income' means income arising from transactions and activity in the regular course of the corporation's trade or business and includes income from tangible and intangible property if the acquisition, management, and/or disposition of the property constitute integral parts of the corporation's regular trade or business operations.

b.         'Commercial domicile' means the principal place from which the trade or business of the taxpayer is directed or managed.

c.         'Compensation' means wages, salaries, commissions and any other form of remuneration paid to employees for personal services.

d.         'Excluded corporation' means any corporation engaged in the business of dealing in securities, any loan company, or any other corporation, which receives more than fifty per cent (50%) of its ordinary gross income from investments in and/or dealing in intangible property.

e.         'Nonbusiness income' means all income other than business income.

f.          'Public utility' means any corporation which is subject to control of North Carolina Utilities Commission and/or Federal Communications Commission, Interstate Commerce Commission, Federal Power Commission and Federal Aviation Agency and which owns or operates for public use any plant, equipment, property, franchise, or license for the transmission of communications, transportation of goods or persons, or the production, storage, transmission, sale, delivery or furnishing of electricity, water, steam, oil, oil products, or gas.

g.         'Sales' means all gross receipts of the corporation except receipts from any casual sale of property and except receipts allocated under subdivisions (3) through (8) of this Section.

h.         'Casual sale of property' means the sale of any property which was not purchased, produced or acquired primarily for sale in the corporation's regular trade or business.

i.          'State' means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof.

"(2)      A corporation having income from business activity which is taxable both within and without this State shall allocate and apportion its net income or net loss as provided in this Section. For purposes of allocation and apportionment, a corporation is taxable in another state if (1) in that state it is subject to a net income tax, or any tax measured by net income, or (2) that state has jurisdiction to subject the corporation to a tax measured by net income regardless of whether, in fact, that state exercises such jurisdiction.

"(3)      Rents and royalties from real or tangible personal property, gains and losses, interest, dividends less the portion deductible under G.S. 105-130.7, patent and copyright royalties and other kinds of income, to the extent that they constitute nonbusiness income, less related expenses shall be allocated as provided in subdivisions (4) through (8) of this Section.

"(4)      a.         Net rents and royalties from real property located in this State are allocable to this State.

b.         Net rents and royalties from tangible personal property are allocable to this State:

1.         if and to the extent that the property is utilized in this State, or

2.         in their entirety if the corporation's commercial domicile is in this State and the corporation is not organized under the laws of, or is not taxable in, the state in which the property is utilized.

c.         The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the income year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the income year. If the physical location of the property during the rental or royalty period is unkown or unascertainable by the corporation, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.

"(5)      a.         Gains and losses from sales or other disposition of real property located in this State are allocable to this State.

b.         Gains and losses from sales or other disposition of tangible personal property are allocable to this State if

1.         the property had a situs in this State at the time of the sale, or

2.         the corporation's commercial domicile is in this State and the corporation is not taxable in the state in which the property had a situs.

c.         Gains and losses from sales or other disposition of intangible personal property are allocable to this State if the corporation's commercial domicile is in this State.

"(6)      Interest and net dividends are allocable to this State if the corporation's commercial domicile is in this State subject to the following limitations:

a.         Net dividends received by a corporation from another corporation in which the recipient corporation owns fifty (50%) or more per centum of the paying corporation's voting stock, shall be allocated to this State if the paying corporation is subject to income tax in this State. In such case, the net amount of such dividends received by the recipient corporation from the paying corporation is allocable to this State by use of the same percentage figure used in determining the portion of the paying corporation's dividends deductible under the provisions of G.S. 105-130.7.

b.         For purposes of this Section, the net amount of dividends shall mean gross dividend income received less related expenses and less that portion of such dividends deductible under the provisions of G.S. 105-130.7.

"(7)      a.         Royalties or similar income received from the use of patents, copyrights, secret processes and other similar intangible property are allocable to this State:

1.         if and to the extent that the patent, copyright, secret process or other similar intangible property is utilized in this State, or

2.         if and to the extent that the patent, copyright, secret process or other similar intangible property is utilized in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in this State.

b.         A patent, secret process or other similar intangible property is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, processing, or other use in the state or to the extent that a patented product is produced in the state. If the basis of receipts from such intangible property does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the intangible property is utilized in the state in which the taxpayer's commercial domicile is located.

c.         A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.

"(8)      The income less related expenses from any other nonbusiness activities or investments not otherwise specified in this Section is allocable to this State if the business situs of the activities or investments are located in this State.

"(9)      All business income of corporations other than public utilities and excluded corporations shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three. Provided, that where less than three of the said factors exist, the denominator of the fraction shall be the same as the number of existing factors.

"(10)    a.         The property factor is a fraction, the numerator of which is the average value of the corporation's real and tangible personal property owned or rented and used in this State during the income year and the denominator of which is the average value of all the corporation's real and tangible personal property owned or rented and used during the income year.

b.         Property owned by the corporation is valued at its original cost. Property rented by the corporation is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the corporation less any annual rental rate received by the corporation from sub-rentals. Any property under construction or any property which had not been actually used or operated in the corporation's business during the income year and any property the income from which constitutes nonbusiness income shall be excluded in the computation of the property factor.

c.         The average value of property shall be determined by averaging the values at the beginning and end of the income year, but in all cases the Commissioner of Revenue may require the averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the corporation's property. A corporation which ceases its operations in this State before the end of its income year because of its intention to dissolve or to relinquish its certificate of authority, or because of a merger or consolidation, or for any other reason whatsoever shall use the real estate and tangible personal property values as of the first day of the income year and the last day of its operations in this State in determining the average value of property, but the Commissioner may require averaging of monthly or other periodic values during the income year if reasonably required to reflect properly the average value of the corporation's property.

"(11)    a.         The payroll factor is a fraction, the numerator of which is the total amount paid in this State during the income year by the corporation as compensation, and the denominator of which is the total compensation paid everywhere during the income year. All compensation paid to general executive officers and all compensation paid in connection with nonbusiness income shall be excluded in computing the payroll factor. General executive officers shall include the chairman of the board, president, vice presidents, secretary, treasurer, comptroller, and any other officer serving in similar capacities.

b.         Compensation is paid in this State if:

1.         the individual's service is performed entirely within the State; or

2.         the individual's service is performed both within and without the State, but the service performed without the State is incidental to the individual's service within the State; or

3.         some of the service is performed in this State and (1) the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in this State, or (2) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this State.

"(12)    a.         The sales factor is a fraction, the numerator of which is the total sales of the corporation in this State during the income year, and the denominator of which is the total sales of the corporation everywhere during the income year. Notwithstanding any other provision under this division, the receipts from any casual sale of property shall be excluded from both the numerator and the denominator of the sales factor. Where a corporation is not taxable in another state on its business income but is taxable in another state only because of nonbusiness income, all sales shall be treated as having been made in this State.

b.         Sales of tangible personal property are in this State if the property is received in this State by the purchaser. In the case of delivery of goods by common carrier or by other means of transportation, including transportation by the purchaser, the place at which the goods are ultimately received after all transportation has been completed shall be considered as the place at which the goods are received by the purchaser. Direct delivery into this State by the taxpayer to a person or firm designated by a purchaser from within or without the State shall constitute delivery to the purchaser in this State.

c.         Other sales are in this State if:

1.         The receipts are from real or tangible personal property located in this State; or

2.         The receipts are from intangible property and are received from sources within this State; or

3.         The receipts are from services and the income-producing activities are in this State.

"(13)    All business income of a railroad company shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the 'railway operating revenue' from business done within this State and the denominator of which is the 'total railway operating revenue' from all business done by the company as shown by its records kept in accordance with the standard classification of accounts prescribed by the Interstate Commerce Commission.

      "'Railway operating revenue' from business done within this State shall mean 'railway operating revenue' from business wholly within this State, plus the equal mileage proportion within this State of each item of 'railway operating revenue' received from the interstate business of the company. 'Equal mileage proportion' shall mean the proportion which the distance of movement of property and passengers over lines in this State bears to the total distance of movement of property and passengers over lines of the company receiving such revenue. 'Interstate business' shall mean 'railway operating revenue' from the interstate transportation of persons or property into, out of, or through this State. If the Commissioner of Revenue shall find, with respect to any particular company, that its accounting records are not kept so as to reflect with exact accuracy such division of revenue by state lines as to each transaction involving interstate revenue, the Commissioner of Revenue may adopt such regulations, based upon averages, as will approximate with reasonable accuracy the proportion of interstate revenue actually earned upon lines in this State. Provided, that where a railroad is being operated by a partnership which is treated as a corporation for income tax purposes and nays a net income tax to this State, or if located in another state would be so treated and so pay as if located in this State, each partner's share of the net profits shall be considered as dividends paid by a corporation for purposes of this division and shall be so treated for inclusion in gross income, deductibility, and separate allocation of dividend income.

"(14)    All business income of a telephone company shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is gross operating revenue from local service in this State plus gross operating revenue from toll services performed wholly within this State plus the proportion of revenue from interstate toll services attributable to this State as shown by the records of the company plus the gross operating revenue in North Carolina from other service less the uncollectible revenue in this State, and the denominator of which is the total gross operating revenue from all business done by the company everywhere less total uncollectible revenue. Provided, that where a telephone company is required to keep its records in accordance with the standard classification of accounts prescribed by the Federal Communications Commission the amounts in such accounts shall be used in computing the apportionment fraction as provided in this subdivision.

"(15)    All business income of a motor carrier of property shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of vehicle miles in this State and the denominator of which is the total number of vehicle miles of the company everywhere. The words 'vehicle miles' shall mean miles traveled by vehicles owned or operated by the company hauling property for a charge or traveling on a scheduled route.

"(16)    All business income of a motor carrier of passengers shall be apportioned by multiplying the income by a fraction, the numerator of which is the number of vehicle miles in this State and the denominator of which is the total number of vehicle miles of the company everywhere. The words 'vehicle miles' shall mean miles traveled by vehicles owned or operated by the company carrying passengers for a fare or traveling on a scheduled route.

"(17)    All business income of a telegraph company shall be apportioned by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is three.

      "The property factor shall be as defined in subdivision (10) of this Section, the payroll factor shall be as defined in subdivision (11) of this Section, and the sales factor shall be as defined in subdivision (12) of this Section.

"(18)    All business income of an excluded corporation and of all other public utilities shall be apportioned by multiplying the income by the sales factor as determined under subdivision (12) of this Section.

"(19)    a.         If any corporation believes that the method of allocation or apportionment as administered by the Commissioner of Revenue has operated or will so operate as to subject it to taxation on a greater portion of its income than is reasonably attributable to business or earnings within the State, it shall be entitled to file with the Tax Review Board a petition setting forth the facts upon which its belief is based and its argument with respect to the application of the allocation formula. This petition shall be filed in such form and within such time as the Tax Review Board may prescribe. The Board shall grant a hearing thereon. At least three members of the Tax Review Board shall attend any hearing pursuant to such petition. In such cases, the Tax Review Board's membership shall be augmented by the addition of the Commissioner of Revenue who shall sit as a member of said Board with full power to participate in its deliberations and decisions with respect to petitions filed under the provisions of this Section. An informal record containing in substance the evidence, contentions and arguments presented at the hearing shall be made. All members of the augmented Tax Review Board shall consider such evidence, contentions and arguments and the decisions thereon shall be made by a majority vote of the augmented Board.

b.         If the corporation shall employ in its books of account a detailed allocation of receipts and expenditures which reflects more clearly than the applicable allocation formula prescribed by this Section the income attributable to the business within this State, application for permission to base the return upon the taxpayer's books of account shall be considered by the Tax Review Board. The Board shall be authorized to permit such separate accounting method in lieu of applying the applicable allocation formula if the Board deems such method proper as best reflecting the income and earnings attributable to this State.

c.         If the corporation shall show that any other method of allocation than the applicable allocation formula prescribed by this Section reflects more clearly the income attributable to the business within this State, application for permission to base the return upon such other method shall be considered by the Tax Review Board. The application shall be accompanied by a statement setting forth in detail, with full explanations, the method the corporation believes will more nearly reflect its income from business within this State. If the Board shall conclude that the allocation formula prescribed by this Section allocates to this State a greater portion of the net income of the corporation than is reasonably attributable to business or earnings within this State, it shall determine the allocable net income by such other method as it shall find best calculated to assign to this State for taxation the portion of the corporation's net income reasonably attributable to its business or earnings within this State.

d.         There shall be a presumption that the appropriate allocation formula reasonably attributes to this State the portion of the corporation's income earned in this State, and the burden shall rest upon the corporation to show the contrary. The relief herein authorized shall be granted by the Board only in cases of clear, cogent and convincing proof that the petitioning corporation is entitled thereto. No corporation shall use any alternative formula or method other than the applicable allocation formula provided by statute in making a report or return of its income to this State except upon order in writing of the Board, and any return in which any alternative formula or other method, other than the applicable allocation formula prescribed by statute, is used without permission of the Board shall not be a lawful return.

      When the Board determines, pursuant to the provisions of this subdivision, that an alternative formula or other method more accurately reflects the income allocable to North Carolina and renders its decision with regard thereto, the corporation shall allocate its net income for future years in accordance with such determination and decision of the Board so long as the conditions constituting the basis upon which the decision was made remain unchanged or until such time as the business method of operation of the corporation changes. Provided, however, that the Commissioner of Revenue may, in his discretion, with respect to any subsequent year, require the corporation to furnish information relating to its property, operations, and activities.

e.         A corporation which proposes to do business in this State may file a petition with the Board setting forth the facts upon which it contends that the applicable allocation formula will allocate a greater portion of the corporation's future income to North Carolina than will be reasonably attributable to its proposed business or contemplated earnings within the State. Upon a proper showing in accordance with the procedure described above for determinations by the Board, the Board may authorize such corporation to allocate income from its future business to North Carolina on the basis prescribed by the Board under the provisions of this Section for such future years if the conditions constituting the basis upon which the Board's decision is made remain unchanged and the business operations of the corporation continue to conform to the statement of proposed methods of business operation presented by the corporation to the Board.

f.          When the Commissioner of Revenue asserts liability under the formula adjustment decision of the Tax Review Board, an aggrieved corporation may pay the tax and bring a civil action for recovery under the provisions of Article 9.

"§ 105-130.5.  Adjustments to Federal Taxable Income in Determining State Net Income.

a.         The following additions to federal taxable income shall be made in determining State net income:

(1)        Taxes based on or measured by net income by whatever name called and excess profits taxes;

(2)        Interest deemed excessive under G.S. 105-130.6 and interest paid in connection with income exempt from taxation under this division;

(3)        The contributions deduction allowed by the Internal Revenue Code;

(4)        Interest income earned on bonds and other obligations of other states or their political subdivisions, less allowable amortization on any bond acquired on or after January 1, 1963;

(5)        The amount by which gains have been offset by the capital loss carryover allowed under the Internal Revenue Code. All gains recognized on the sale or other disposition of assets must be included in determining State net income or loss in the year of disposition;

(6)        The net operating loss deduction allowed by the Internal Revenue Code; and

(7)        Special deductions allowable under Sections 241 to 247, inclusive, of the Internal Revenue Code.

b.         The following deductions from federal taxable income shall be made in determining State net income:

(1)        Interest upon the obligations of the United States or its possessions, to the extent included in federal taxable income: Provided, interest upon the obligations of the United States shall not be an allowable deduction unless interest upon obligations of the State of North Carolina or any of its political subdivisions is exempt from income taxes imposed by the United States;

(2)        Interest received by a corporation on indebtedness owed to it by its parent, subsidiary, or an affiliated corporation which in the determination of the net income or net loss of such subsidiary or affiliated corporation was not allowed as a deduction under the provisions of G.S. 105-130.6;

(3)        The deductible portion of dividends from stock issued by any corporation as provided under G.S. 105-130.7;

(4)        Losses in the nature of net economic losses sustained by the corporation in any or all of the five preceding years pursuant to the provisions of G.S. 105-130.8. Provided, a corporation required to allocate and apportion its net income under the provisions of G.S. 105-130.4 shall deduct its allocable net economic loss only from total income allocable to this State pursuant to the provisions of G.S. 105-130.8;

(5)        Contributions or gifts made by any corporation within the income year to the extent provided under G.S. 105-130.9;

(6)        Amortization in excess of depreciation allowed for federal income tax purposes on the cost of any sewage or waste treatment plant as provided in G.S. 105-130.10;

(7)        Depreciation of emergency facilities acquired prior to January 1, 1955. Any corporation shall be permitted to depreciate any emergency facility, as such is denned in Section 168 of the Internal Revenue Code, over its useful life, provided such facility was acquired prior to January 1, 1955, and no amortization has been claimed on such facility for State income tax purposes; and

(8)        The amount of losses realized on the sale or other disposition of assets not allowed under Section 1211(a) of the Internal Revenue Code. All losses recognized on the sale or other disposition of assets must be included in determining State net income or loss in the year of disposition.

c.         The following other adjustments to federal taxable income shall be made in determining State net income:

(1)        Any gains or losses realized from the sale or exchange by a corporation of its property in a liquidation under Section 337 of the Internal Revenue Code which are applicable to proceeds distributable to shareholders whose income is not taxed under the North Carolina income tax laws must be included in determining State net income.

(2)        In determining State net income, no deduction shall be allowed for annual amortization of bond premiums applicable to any bond acquired prior to January 1, 1963. The amount of premium paid on any such bond shall be deductible only in the year of sale or other disposition.

(3)        Federal taxable income must be increased or decreased to account for any difference in the amount of depreciation, amortization, or gains or losses applicable to property which has been depreciated or amortized by use of a different basis or rate for State income tax purposes than used for federal income tax purposes prior to the effective date of this division.

"§ 105-130.6.  Subsidiary and Affiliated Corporations. The net income of a corporation doing business in this State which is a parent, subsidiary or affiliate of another corporation shall be determined by eliminating all payments to or charges by a parent, subsidiary or affiliated corporation in excess of fair compensation in all inter-company transactions of any kind whatsoever. Interest payments between such corporations computed at a rate in excess of six per cent (6%) per annum shall be considered excessive. If the Commissioner of Revenue shall find as a fact that a report by such corporation does not disclose the true earnings of such corporation on its business carried on in this State, the Commissioner may require that such corporation file a consolidated return of the entire operations of the parent corporation and of its subsidiaries and affiliates, including its own operations and income, and shall determine the true amount of net income earned by such corporation in this State as provided herein. The combined net income of such corporation and of its parent, subsidiaries and affiliates shall be apportioned to this State by use of the applicable apportionment formula required to be used by such corporation under G.S. 105-130.4. In such cases there shall be included in the apportionment formula the property, payrolls and sales of all corporations for which the return is made. For the purposes of this Section, a corporation shall be deemed a subsidiary of another corporation hereby designated the parent corporation, when, directly or indirectly, it is subject to control by such other corporation by stock ownership, interlocking directors, or by any other means whatsoever exercised by the same or associated financial interests, whether such control is direct or through one or more subsidiary, affiliated, or controlled corporations, and a corporation shall be deemed an affiliate of another corporation when both are directly or indirectly controlled by the same parent corporation or by the same or associated financial interests by stock ownership, interlocking directors, or by any other means whatsoever, whether such control be direct or through one or more subsidiary, affiliated or controlled corporations. Upon such finding by the Commissioner of Revenue, the consolidated return authorized by this Section may be required whether the parent or controlling corporation or interests or its subsidiaries or affiliates, other than the taxpayer, are or are not doing business in this State.

"If such consolidated return is required and is not filed within 60 days after demand, said parent, subsidiary or affiliated corporation shall be subject to the penalty provided in this Act for failure to file return and, in addition, shall be subject to the penalty provided in G.S. 105‑230, and in such event the provisions of G.S. 105-236 shall apply.

"Such parent, subsidiary or affiliated corporation shall incorporate in its return required under this Section such information as the Commissioner of Revenue may reasonably require for the determination of the net income taxable under this division, and shall furnish such additional information as the Commissioner may reasonably require. If the return does not contain the information therein required or such additional information is not furnished within 30 days after demand, the corporation shall be subject to a penalty of one hundred dollars ($100.00) for each day's omission, in addition to the penalty provided in G.S. 105-230.

"If the Commissioner finds that the determination of the income of a parent, subsidiary or affiliated corporation under a consolidated return as herein provided will produce a greater or lesser figure than the amount of income earned in this State, he may readjust the determination by reasonable methods of computation to make it conform to the amount of income earned in this State; and if the corporation contends the figure produced is greater than the earnings in this State, it shall within 30 days after notice of such determination, file with the Commissioner a statement of its objections and of an alternative method of determination with such detail and proof as the Commissioner may require, and the Commissioner shall consider the same in determining the income earned in this State. In making such determination, the findings and conclusions of the Commissioner shall be presumed to be correct and shall not be set aside unless shown to be plainly wrong.

"§ 105-130.7.  Deductible Portion of Dividends. Dividends from stock issued by any corporation shall be deducted to the extent herein provided.

(1)        As soon as may be practicable after the close of each calendar year, the Commissioner of Revenue shall determine from each corporate income tax return filed with him during such year, and due from the filing corporation during such year, the proportion of the entire net income or loss of the corporation allocable to this State under the provisions of G.S. 105-130.4, except as provided herein; if a corporation has a net income in North Carolina and a net loss from all sources wherever located, or if a corporation has a net loss in North Carolina and a net income from all sources wherever located, the Commissioner shall require the use of the allocation fraction determined under the provisions of G.S. 105-130.4. A corporation which is a stockholder in any such corporation shall be allowed to deduct the same proportion of the dividends received by it from such corporation during its income year ending at or after the end of such calendar year. No deduction shall be allowed for any part of any dividend received by such corporation from any corporation which filed no income tax return with the Commissioner of Revenue during such calendar year.

(2)        Dividends received by a corporation from stock in any insurance company of this State taxed under the provisions of G.S. 105-228.5 shall be deductible by such corporation, and a proportionate part of any dividends received from stock in any foreign insurance corporation shall be deductible, such part to be determined on the basis of the ratio of premiums reported for taxation in this State to total premiums collected both in and out of this State.

(3)        Dividends received by a corporation from stock in any bank or trust company in this State taxed under the provisions of Article 8C of this chapter shall be deductible.

(4)        A corporation shall be allowed to deduct such proportionate part of dividends received by it from a regulated investment company or a real estate investment trust, as defined in G.S. 105-130.12, as represents and corresponds to income received by such regulated investment company or real estate investment trust which would not be taxed by this State if received directly by the corporation.

"§ 105-130.8.  Net Economic Loss. Net economic losses sustained by a corporation in any or all of the five preceding income years shall be allowed as a deduction to such corporation subject to the following limitations:

(1)        The purpose in allowing the deduction of a net economic loss of a prior year or years is that of granting some measure of relief to the corporation which has incurred economic misfortune or which is otherwise materially affected by strict adherence to the annual accounting rule in the determination of net income. The deduction herein specified does not authorize the carrying forward of any particular items or category of loss except to the extent that such loss or losses shall result in the impairment of the net economic situation of the corporation so as to result in a net economic loss as hereinafter defined.

(2)        The net economic loss for any year shall mean the amount by which allowable deductions for the year other than prior year losses shall exceed income from all sources in the year including any income not taxable under this division.

(3)        Any net economic loss of a prior year or years brought forward and claimed as a deduction in any income year may be deducted from net income of the year only to the extent that such carryover loss from the prior year or years shall exceed any income not taxable under this division received in the same year in which the deduction is claimed, except that in the case of a corporation required to allocate and apportion to North Carolina its net income, as denned in this division, only such proportionate part of the net economic loss of a prior year shall be deductible from total income allocable to this State as would be determined by the use of the allocation and apportionment provisions of G.S. 105-130.4 for the year of such loss.

(4)        A net economic loss carried forward from any year shall first be applied to, or offset by, any income taxable or nontaxable of the next succeeding year before any portion of such loss may be carried forward to a succeeding year.

(5)        For purposes of this Section, any income item deductible in determining State net income under the provisions of G.S. 105-130.5 and any nonbusiness income not allocable to this State under the provisions of G.S. 105-130.4 shall be considered as income not taxable under this division.

(6)        No loss shall either directly or indirectly be carried forward more than five years.

"§ 105-130.9.  Contributions. Contributions shall be allowed as a deduction to the extent and in the manner provided as follows:

(1)        Contributions or gifts made by any corporation within the income year to corporations, trusts, community chests, funds, foundations or associations organized, and operated exclusively for religious, charitable, literary, scientific, or educational purposes or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or contributions or gifts made by any corporation within the income tax year to posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units, or societies are organized in the United States or any of its possessions, and if no part of their net earnings inures to the benefit of any private shareholder or individual, or the organization known as Alcoholics Anonymous or any local chapter thereof, or to a cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual: Provided, the amount allowed as a deduction hereunder shall be limited to an amount not in excess of five per centum (5%) of the corporation's net income as computed without the benefit of this subdivision or subdivision (2) of this Section; and, provided further, that contributions made to North Carolina donees by corporations allocating a part of their total net income outside this State shall not be allowed under this subdivision, but shall be allowed under subdivision (3) of this Section.

(2)        Contributions by any corporation to the State of North Carolina, any of its institutions, instrumentalities, or agencies, any county of this State, its institutions, instrumentalities, or agencies, any municipality of this State, its institutions, instrumentalities, or agencies, and contributions or gifts by any corporation to educational institutions located within North Carolina, no part of the net earnings of which inures to the benefit of any private stockholder or individual. For the purpose of this subdivision, the words 'educational institution' shall mean only an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where the educational activities are carried on.

(3)        Corporations allocating a part of their total net income outside North Carolina under the provisions of G.S. 105-130.4 shall deduct from total income allocable to North Carolina contributions made to North Carolina donees qualified under subdivisions (1) and (2) of this Section or made through North Carolina offices or branches of other donees qualified under the above-mentioned subdivisions of this Section; provided, such deduction for contributions made to North Carolina donees qualified under subdivision (1) of this Section shall be limited in amount to five per cent(5%) of the total income allocated to North Carolina as computed without the benefit of this deduction for contributions.

"§ 105-130.10.  Amortization of Waste Treatment Facilities. In lieu of any depreciation allowance, at the option of the corporation, a deduction shall be allowed for amortization of the cost of any sewage or waste treatment plant, including waste lagoons, and pollution abatement equipment purchased or constructed and installed which reduces the amount of water pollution resulting from the discharge of sewage and industrial wastes or other polluting materials or substances into streams, lakes, or rivers, based on a period of 60 months. The deduction provided for in this Section shall be allowed by the Commissioner of Revenue only upon condition that the corporation claiming such allowance shall furnish to the Commissioner a certificate from the State Stream Sanitation Committee certifying that said Committee has found as a fact that the waste treatment plant or pollution abatement equipment purchased or constructed and installed as above described has actually been constructed and installed and that such plant or equipment complies with the requirements of said Committee with respect to such plants or equipment, that such plant or equipment is being effectively operated in accordance with the terms and conditions set forth in the permit, certificate of approval, or other document of approval issued by the State Stream Sanitation Committee, and that the primary purpose thereof is to reduce water pollution resulting from the discharge of sewage and waste and not merely incidental to other purposes and functions.

"§ 105-130.11.  Conditional and Other Exemptions. (a) The following organizations shall be exempt from taxation under this division except as provided in subsection (b) of this Section:

(1)        Fraternal beneficiary societies, orders or associations

a.         Operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and

b.         Providing for the payment of life, sick, accident, or other benefits to the members of such society, order or association, or their dependents;

(2)        Every bank or banking association, trust company or any combination of such facilities or services subject to taxation under Article 8C of this chapter; and building and loan associations, and savings and loan associations subject to capital stock tax and/or excise tax under Article 8D of this chapter; and any cooperative banks without capital stock organized and operated for mutual purposes and without profit, and electric and telephone membership corporations organized under Chapter 117 of the General Statutes;

(3)        Cemetery corporations and corporations organized for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual;

(4)        Business leagues, chambers of commerce, merchants' associations, or boards of trade not organized for profit, and no part of the net earnings of which inures to the benefit of any private stockholder or individual;

(5)        Civic leagues or organizations not organized for profit, but operated exclusively for the promotion of social welfare;

(6)        Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private stockholder or member;

(7)        Farmers' or other mutual hail, cyclone, or fire insurance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies, or like organizations of a purely local character the income of which consists solely of assessments, dues and fees collected from members for the sole purpose of meeting expenses;

(8)        Farmers', fruit growers', or like organizations organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of product furnished by them;

(9)        Mutual associations formed under G.S. 54-111 through 54-128 to conduct agricultural business on the mutual plan and marketing associations organized under G.S. 54-129 through 54-158.

      Nothing in this subdivision shall be construed to exempt any co-operative, mutual association or other organization from an income tax on net income which has not been refunded to patrons on a patronage basis and distributed either in cash, stock, certificates, or in some other manner that discloses to each patron the amount of his patronage refund. Provided, in arriving at net income for purposes of this subdivision, no deduction shall be allowed for dividends paid on capital stock. Patronage refunds made after the close of the taxable year and on or before the fifteenth day of the ninth month following the close of such year shall be considered as made on the last day of such taxable year to the extent the allocations are attributable to income derived before the close of such year; provided, that no stabilization or marketing organization, which handles agricultural products for sale for producers on a pool basis, shall be deemed to have realized any net income or profit in the disposition of a pool or any part of a pool until all of the products in that pool shall have been sold and the pool shall have been closed; provided, further, that a pool shall not be deemed closed until the expiration of at least 90 days after the sale of the last remaining product in that pool. Such co-operatives and other organizations shall file an annual information return with the Commissioner of Revenue on forms to be furnished by the Commissioner and shall include therein the names and addresses of all persons, patrons and/or shareholders, whose patronage refunds amount to ten dollars ($10.00) or more; and

(10)      Insurance companies paying the tax on gross premiums as specified in G.S. 105-228.5.

(b)        Organizations described in subdivisions (1), (3), (4), (5), (6), (7), (8) or (9) of subsection (a) of this Section shall be subject to the tax provided for in G.S. 105-130.3 to the following extent:

Gross income derived by any organization from any trade or business the conduct of which is not substantially related (aside from the need of the organization for income) to the exercise or performance of those functions constituting the basis for its exemption in subsection (a) of this Section, less all deductions allowed by this division directly connected with carrying on such trade or business and less one thousand dollars ($1,000.00) ; provided, this paragraph shall not apply to interest, royalties, dividends or rents; provided further, this paragraph shall not apply to any trade or business (i) in which substantially all the work in carrying on such trade or business is performed for the organization without compensation; or(ii) which is the selling of merchandise, substantially all of which is given to it; (iii) which is carried on by an organization described in G.S. 105-130.11(a)(3) primarily for the convenience of its members, students, patients or employees. Provided further, this paragraph shall not apply to net income derived from research (i) performed by a college, university or hospital; or (ii) performed for the United States, its instrumentalities or any state or political subdivision thereof; or (iii) performed by an organization operated primarily for the purpose of carrying on fundamental research, the results of which are freely available to the general public.

"§ 105-130.12.  Regulated Investment Companies and Real Estate Investment Trusts. Any organization or trust which, in the opinion of the Commissioner of Revenue of North Carolina, qualifies as either a 'regulated investment company' under the provisions of United States Code Annotated Title 26, § 851, or as a 'real estate investment trust' under the provisions of United States Code Annotated Title 26, § 856, and which files with the North Carolina Department of Revenue its election to be treated as a 'regulated investment company' or as a 'real estate investment trust' shall be taxed under this division upon only that part of its net income which is not distributed or declared for distribution to shareholders during the income year or (i), with respect to a regulated investment company, within 30 days after the end of the income year and (ii), with respect to a real estate investment trust by the time required by law for the filing of the return for the income year. Provided, that amounts distributed or declared for distribution during the prescribed period to nonresident shareholders not taxed on such distributions under the income tax laws of this State shall not be excluded in computing the net income of such regulated investment company or real estate investment trust.

"§ 105-130.13.  Special Corporations. A corporation electing to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code shall compute its State taxable income in the same manner as corporations not electing to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.

"§ 105-130.14.  Corporations Filing Consolidated Returns For Federal Income Tax Purposes. Any corporation electing or required to file a consolidated income tax return with the Internal Revenue Service shall not file a consolidated return with the Commissioner of Revenue, unless specifically directed to do so in writing by the Commissioner, and shall determine its State net income as if a separate return had been filed for federal purposes.

"§ 105-130.15.  Basis of Return of Net Income. (a) The net income of a corporation shall be computed in accordance with the method of accounting regularly employed in keeping the books of such corporation, but such method of accounting must be consistent with respect to both income and deductions, but if in any case such method does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner of Revenue does clearly reflect the income, but shall follow as nearly as practicable the federal practice, unless contrary to the context and intent of this division.

The Commissioner may in his discretion adopt the rules and regulations and any guidelines administered or established by the Internal Revenue Service unless contrary to any provisions of this division.

(b)        Change of Income Year.

(1)        A corporation may change the income year upon which it reports for income tax purposes without prior approval by the Commissioner of Revenue if such change in income year has been approved by or is acceptable to the Federal Commissioner of Internal Revenue and is used for filing income tax returns under the provisions of the Internal Revenue Code of 1954.

      If a corporation desires to make a change in its income year other than as provided above, it may make such change in its income year with the approval of the Commissioner of Revenue, provided such approval is requested at least 30 days prior to the end of its new income year.

      A corporation which has changed its income year without requesting the approval of the Commissioner of Revenue as provided in the first para graph of this subdivision shall submit to the Commissioner of Revenue notification of any change in the income year after the change has been approved by the Federal Commissioner of Internal Revenue or his agent where application for permission to change is required by the Federal Commissioner of Internal Revenue with such notification stating that such approval has been received. Where application for change of the income year is not required by the Federal Commissioner of Internal Revenue, notification of the change of income year shall be submitted to the Commissioner of Revenue with the short period return.

(2)        A return for a period of less than 12 months (referred to in this subsection as 'short period') shall be made when the corporation changes its income year. In such a case, the return shall be made for the short period beginning on the day after the close of the former taxable year and ending at the close of the day before the day designated as the first day of the new taxable year, except that a corporation changing to, or from, a taxable year varying from 52 to 53 weeks shall not be required to file a short period return if such change results in a short period of 359 days or more, or less than seven days. Short period income tax returns shall be filed within the same period following the end of such short period as is required for full year returns under the provisions of G.S. 105-130.7.

(c)        Any foreign corporation not domesticated in this State shall not use the installment method of reporting income to this State unless such corporation files a bond with the Commissioner of Revenue in such amount and with such sureties as the Commissioner shall deem necessary to secure the payment of any taxes which were deferred with respect to any installment transaction.

(d)        Notwithstanding any other provision of this division, any corporation which uses the installment method of reporting income to this State and which is planning to withdraw from this State, merge, or consolidate its business, or terminate its business in this State by any other means whatsoever, shall be required to make a report for income tax purposes, to the Commissioner of Revenue, of any unrealized or unreported income from installment sales made while doing business in this State and to pay any tax which may be due on such income. The manner and form for making such report and paying the tax shall be as prescribed by the Commissioner.

"§ 105-130.16.  Returns. Every corporation doing business in this State shall file with the Commissioner of Revenue an income tax return under affirmation, showing therein specifically the items of gross income and the deductions allowed by this division, and such other facts as the Commissioner may require for the purpose of making any computation required by this division.

"The return of a corporation shall be signed by either its president, vice president, treasurer, assistant treasurer, secretary or assistant secretary. There shall be annexed to the return the affirmation of the officer signing the same, which shall be in the form prescribed in G.S. 105‑130.17 of this division, and the same penalties prescribed in G.S. 105-236 shall apply to any person making wilful misstatements in said returns.

"When the Commissioner of Revenue has reason to believe that any corporation so conducts its trade or business in such manner as to either directly or indirectly distort its true net income and the net income properly attributable to the State, whether by the arbitrary shifting of income, through price fixing, charges for service, or otherwise, whereby the net income is arbitrarily assigned to one or another unit in a group of taxpayers carrying on business under a substantially common control, he may require such facts as he deems necessary for the proper computation of the entire net income and the net income properly attributable to the State, and in determining same the Commissioner of Revenue shall have regard to the fair profit which would normally arise from the conduct of the trade or business.

"When any corporation liable to taxation under this division conducts its business in such a manner as to either directly or indirectly benefit the members or stockholders thereof or any person interested in such business by selling its products or goods or commodities in which it deals at less than the fair price which might be obtained therefor, or where a corporation, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, acquires and disposes of the products of the corporation so owning a substantial portion of its stock in such a manner as to create a loss or improper net income for either of said corporations, or where a corporation, owning directly or indirectly a substantial portion of the stock of another corporation, acquires and disposes of the products of the corporation of which it so owns a substantial portion of the stock in such manner as to create a loss or improper net income for either of said corporations, the Commissioner of Revenue may determine the amount of taxable income of any such corporations for the calendar or fiscal year, having due regard to the reasonable profits which, but for such arrangement or understanding, might or could have been obtained by the corporation or corporations liable to taxation under this division from dealing in such products, goods or commodities.

"§ 105-130.17.  Time and Place of Filing Returns. (a) Returns shall be in such form as the Commissioner of Revenue may from time to time prescribe, and shall be filed with the Commissioner at his office, or at any branch office which he may establish. The Commissioner shall cause to be prepared blank forms for the said returns, and shall cause them to be distributed throughout the State, and shall furnish them upon request; but failure to receive or secure the form shall not relieve any corporation from the obligation of making any return herein required.

(b)        Except as provided in (c), the return of a corporation reporting on a calendar year basis shall be filed on or before the fifteenth day of March next following, and the return of a corporation reporting on a fiscal year basis shall be filed on or before the fifteenth day of the third month following the close of the fiscal year.

(c)        In the case of mutual associations formed under G.S. 54-111 through 54-128 to conduct agricultural business on the mutual plan and marketing associations organized under G.S. 54-129 through 54-158, which are required to file under subsection (a) (9) of G.S. 105‑130.11, a return made on the basis of a calendar year shall be filed on or before the fifteenth day of the September following the close of the calendar year, and a return made on the basis of a fiscal year shall be filed on or before the fifteenth day of the ninth month following the close of the fiscal year.

(d)        In case of sickness, absence, or other disability or whenever in his judgment good cause exists, the Commissioner may allow further time for filing returns.

(e)        Any corporation which ceases its operations in this State before the end of its income year because of its intention to dissolve or to withdraw from this State, or because of a merger or consolidation or for any other reason whatsoever shall file its return for the then current income year within 75 days after the date it terminates its business in this State.

(f)         There shall be annexed to the return the affirmation of an officer of the corporation making the return in the following form: " 'Under penalties prescribed by law, I hereby affirm that to the best of my knowledge and belief this return, including any accompanying schedules and statements, is true and complete.' If prepared by a person other than taxpayer, his affirmation is based on all information of which he has any knowledge."

"§ 105-130.18.  Failure to File Returns; Supplementary Returns. If the Commissioner of Revenue shall be of the opinion that any corporation has failed to file a return or to include in a return filed, either intentionally or through error, items of taxable income he may require of such corporation a return or supplementary return, under affirmation, in such form as he shall prescribe, of all the items of income which the corporation received during the year for which the return is made, whether or not taxable under this division. If from a supplementary return or otherwise the Commissioner finds any items of income, taxable under this division, have been omitted from the original return, or any items returned as taxable that are not taxable, or any item of taxable income overstated or understated, he may require any such item to be disclosed to him under affirmation of the corporation, and to be added to or deducted from the original return. Such supplementary return and the correction of the original return shall not relieve the corporation from any of the penalties to which it may be liable under the provisions of G.S. 105-236. The Commissioner may proceed under the provisions of G.S. 105-241.1, whether or not he requires a return or a supplementary return under this Section.

"§ 105-130.19.  Time and Place of Payment of Tax. (a) Except as otherwise provided in this Section and in Article 4B of this chapter, the full amount of the tax payable as shown on the face of the return shall be paid to the Commissioner of Revenue at the office where the return is filed and within the time fixed by law for filing the return.

(b)        If the amount of the tax exceeds fifty dollars ($50.00), payment may be made in two equal installments: One-half on the date the return is filed, and one-half on or before the fifteenth day of the sixth month following the month in which the return was originally due to be filed, with interest on the deferred payment at the rate of six per cent (6%) per annum from the date the return was originally due to be filed. If the amount of the tax exceeds four hundred dollars ($400.00), payment may be made in four equal installments: One-fourth at the time of filing the return, one-fourth on or before the fifteenth day of the third month following the month in which the return was originally due to be filed, one-fourth on or before the fifteenth day of the sixth month following the month in which the return was originally due to be filed, and one-fourth on or before the fifteenth day of the ninth month following the month in which the return was originally due to be filed, with interest on deferred payments at the rate of six per cent (6%) per annum from the date the return was originally due to be filed.

(c)        In the event any deferred payment is not made when due, then the entire balance of the tax will immediately become due and collectible, and interest upon such outstanding balance shall be added at the rate of six per cent (6%) per annum from the date the return was originally due to be filed until paid.

(d)        The tax may be paid with uncertified check during such time and under such regulations as the Commissioner of Revenue shall prescribe; but if a check so received is not paid by the bank on which it is drawn, the taxpayer by whom such check is tendered shall remain liable for the payment of the tax and for all legal penalties the same as if such check had not been tendered.

"§ 105-130.20.  Corrections and Changes. (a) If the amount of the taxable income for any year of any corporation subject to taxation under this division, as reported or as reportable to the United States Treasury Department, is changed, corrected, or otherwise determined by the Commissioner of Internal Revenue or other officer of the United States of competent authority, such taxpayer, within two years after receipt of a final determination reflecting the changed, corrected or determined taxable income shall make return under oath or affirmation to the Commissioner of Revenue of such taxable income. The Commissioner of Revenue shall thereupon proceed to determine, from such facts or evidence as he may have brought to his attention or shall otherwise acquire, whether or not the same were considered or taken into account in the federal determination, the correct tax liability of such corporation for the year. If there shall be any additional tax due from such corporation, the same shall be assessed and collected; and if there shall have been an overpayment of the tax, the Commissioner shall, within 30 days after the final determination of the tax liability, refund the amount of such overpayment.

(b)        Any corporation which fails to comply with this Section as to making return of federally determined taxable income within the time specified shall be subject to all penalties provided in G.S. 105-236, in the case of additional tax due, and shall forfeit its rights to any refund due by reason of federal changes.

(c)        When the corporation makes the return of federally determined taxable income, the Commissioner of Revenue shall make assessments or refunds based thereon within three years from the date the return required by this Section is filed and not thereafter. If the corporation fails to make such return, no statute of limitations shall apply: Provided, that if the Department of Revenue receives from the United States Government or any of its agents a report reflecting such federally determined taxable income, the Commissioner of Revenue shall make assessment for taxes due based on such taxable income within five years from the date the report from the United States Government or its agent is actually received and not thereafter. The assessment of tax or additional tax under this Section shall not be subject to any statute of limitations except as provided in this Section.

(d)        Nothing in this Section shall be construed as preventing the Commissioner of Revenue from making an assessment immediately following the receipt from any source of information concerning the correction, change in, or determination of net income of a taxpayer by the United States Government.

"§ 105-130.21.  Information at the Source. (a) Every corporation having a place of business or having one or more employees, agents or other representatives in this State, in whatever capacity acting, including lessors or mortgagors of real or personal property, or having the control, receipt, custody, disposal, or payment of interest (other than interest coupons payable to the bearer), rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable annual or periodical gains or profits paid or payable during any year to any taxpayer, shall make complete return thereof to the Commissioner of Revenue under such regulations and in such form and manner and to such extent as may be prescribed by him. The filing of any report in compliance with the provisions of this Section by a foreign corporation shall not constitute an act in evidence of and shall not be deemed to be evidence that such corporation is doing business in this State.

"(b)      Every corporation doing business or having a place of business in this State shall file with the Commissioner of Revenue, on such form and in such manner as he may prescribe, the names and addresses of all taxpayers, residents of North Carolina, to whom dividends have been paid and the amount of such dividends during the income year."

(d)        Designating General Statute Sections 105-133 through 105-159 as "DIVISION II. INDIVIDUAL INCOME TAX."

(e)        Redesignating the present G.S. 105-133 as G.S. 105-136 and by rewriting the first paragraph thereof to read as follows:

"A tax is hereby imposed upon every resident of this State which shall be levied, collected, and paid annually, with respect to the net income of the taxpayer as herein defined, and upon the net income derived from North Carolina sources of every nonresident individual which is attributable to the ownership of any interest in real or tangible personal property in this State or which is from a business, trade, profession, or occupation carried on in this State, computed at the following rates, after deducting the exemptions provided in this division."

(f)         Adding a new Section to be designated as G.S. 105-133 and to read as follows:

"§ 105-133.  Short Title. This division of the income tax Article shall be known and may be cited as The Individual Income Tax Act."

(g)        Rewriting G.S. 105-134 to read as follows:

"§ 105-134.  Purpose. The general purpose of this division is to impose a tax for the use of the State government upon the net income in excess of the exemptions herein allowed collectible annually:

"(1)      Of every resident of this State.

"(2)      Of every nonresident individual deriving income from North Carolina sources attributable to the ownership of any interest in real or tangible personal property in this State or deriving income from a business, trade, profession, or occupation carried on in this State."

(h)        Repealing the present G.S. 105-135; by redesignating the present G.S. 105-132 as the new G.S. 105-135 and by making the following changes therein:

(1)        Deleting the word "article" from line 1 and substituting therefor the word "division"; deleting the words "corporation, or fiduciary" from subdivision (1); and deleting the word "article" from subdivision (1) and substituting therefor the word "division";

(2)        Rewriting subsection (9) to read as follows:

"(9)      The words 'educational institution' mean only an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on."

(3)        Rewriting subsection (10) to read as follows:

"(10)    The words 'income year' or 'taxable year' mean the calendar year or the fiscal year upon the basis of which the net income is computed under this division; provided, that if no fiscal year has been established, they mean the calendar year, except that in the case of a return made for a fractional part of a year under the provisions of this division or under rules or regulations prescribed by the Commissioner of Revenue, the words 'income year' or 'taxable year' mean the period for which such return is made."

(4)        Deleting the word "article" which appears in the seventh line of subsection (11) and substituting therefor the word "division".

(5)        Deleting the word "article" wherever the same appears in subsection (12) and substituting therefor the word "division".

(6)        Deleting from the first sentence of the second paragraph of subsection (13) the words "In cases in which it is demonstrated to the satisfaction of the Commissioner of Revenue that", and substituting therefor the word "If"; and deleting the word "residence" on line 11 of the second paragraph and substituting therefor the word "domicile".

(i)         Rewriting G.S. 105-137 to read as follows:

"§ 105-137.  Year of Assessment. The tax imposed by this division shall be assessed, collected, and paid in the year following the year for which the assessment is made, except as provided to the contrary in Article 4A of this chapter."

(j)         Repealing G.S. 105-138, 105-138.1 and 105-139.

(k)        Deleting the word "article" wherever the same appears in G.S. 105-140 and substituting therefor the word "division".

(l)         Making the following changes in G.S. 105-141:

(1)        Rewriting subsection (a) to read as follows:

"(a)       Except as otherwise provided in subsection (b) of this Section, 'gross income' for purposes of this division shall mean all income in whatever form and from whatever source derived, including (but not limited to) the following items:

(1)        Compensation for services, including fees, commissions and similar items;

(2)        Gross income derived from business;

(3)        Gains derived from dealings in property;

(4)        Interest;

(5)        Rents;

(6)        Royalties;

(7)        Dividends;

(8)        Alimony and separate maintenance payments, subject to the provisions of G.S. 105-141.2;

(9)        Annuities, subject to the provisions of G.S. 105-141.1;

(10)      Income from life insurance and endowment contracts;

(11)      Pensions;

(12)      Income from discharge of indebtedness;

(13)      Distributive share of partnership income subject to the provisions of G.S. 105-142 (c);

(14)      Income in respect of a decedent, subject to the provisions of G.S. 105-142.1;

(15)      Income from an interest in an estate or trust;

(16)      Payments made by or on behalf of an employer by reason of death of an employee to the widow or heirs of the employee, subject to certain exclusions as provided in subsection (b) of this Section;

(17)      Recovery of bad debts and similar items previously charged off;

(18)      Amounts received as reimbursement for losses of such nature as those allowable under subdivision (9)a. and (9)b. of G.S. 105-147 in excess of the adjusted basis of property, subject to the limitations in G.S. 105-144.1; and

(19)      Prizes and awards, subject to the exceptions provided in subsection (b) of this Section relating to scholarship and fellowship grants."

(2)        Deleting the word "article" from line 2 of subsection (b) and substituting therefor the word "division";

(3)        Deleting the word "article" which appears as the last word in subdivision (b)(5) and substituting therefor the word "division".

(4)        Rewriting subdivision (b)(10) to read as follows:

"(10)    The amounts received as a scholarship at an educational institution (as defined in G.S. 105-135) or as a fellowship grant, including the value of contributed services and accommodations; and the amounts received to cover expenses for travel, research, clerical help, or equipment, which are incident to such scholarship or fellowship grant to the extent that such amounts are exempt for federal income tax purposes under the provisions of Section 117 of the Internal Revenue Code of 1954 as amended."

(5)        Rewriting subdivision (b)(11) to read as follows:

"(11)    Amounts received by the estate, widow or heirs of an employee paid by or on behalf of one or more employers and paid by reason of death of any one employee to the extent of five thousand dollars ($5,000.00) with respect to the death of any one employee regardless of the number of employers making such payments, except that such exclusion shall not apply to amounts with respect to which the employee possessed, immediately before his death, a nonforfeitable right to receive the amounts while living, except that even though an employee possessed a nonforfeitable right immediately before his death to receive the amounts while living, the exclusion provided in this paragraph will still apply in those cases in which the total distributions are payable within one taxable year of the distributee to such distributee by a pension, profit-sharing, stock bonus or annuity trust qualifying under the provisions of subdivision(f)(1) a. of G.S. 105-161."

"(12)    Amounts received by members of the armed forces as hostile fire duty pay which is authorized by Public Law 88-132 enacted by the Congress of the United States on October 2, 1963."

(m)       Making the following changes in G.S. 105-141.1:

(1)        Deleting the word "article" which appears in line 2 of subsection(a) and substituting therefor the word "division";

(2)        Deleting the word "article" which appears in line 4 of subdivision (d)(1)b. and substituting therefor the word "division";

(3)        Deleting the word "article" which appears in line 2 of subdivision (e)(1) and substituting therefor the word "division"; and

(4)        Deleting the word "article" which appears in line 4 of subdivision (f)(2) and substituting therefor the word "division".

(n)        Rewriting G.S. 105-141.2 to read as follows:

"§ 105-141.2.  Gross Income-Alimony Payments. Gross income includes amounts received by a wife from her husband or by a husband from his wife as periodic payments under a decree of divorce or separate maintenance, under a written separation agreement, or under a decree requiring support and maintenance to the extent includable in gross income for federal income tax purposes under the provisions of Section 71 of the Internal Revenue Code of 1954 as amended."

(o)        Deleting the word "article" wherever the same appears in G.S. 105-141.3 and substituting therefor the word "division".

(p)        Making the following changes in G.S. 105-142:

(1)        Deleting the word "article" which appears as the last word of subsection (a) and substituting therefor the word "division";

(2)        Deleting the reference "G.S. 105-132" from line 8 of subdivision(b)(2) and substituting therefor "G.S. 105-135";

(3)        Deleting the word "article" which appears in lines 9 and 20 of subsection (c) and substituting therefor the word "division";

(4)        Deleting the reference "G.S. 105-134" from line 17 of subsection (c) and substituting therefor "G.S. 105-130.4";

(5)        Deleting the reference "(10) of G.S. 105-138" from line 3 of subsection (e) and substituting therefor "(f) (1)a. of G.S. 105-161";

(6)        Deleting from subdivision (g)(2) all that appears after the semicolon in line 10 and before the word "and" in line 17;

(7)        Deleting the word "article" from line 1 of subdivision (g)(3)c. and substituting the word "division" therefor; changing the semicolon in line 3 of that subdivision to a period and deleting the remainder of that subdivision;

(8)        Deleting subsection (g)(3)d. in its entirety."

(9)        Deleting subsection (d) in its entirety and redesignating the present subsections (e) through (g) as (d) through (f) respectively.

(q)        Deleting the word "article" from line 1 of the present subsection(d) of G.S. 105-142.1 and substituting therefor the word "division"; redesignating present subsections (c) and (d) as subsections (d) and (e) respectively and by adding a new subsection (c) to read as follows: "(c) The right, described in subsection (a) of this Section, to receive an amount shall be treated in the hands of the estate of the decedent or any individual who acquires such right by reason of the death of the decedent, or by bequest, devise, or inheritance from the decedent, as if it had been acquired by the estate or such individual in the transaction in which the right to receive the income was originally derived and the amount includible in gross income under subsections (a) and (b) shall be considered in the hands of the estate or such individual to have the character which it would have had in the hands of the decedent if the decedent had lived and received such amount."

(r)        Repealing G.S. 105-143.

(s)        Making the following changes in G.S. 105-144:

(1)        Deleting the reference "(cl)" in line 2 of subsection (a) and substituting therefor "(c)";

(2)        Deleting the word "article" from lines 4 and 5 of subdivision(a) (1) and substituting the word "division" therefor;

(3)        Deleting the word "article" from line 4 of subdivision (a)(3)a. and substituting the word "division" therefor;

(4)        Deleting the words and symbols "or in subsection (cl)" from line 1 of subsection (b);

(5)        Rewriting subsection (c) to read as follows:

"(c)       An election as to recognition of gain in certain liquidations of corporations shall be allowed subject to the following:

(1)        General Rule. In the case of property distributed in complete liquidation of a corporation, if

a.         The liquidation is made in pursuance of a plan of liquidation adopted on or after June 21, 1961; and

b.         The distribution is in complete cancellation or redemption of all the stock, and the transfer of all the property under the liquidation occurs within some one calendar month,

then in the case of each qualified electing shareholder (as defined in subdivision (2)) gain on the shares owned by him at the time of the adoption of the plan of liquidation shall be recognized only to the extent provided in subdivision (4).

(2)        Qualified Electing Shareholders. For purposes of this Section, the term 'qualified electing shareholder' means an individual who is a shareholder of any class of stock (whether or not entitled to vote on the adoption of such plan of liquidation) who is a shareholder at the time of the adoption of such plan, and whose written election to have the benefits of subdivision (1) has been made and filed in accordance with subdivision (3), but only if written elections have been so filed by shareholders (other than corporations) who at the time of the adoption of the plan of liquidation are owners of stock possessing at least eighty per cent (80%) of the total combined voting power (exclusive of voting power possessed by stock owned by corporations) of all classes of stock entitled to vote on the adoption of such plan of liquidation.

(3)        Making and Filing of Elections. The written elections referred to in subdivision (2) shall be deemed to have been made and filed if, and only if, such written elections were duly made and filed for federal income tax purposes in conformity with the provisions of § 333 of the 1954 Internal Revenue Code and the regulations thereunder.

(4)        Non-Corporate Shareholders. In the case of a qualified electing shareholder other than a corporation.

a.         There shall be recognized, and treated as ordinary income, so much of the gain as is not in excess of his ratable share of the earnings and profits of the corporation accumulated after January 1, 1921, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred under subdivision (1), paragraph b., but without diminution by reason of distributions made during such month; but by including in the computation thereof all amounts accrued up to the date on which the transfer of all the property under the liquidation is completed; and

b.         There shall be recognized and treated as gain so much of the remainder of the gain as is not in excess of the amount by which the value of that portion of the assets received by him which consists of money, or stock or securities acquired by the corporation after December 31, 1962, exceeds his ratable share of such earnings and profits.

(5)        Basis of Property Received in Liquidation. If property was acquired by an individual shareholder in the liquidation of a corporation in cancellation or redemption of stock, and with respect to such acquisition gain was realized, but as the result of an election made by a shareholder under this Section the extent to which gain was recognized was determined under this Section, then the basis shall be the same as the basis of the stock cancelled or redeemed in the liquidation, decreased in the amount of any money received by the shareholder, and increased in the amount of gain recognized to him."

(6)        Repealing subsections (cl), (d), (e),and (f).

(t)         Deleting the word "article" which appears as the last word of subdivision (a)(2)a.2. of G.S. 105-144.1 and substituting therefor the word "division".

(u)        Adding the word "and" immediately following the comma which appears at the end of subdivision (d)(2)b. of G.S. 105-144.4; changing the comma which appears after the word "both" in line 3 of subdivision(d)(2)c. of G.S. 105-144.4 to a period; deleting the word "and" which appears as the last word in that subdivision and by repealing subdivision(d)(2)d.

(v)        Repealing subdivision (c)(2) of G.S. 105-145 and renumbering subdivisions (3) and (4) of subsection (c) as subdivisions (2) and (3) respectively.

(w)       Making the following changes in G.S. 105-147:

(1)        Rewriting subdivision (1)c. to read as follows:

"c.        As to taxpayers engaged in the business of farming, reasonable expenses paid during the income year for the purpose of soil and water conservation to the extent allowable for federal income tax purposes under the provisions of Section 175 of the Internal Revenue Code of 1954 as amended."

(2)        Repealing subdivision (1)(d);

(3)        Rewriting subsection (2) to read as follows:

"(2)      In the case of an individual, all the ordinary and necessary expenses paid or incurred during the income year for the production or collection of income; for the management, conservation, or maintenance of property held for the production of income; or in connection with the determination, collection or refund of any tax."

(4)        Inserting in line 5 of subsection (3) after the word "include" and before the word "tuition" the following: "but shall not be limited to";

(5)        Inserting in line 1 of subsection (5) after the word "year" and before the word "except" the following: "on the indebtedness of the taxpayer"; deleting the word "article" in line 3 of subsection (5) and substituting therefor the word "division"; changing the comma at the end of line 3 of subsection (5) to a period and repealing the remainder of subsection (5) ;

(6)        Inserting in line 1 of subdivision (6)a. after the word "Taxes" and before the word "paid" the following: "owed by the taxpayer and"; and deleting the word "article" which appears as the last word in subsection(6) and substituting therefor the word "division";

(7)        Deleting from line 7 of subsection (7) the reference "G.S. 105-134" and substituting therefor "G.S. 105-130.4"; deleting from lines 11 through 13 the following: "the allocation ratio determined under the provisions of subdivision or item (6) of G.S. 105-134" and substituting therefor the following: "the allocation fraction determined under the provisions of G.S. 105-130.4"; deleting from the last sentence of the first paragraph of subsection (7) the reference "§ 105-138" and substituting therefor " G.S. 105-130.12"; deleting the words "corporation or" from the last line of the first paragraph of subsection (7); and by repealing the second and third paragraphs of subsection (7);

(8)        Rewriting subsection (8) to read as follows: "(8) In the case of an individual, moving expenses paid or incurred during any taxable year beginning on or after January 1, 1967, in connection with the commencement of work by such individual as an employee at a new principal place of work to the extent allowed or allowable for federal income tax purposes under the provisions of Section 217 of the Internal Revenue Code of 1954 as amended.";

(9)        Changing the period at the end of subdivision (9)b. to a semicolon and adding the following: "provided, that for the purpose of this subdivision, any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.";

(10)      Deleting from line 3 of subdivision (9)d. the following "specified in a and b" and substituting therefor "specified in a. and c"; deleting the word "article" wherever the same appears in subdivisions 2. and 3. of subdivision (9)d. and substituting therefor the word "division"; deleting the reference "G.S. 105-134" in line 13 of subdivision (9)d.3. and substituting therefor "G.S. 105-130.4"; and by deleting the entire second sentence of subdivision (9)d.4.;

(11)      Deleting from line 3 of subsection (10) the word "article" and substituting therefor the word "division";

(12)      Deleting from line 2 of subdivision (11)b.l. the word "care" and substituting therefor the word "cure";

(13)      Rewriting subsection (12) to read as follows: "(12) An allowance for depreciation and obsolescence of property and an allowance for depletion in the case of mines, oil and gas wells, other natural deposits and timber to the extent allowed or allowable for federal income tax purposes under the provisions of the Internal Revenue Code of 1954 as amended; provided, that where joint returns are filed by husband and wife for federal income tax purposes the deduction allowed for additional first year depreciation shall be such amount as would have been allowable if separate federal returns had been filed; and provided further, that where there is a difference in the basis of property for State and federal purposes, such difference shall be taken into account in determining the depreciation, obsolescence or depletion allowable under this subsection.";

(14)      Deleting both commas in line 9 and by inserting the word "or" in line 9 of subsection (13) immediately preceding the word "firm"; and deleting from line 10 the words and punctuation "or corporation," which appear immediately preceding the word "claiming";

(15)      Rewriting subsection (14) to read as follows:

"(14)    An allowance with respect to the amortization of the cost of any emergency facility, as such facility is denned in Section 168 of the Internal Revenue Code of 1954, and an allowance with respect to amortization of the cost of a grain storage facility, as such facility is defined in Section 169 of the Internal Revenue Code of 1954, to the extent allowed or allowable under such provisions for federal income tax purposes";

(16)      Inserting the word "and" in line 1 of subsection (15) immediately preceding the word "partnerships"; deleting the words "and corporations" appearing at the end of line 1 and at the beginning of line 2 of subsection(15); inserting the word "and" in line 8 of subsection (15) immediately preceding the word "partnerships"; deleting the words "and corporations" from line 8 of subsection (15); and by deleting from subsection (15) all that appears after the colon in line 21 and before the semicolon in line 34; and substituting the following therefor: "Provided, that in the case of such contributions or gifts by a partnership, such amounts shall not be deductible in determining the net income of the partnership but shall be allocated to each partner on the basis of the ratio used for determining each partner's share of the distributive gain or loss of the partnership, and shall be claimed to the extent allowable on each partner's individual return";

(17)      Rewriting subsection (16) to read as follows:

"(16)    Contributions or gifts made by individuals, firms, and partnerships within the income year to the State of North Carolina, any of its institutions, instrumentalities, or agencies, any county or municipality of this State, their institutions, instrumentalities, or agencies, and contributions or gifts made by individuals, firms, and partnerships within the income year to educational institutions located within North Carolina, no part of the net earnings of which inures to the benefit of any private stockholder or individual; provided, that in the case of contributions or gifts by a partnership such amounts shall not be deductible in determining the net income of the partnership but shall be allocated to each partner on the basis of the ratio used for determining each partner's share of the distributive gain or loss of the partnership, and shall be claimed to the extent allowable on each partner's individual return."

(18)      Deleting the word "article" from line 1 of subsection (17) and substituting therefor the word "division";

(19)      Repealing subdivision (18)c;

(20)      Deleting the words "or corporation" which appear at the end of line 6 and the beginning of line 7 of subsection (19); and deleting the words "or corporation" which appear immediately after the word "person" in line 9 of subsection (19);

(21)            Deleting from line 2 of subsection (20) the reference "subdivision(10) of §105-138" and substituting therefor "subdivision (f)(1)a. of G.S. 105-161"; and

(22)      Deleting the word "article" which appears as the last word of the first paragraph of subsection (22) and substituting therefor the word "division".

(x)        Deleting the reference "G.S. 105-132" from line 3 of subdivision(a)(2) of G.S. 105-149 and substituting therefor "G.S. 105-135"; deleting from line 9 of subdivision (a) (2) of G.S. 105-149 the word "article" and substituting therefor the word "division"; inserting immediately after the third paragraph of subdivision (a)(5) of G.S. 105-149 a new paragraph to read as follows: "For the purpose of determining the chief support of an individual, other than a son or daughter (natural or adopted) or a stepson or stepdaughter of the taxpayer, over one-half of the support of the individual for the calendar year shall be treated as received from the taxpayer if:

a.         No one individual contributed over half of such support;

b.         Over half of such support was received from individuals each of whom, but for the fact that he did not contribute over half of such support, would have been entitled to claim such individual as a dependent for a taxable year beginning in such calendar year;

c.         The taxpayer contributed over ten per cent (10%) of such support; and

d.         Each individual described in paragraph b. (other than the taxpayer) who contributed over ten per cent (10%) of such support files a written declaration (in such manner and form as the Commissioner of Revenue may prescribe) that he will not claim such individual as a dependent for any taxable year beginning in such calendar year."; and by repealing the first paragraph of subdivision (a)(6) of G.S. 105-149; and by changing the semicolon in line 7 of subsection (b) to a period and deleting the remainder of said subsection.

(y)        Deleting from lines 2 and 3 of subsection (a) of G.S. 105-151 the word "article" and substituting therefor the word "division"; deleting from lines 6, 9, and 10 of subdivision (a)(1) of G.S. 105-151 the word "article" and substituting therefor the word "division"; repealing subsections (b), (c), and (e) of G.S. 105-151 and by renumbering the present subsection (d) as subsection "(b)".

(z)        Making the following changes in G.S. 105-152:

(1)        Deleting from lines 3 and 5 of subsection (a) and from line 2 of subdivision (a) (5) the word "article" and substituting therefor the word "division";

(2)        Repealing subdivision (a) (4);

(3)        Deleting from line 1 of subdivision (a)(5) the words "or corporation"; and redesignating the present subdivision (a)(5) as subdivision(a)(4);

(4)        Repealing subsections (c) and (f) and by redesignating the present subsections (d) and (e) as subsections (c) and (d) respectively.

(aa)      Repealing G.S. 105-153.

(bb)      Deleting from lines 11 and 12 of subsection (a) of G.S. 105-154 the following words and punctuation: "above exemptions allowed in this article,"; deleting from lines 3 and 7 of subsection (b) of G.S. 105-154 the word "article" and substituting therefor the word "division"; and by deleting from line 8 of subsection (b) the reference "§ 105-155" and substituting therefor "G.S. 105-236"; by deleting subsection (c) of G.S. 105-154 in its entirety.

(cc)      Deleting from the first paragraph of G.S. 105-155 the third sentence which reads, "The return of a corporation reporting on a calendar year basis shall be filed on or before the fifteenth day of March in each year, and the return of a corporation reporting on a fiscal year basis shall be filed on or before the fifteenth day of the third month following the close of the fiscal year."; deleting from the first paragraph of G.S. 105-155 the fifth sentence which reads, "Any corporation which shall dissolve or withdraw from business in this State shall file its return for the then current income year within 75 days after the date of such dissolution or withdrawal."; and by rewriting the portion of the second paragraph of G.S. 105-155 which is enclosed in quotation marks to read as follows: "Under penalties prescribed by law, I hereby affirm that to the best of my knowledge and belief this return, including any accompanying schedules and statements, is true and complete. (If prepared by a person other than taxpaper, his affirmation is based on all information of which he has any knowledge.)"

(dd)      Deleting from lines 7 and 9 of G.S. 105-156 the word "article" and substituting therefor the word "division"; and by deleting from line 15 of G.S. 105-156 the words "this article" and substituting therefor "G.S. 105-236".

(ee)      Rewriting the caption of G.S. 105-156.1 to read "§ 105-156.1. Effective Dates of 1957 Amendments to Article 4." and by repealing all of G.S. 105-156.1 except the first sentence thereof.

(ff)        Deleting from line 2 of G.S. 105-157 the following: "and article 4B"; and by deleting the second and third paragraphs of G.S. 105-157.

(gg)      Deleting from line 2 of G.S. 105-159 the word "article" and substituting therefor the word "division"; deleting the second paragraph of G.S. 105-159; and adding a new paragraph at the end of G.S. 105-159 to read as follows: "Nothing in this Section shall be construed as preventing the Commissioner of Revenue from making an assessment immediately following the receipt from any source of information concerning the correction, change in, or determination of net income of a taxpayer by the United States Government. The assessment of tax or additional tax under this Section shall not be subject to any statute of limitations except as provided in this Section."

(hh)      Adding a new division to be designated "DIVISION III. INCOME TAX— ESTATES, TRUSTS, AND BENEFICIARIES", to be composed of General Statute Sections 105-3 60 through 105-163, and to read as follows:

"§ 105-160.  Short Title. This division shall be known and may be cited as the Income Tax Act for Estates, Trusts, and Beneficiaries.

"§ 105-161.  Estates and Trusts. (a) Imposition of the Tax. The tax imposed by this division shall apply to the taxable income of estates and trusts including:

(1)        income accumulated in trust for the benefit of unborn or unascertained individuals or individuals with contingent interest, and income accumulated or held for future distribution under the terms of the will or trust;

(2)        income which is to be distributed currently by the fiduciary to the beneficiaries;

(3)        income received by estates of deceased individuals during the period of administration or settlement of the estate; and

(4)        income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.

"(b)      Computation and Payment. The net taxable income of an estate or a trust shall be determined in the same manner as provided in Division II of this Article for an individual except as otherwise provided in this Section. The tax shall be at the same rates as provided in G.S. 105-136 for individuals and shall be computed on that portion of undistributed net income of an estate or trust which is for the benefit of a resident of this State, or for the benefit of a nonresident to the extent that such income is derived from an established business or from an investment in tangible property located in this State. The tax so computed shall be paid by the fiduciary responsible for administering the estate or trust.

"(c)       Definitions. For the purpose of this Section the words and phrases defined in Division II of Article 4 shall have the same meanings prescribed to them in that division. In addition, the following words and phrases when used in this Section, shall, for the purpose of this Section, have the meanings respectively prescribed to them in this subsection, except in those instances where the context clearly indicates a different meaning:

"(1)      Distributable Net Income. The taxable income of the estate or trust computed with the following modifications:

a.         No deduction shall be taken under subdivisions (d)(5) and(d)(6) of this Section (relating to additional deductions).

b.         No deduction shall be taken under subdivision (d)(7) of this Section (relating to personal exemption).

c.         Gains from the sale or exchange of property shall be excluded to the extent that such gains are allocated to corpus and are not (I) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (II) paid, permanently set aside, or to be used for the purposes specified in subdivision (d) (4) of this Section.

"Losses from the sale or exchange of property shall be excluded except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of property which are paid, credited or required to be distributed to any beneficiary during the taxable year.

d.         For purposes only of trusts described in subdivision (d)(5) of this Section which are required to distribute current income only, there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable State law.

e.         There shall be included any tax-exempt interest to which G.S. 105-141(b)(4) applies, reduced by any amounts which would be deductible in respect of disbursement allocated to such interest but for the provisions of G.S. 105-147(5).

"If the estate or trust is allowed a deduction under subdivision (d)(4) of this Section, the amount of the modifications specified in subdivision(c)(1)e. above shall be reduced to the extent that the amount of income which is paid, permanently set aside, or to be used for the purposes specified in subdivision (d)(4) of this Section is deemed to consist of items specified in subdivision (c)(1)e. For this purpose, such amount shall (in the absence of specific provisions in the governing instrument) be deemed to consist of the same proportion of each class of items of income of the estate or trust as the total of each class bears to the total of all classes.

"(2)      Income. The term 'income', when not preceded by the words 'taxable', 'distributable net', 'undistributed net', or 'gross', means the amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable State law. Items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable State law shall not be considered income.

"(3)      Taxable Income. The term 'taxable income' means the gross income as defined in G.S. 105-141 less the deductions and exemptions allowed by this Section.

"(4)      Beneficiary. Any heir, legatee, devisee, and any other person, firm or corporation who acquires under any governing instrument the right to receive income from any estate or trust.

"(d)      Deductions. (1) Allowable Deductions. Except as otherwise provided in this Section, the same deductions allowed individuals under G.S. 105-147 shall be allowed in computing the net income of an estate or trust.

"(2)      Deduction for Depreciation and Depletion. In case of property held in trust, the deduction for depreciation and depletion shall be apportioned between the income beneficiaries and the trustee in accordance with the instrument creating the trust, or in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable depreciation deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the portion of the income of the estate allocable to each.

"(3)      Double Deduction Not Allowed. Amounts allowable under G.S. 105-9 as a deduction in computing the taxable estate of a decedent for inheritance tax purposes shall not be allowed as a deduction in computing the taxable income of the estate, unless there is filed, within the time and in the manner and form prescribed by the Commissioner of Revenue, a statement that the amounts have not been allowed as deductions under G.S. 105-9 and a waiver of the right to have such amounts allowed as deductions under G.S. 105-9. This subdivision shall not apply with respect to deductions allowed under G.S. 105-142.1 (e) (relating to income in respect of decedents).

"(4)      Amounts Paid or Permanently Set Aside for Charity.

a.         Deduction. In determining the net income of an estate or trust for purposes of this Section (other than a trust described in subdivision (d)(5) of this Section), there shall be allowed as a deduction in computing the taxable income of the estate or trust (in lieu of the deductions allowed by G.S. 105-147(15) and (16)) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid or permanently set aside for a religious, charitable, scientific, literary, or educational purpose or for the prevention of cruelty to children or animals, or for a distributee specified in G.S. 105-147(15) or G.S. 105-147(16).

b.         Limitation on Deduction.

1.         Trade or Business Income. In computing the deduction allowable under paragraph a. of this subdivision to a trust, no amount otherwise allowable under paragraph a. shall be allowable as a deduction with respect to income of the taxable year which is allocable to its unrelated business income for such year. For purposes of the preceding sentence, the term 'unrelated business income' means an amount equal to the amount which, if such trust were exempt from tax under subdivision (f)(1) of this Section, would be computed as its unrelated business taxable income under subdivision (f)(2) of this Section, (relating to income derived from certain business activities).

2.         Prohibited Transactions. The amount otherwise allowable under paragraph a. of this subdivision as a deduction shall not be allowable if the trust has engaged in a prohibited transaction. For purposes of this subdivision, the term 'prohibited transaction' means any transaction after the effective date of this subdivision in which any trust while holding income or corpus which has been permanently set aside or is to be used exclusively for charitable or other purposes described in paragraph a. of this subdivision:

(A)       lends any part of such income or corpus, without receipt of adequate security and a reasonable rate of interest, to;

(B)       pays any compensation from such income or corpus, in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered, to;

(C)       makes any part of its services available on a preferential basis to;

(D)       uses such income or corpus to make any substantial purchase of securities or any other property, for more than an adequate consideration in money or money's worth from;

(E)       sells any substantial part of the securities or other property comprising such income or corpus, for less than an adequate consideration in money or money's worth, to; or

(F)       engages in any other transaction which results in a substantial diversion of such income or corpus to; the creator of such trust; any person who has made a substantial contribution to such trust; a member of a family (including for these purposes brothers and sisters, whether by whole or half blood, spouse, ancestors, and lineal descendants) of an individual who is the creator of the trust or who has made a substantial contribution to the trust; or a corporation controlled by any such creator or person through the ownership, directly or indirectly, of fifty per cent (50%) or more of the total combined voting power of all classes of stock of the corporation.

      The amount otherwise allowable under paragraph a. of this subdivision as a deduction shall be denied by reason of having engaged in a prohibited transaction only for taxable years after the taxable year during which the trust is notified by the Commissioner of Revenue that it has engaged in such transaction, unless such trust entered into such prohibited transaction with the purpose of diverting such corpus or income from the purposes described in paragraph a. of this subdivision, and such transaction involved a substantial part of such corpus or income. Provided, that if the deduction of any trust under paragraph a. has been denied as herein provided, such trust, with respect to any taxable year following the taxable year in which notice is received of denial of the deduction under paragraph a., may, in such manner as prescribed by the Commissioner of Revenue, file claim for the allowance of the unlimited deduction under paragraph a., and if the Commissioner of Revenue is satisfied that such trust will not knowingly again engage in a prohibited transaction the denial of the deduction provided herein shall not apply with respect to the taxable years after the year in which such claim is filed.

3.         Accumulated Income. If the amounts permanently set aside, or to be used exclusively for the charitable and other purposes described in paragraph a. of this subdivision during the taxable year or any prior taxable year and not actually paid out by the end of the taxable year:

(A)       are unreasonable in amount or duration in order to carry out such purposes of the trust;

(B)       are used to a substantial degree for purposes other than those prescribed in paragraph a. of this subdivision; or

(C)       are invested in such manner as to jeopardize the interests of the religious, charitable, scientific, etc., beneficiaries, the amount otherwise allowable under paragraph a. of this subdivision shall be limited to the amount actually paid out during the taxable year.

"(5)      Deduction for Trusts Distributing Current Income Only.

a.         Deduction. In the case of any trust the terms of which provide that all of its income is required to be distributed currently, and do not provide that any amounts are to be paid, permanently set aside, or used for the purposes specified in subdivision (d)(4) of this Section (relating to deduction for charitable, etc., purposes), there shall be allowed as a deduction in computing the taxable income of the trust the amount of the income for the taxable year which is required to be distributed currently. This subdivision shall not apply in any taxable year in which the trust makes distributions other than amounts of income required to be distributed currently.

b.         Limitation on the Deduction. If the amount of income required to be distributed currently exceeds the distributable net income of the trust for the taxable year, the deduction shall be limited to the amount of the distributable net income. For this purpose, the computation of distributable net income shall not include items of income which are not included in the gross income of the trust and the deductions allocable thereto.

"(6)      Deduction for Estates and Trusts Accumulating Income or Distributing Corpus.

a.         Deduction. In any taxable year there shall be allowed as a deduction in computing the taxable income of an estate or trust (other than a trust to which subdivision (d)(5) applies), the sum of: 1. any amount of income for such taxable year required to be distributed currently (including any amount required to be distributed which may be paid out of income or corpus to the extent such amount is paid out of income for such taxable year) ; and 2. any other amounts properly paid, credited, or required to be distributed for such taxable year. In no case shall this deduction exceed the distributable net income of the estate or trust.

b.         Character of Amounts Distributed. The amount determined under subdivision a. shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable net income of the estate or trust as the total of each class bears to the total distributable net income of the estate or trust in the absence of the allocation of different classes of income under the specific terms of the governing instrument. In the application of the preceding sentence, the items of deduction entering into the computation of distributable net income (including the deduction allowed under subdivision (d)(4)) shall be allocated among the items of distributable net income in such manner as may be prescribed by the Commissioner of Revenue.

c.         Limitation on the Deduction. No deduction shall be allowed under subdivision a. in respect of any portion of the amount allowed as a deduction under that subdivision (without regard to this subdivision) which is treated under subdivision b. as consisting of any items of distributable net income which are not included in the gross income for the estate or trust.

d.         Exclusions. There shall not be included as amounts falling within subdivision (d)(6) of this Section:

1.         Any amount which, under the terms of the governing instrument, is properly paid or credited as a gift or bequest of a specific sum of money or of specific property and which is paid or credited all at once or in not more than three installments. For this purpose, an amount which can be paid or credited only from the income of the estate or trust shall not be considered as a gift or bequest of a specific sum of money.

2.         Any amount paid or permanently set aside or otherwise qualifying for the deduction provided in subdivision (d)(4) of this Section.

3.         Any amount paid, credited, or distributed in the taxable year, if subdivision (d)(5) or (d)(6) applied to such amount for a preceding taxable year of an estate or trust because credited or required to be distributed in such preceding taxable year.

e.         Separate Shares Treated as Separate Trusts. For the sole purpose of determining the amount of distributable net income in the application of subdivision (d)(6) of this Section and subdivision (b) of G.S. 105-162, in the case of a single trust having more than one beneficiary substantially separate and independent shares of different beneficiaries in the trust shall be treated as separate trusts. The existence of such substantially separate and independent shares and the manner of treatment as separate trusts shall be determined as prescribed by the Commissioner of Revenue.

"(7)      Deduction for Personal Exemption. The following personal exemption deductions shall be allowed under this Section:

a.         An estate shall be allowed a deduction of one thousand dollars ($1,000.00).

b.         A trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of five hundred dollars ($500.00).

c.         All other trusts shall be allowed a deduction of two hundred dollars ($200.00).

"(8)      Deductible Dividends. Where dividend income is received by a fiduciary of an estate or trust and is distributed or distributable to a beneficiary during the taxable year so that it is includible in the gross income of the beneficiary for that taxable year, the dividends or the portion of such dividends which would be deductible to an individual under the provisions of subsection (7) of G.S. 105-147 shall be deductible by such beneficiary during that taxable year. If the portion of the dividend income distributable to the beneficiary cannot be determined under the governing' instrument, the amount of the deduction by the beneficiary shall be that amount which bears the same ratio to the total of the deductible portion of all dividends received by the estate or trust as the amount of income received by the beneficiary bears to the distributable net income of the estate or trust, except that in no case may the deduction claimed by the beneficiary under this subsection exceed the income distributed or required to be distributed to him from the estate or trust during the taxable year.

"(9)      Apportionment of Deductions. Deductions allowable under this Section shall be apportioned between the beneficiaries and the trust or estate in such manner as prescribed by the Commissioner of Revenue unless otherwise provided in this Section.

"(10)    The Standard Deduction. The standard deduction allowed individuals under subsection (22) of G.S. 105-147 shall not be allowed an estate or trust.

"(e)       Returns. (1) Returns with respect to income taxes, showing therein specifically the items of gross income, the deductions allowed by this Section, and such other facts as the Commissioner of Revenue may require, shall be made for the following:

a.         Every estate subject to the tax imposed by this Section the gross income of which for the taxable year is in excess of one thousand dollars ($1,000.00). The return of an estate shall be made by the fiduciary thereof.

b.         Every trust having for the taxable year any taxable income subject to the tax imposed by this Section, or having gross income of one thousand dollars ($1,000.00) or over, regardless of the amount of taxable income. The return for a trust shall be made by the fiduciary thereof.

c.         Every estate or trust of which any beneficiary is a nonresident when such estate or trust has income subject to tax under this Section.

(2)        Every trust claiming a charitable, etc., deduction under subdivision (d)(4) of this Section for the taxable year shall furnish such information with respect to such taxable year as the Commissioner of Revenue may by forms or some other manner prescribe, setting forth:

a.         the amount of the charitable, etc., deductions taken under subdivision (d)(4) of this Section within such year (showing separately the amount of such deduction which was paid out and the amount which was permanently set aside for charitable, etc., purposes during such year),

b.         the amount paid out within such year which represents amounts for which charitable, etc., deductions under subdivision (d)(4) of this Section have been taken in prior years,

c.         the amount for which charitable, etc., deductions have been taken in prior years but which has not been paid out at the beginning of such year,

d.         the amount paid out of principal in the current and prior years for charitable, etc., purposes,

e.         the total income of the trust within such year and the expenses attributable thereto, and

f.          a balance sheet showing the assets, liabilities, and net worth of the trust as of the beginning of such year.

"(f)       Exempt Trusts.

(1)        The following trusts shall be exempt from taxation under this division:

a.         Pension, profit sharing, stock bonus and annuity trusts, or combinations thereof, established by employers for the purpose of distributing both the principal and income thereof exclusively to eligible employees, or the beneficiaries of such employees, and so constituted that no part of the corpus or income may be used for, or diverted to, any purpose other than for the exclusive benefit of the employees or their beneficiaries; provided, there is no discrimination, as to eligibility requirements, contributions or benefits, in favor of officers, shareholders, supervisors, or highly paid employees; provided further, that the interest of individual employees participating therein shall be irrevocable and nonforfeitable to the extent of any contributions made thereto by such employees; and provided further, the Commissioner of Revenue shall be empowered to promulgate rules and regulations regarding the qualification of such trusts for exemption under this subdivision. The exemption of any trust under the provisions of the federal income tax law shall be a prima facie basis for exemption of said trust under this paragraph.

b.         Any trust created for religious, charitable, scientific or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any individual.(2) Trusts described in subdivision (1) of this subsection shall be subject to the tax provided for in this Section to the following extent: Gross income derived by any of these trusts from any trade or business the conduct of which is not substantially related to the exercise or performance of those functions constituting the basis for its exemption in subdivision (1) of this subsection, less all deductions allowed by this Section directly connected with carrying on such trade or business; provided, this paragraph shall not apply to interest, royalties, dividends, or rent; provided further, this paragraph shall not apply to any trade or business: a. in which substantially all of the work in carrying on such trade or business is performed for the trust without compensation; or b. which is the selling of merchandise, substantially all of which is given to it.

"(g)       Tax Credits for Income Taxes Paid to Other States.

(1)        If a fiduciary is required to pay income tax to this State for an estate or a trust for which he acts, he shall be allowed a credit against the taxes imposed by this Section for income taxes imposed by and paid to another state or country on income derived from sources within such other state or country in accordance with the formula contained in subdivision (2) of this subsection and the requirements of subdivision (3) of this subsection.

(2)        The fraction of the gross income for North Carolina income tax purposes which is derived from sources within and subject to income tax in another state or country shall be ascertained and the North Carolina net income tax before credit under this subsection shall be multiplied by such fraction. The credit allowed shall be either the product thus calculated or the income tax actually paid the other state or country, whichever is smaller.

(3)        Receipts showing the payment of income taxes to another state or country and a true copy of a return or returns upon the basis of which such taxes are assessed must be filed with the Commissioner of Revenue at, or prior to, the time credit is claimed. If credit is claimed on account of a deficiency assessment, a true copy of the notice assessing or proposing to assess the deficiency, as well as a receipt showing the payment of the deficiency, must be filed.

(4)        If any taxes paid to another state or country for which a fiduciary has been allowed a credit under this Section are at any time credited or refunded to the fiduciary, a tax equal to that portion of the credit allowed for such taxes so credited or refunded shall be due and payable from the fiduciary within 30 days from the date of the receipt of the refund or the notice of the credit. If the amount of such tax is not paid within 30 days of receipt or notice the fiduciary shall be subject to the penalties and interest on delinquent payments provided in G.S. 105-236 and G.S. 105-241.1.

"(h)       Time and Place of Filing Returns. Returns required under the provisions of subsection (e) of this Section shall be in such form as the Commissioner of Revenue may prescribe, and shall be filed with the Commissioner at his main office, or at any branch office which he may establish. The return of every fiduciary reporting on a calendar year basis shall be filed on or before the fifteenth day of April in each year, and the return of every fiduciary reporting on a fiscal year basis shall be filed on or before the fifteenth day of the fourth month following the close of the fiscal year. In the case of sickness, absence, or other disability or whenever in his judgment good cause exists, the Commissioner may allow further time for filing these returns.

"(i)        Time and Place of Payment of Tax.

(1)        The full amount of the tax payable as shown on the face of the return shall be paid to the Commissioner of Revenue at the office where the return is filed at the time fixed by law for filing the return.

(2)        The tax may be paid with uncertified check, but if a check so received is not paid by the bank on which it is drawn, the fiduciary by whom such check is tendered shall remain liable for the payment of the tax and for all penalties lawfully imposed.

"(j)       Corrections and Changes. For purposes of this Section the provisions of G.S. 105-159 requiring an individual to report changes, corrections, or the determination of net income by the Internal Revenue Service shall apply also to fiduciaries required to file returns for estates and trusts."

"§ 105-162.  Beneficiaries of Estates and Trusts.

"(a) Beneficiaries of Trusts Distributing Current Income Only.

(1)        Inclusion of Income. Subject to the provisions of subdivision(2) below the amount of income for the taxable year required to be distributed currently by a trust described in G.S. 105-161 (d)(5) shall be included in the gross income of the beneficiaries to whom the income is required to be distributed, whether distributed or not. If such amount exceeds the distributable net income, there shall be included in the gross income of each beneficiary an amount which bears the same ratio to distributable net income as the amount required to be distributed to such beneficiary bears to the amount of income required to be distributed to all beneficiaries.

(2)        Character of Amounts. The amounts specified in subdivision (1) above shall have the same character in the hands of the beneficiary as in the hands of the trust. For this purpose, the amounts shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable net income of the trust as the total of each class bears to the total distributable net income of the trust, unless the terms of the trust specifically allocate different classes of income to different beneficiaries. In the application of the preceding sentence, the items of deduction entering into the computation of distributable net income shall be allocated among the items of distributable net income in the manner prescribed by the Commissioner of Revenue.

(3)        Different Taxable Years. If the taxable year of a beneficiary is different from that of the trust, the amount which the beneficiary is required to include in gross income in accordance with the provisions of this subdivision shall be based upon the amount of income of the trust for any taxable year or years of the trust ending with or within his taxable year.

"(b)      Beneficiaries of Estates and Trusts Accumulating Income or Distributing Corpus.

(1)        Inclusion of Income. Subject to subdivision (2) below, there shall be included in the gross income of a beneficiary to whom an amount specified in G.S. 105-161(d)(6) is paid, credited, or required to be distributed by an estate or trust described in G.S. 105-161(d)(6) the sum of the following amounts:

a.         The amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not. If the amount of income required to be distributed currently to all beneficiaries exceeds the distributable net income (computed without the deduction allowed by G.S. 105-161 (d)(4) relating to deduction for charitable, etc., purposes) of the estate or trust, then, in lieu of the amount provided in the preceding sentence, there shall be included in the gross income of the beneficiary an amount which bears the same ratio to distributable net income (as so computed) as the amount of income required to be distributed currently to such beneficiary bears to the amount required to be distributed currently to all beneficiaries. For purposes of this subdivision, the phrase 'the amount of income for the taxable year required to be distributed currently' includes any amount required to be paid out of income or corpus to the extent such amount is paid out of income for such taxable year.

b.         All other amounts properly paid, credited, or required to be distributed to such beneficiary for the taxable year. If the sum of 1. the amount of income for the taxable year required to be distributed currently to all beneficiaries, and 2. all other amounts properly paid, credited, or required to be distributed to all beneficiaries exceeds the distributable net income of the estate or trust, then, in lieu of the amount provided in the preceding sentence, there shall be included in the gross income of the beneficiary an amount which bears the same ratio to the distributable net income (reduced by the amounts specified in 1.) as the other amounts properly paid, credited or required to be distributed to the beneficiary bear to the other amounts paid, credited, or required to be distributed to all beneficiaries.

(2)        Exclusions. There shall not be included as amounts falling within subdivision (1) above any amounts described in G.S. 105-161(d)(6)d.

(3)        Character of Amounts. The amounts determined under subdivision (1) above shall have the same character in the hands of the beneficiary as in the hands of the estate or trust. For this purpose, the amounts shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable net income as the total of each class bears to the total distributable net income of the estate or trust unless the terms of the governing instrument specifically allocate different classes of income to different beneficiaries. In the application of the preceding sentence, the items of deduction entering into the computation of distributable net income (including the deduction allowed under G.S. 105-161(d)(4) (relating to deduction for charitable, etc., purposes)) shall be allocated among the items of distributable net income in the manner prescribed by the Commissioner of Revenue. In the application of this subdivision to the amount determined under subdivision (1) a. above, distributable net income shall be computed without regard to any portion of the deduction under G.S. 105-161(d)(4) which is not attributable to income of the taxable year.

(4)        Different Taxable Years. If the taxable year of a beneficiary is different from that of the estate or trust, the amount to be included in the gross income of the beneficiary shall be based on the distributable net income of the estate or trust and the amounts properly paid, credited, or required to be distributed to the beneficiary during any taxable year or years of the estate or trust ending with or within his taxable year.

"(c)       Deduction on Termination of Estate or Trust. If on the termination of an estate or trust, the estate or trust has (1) an unused carryover loss allowable under the provisions of G.S. 105-147(9)d., or (2) for the last taxable year of the estate or trust, deductions (other than the deductions allowable under G.S. 105-161(d)(4) relating to deductions for charitable, etc., purposes, or personal exemption) in excess of gross income for such year, then such losses shall be allowed as a deduction, in such manner as may be prescribed by the Commissioner of Revenue, to the beneficiaries succeeding to the property of the estate or trust in the proportion of their respective shares in the property distributed.

"(d)      Definitions. For purposes of this Section the words and phrases defined in G.S. 105-161 (c) shall have the same meanings prescribed to them in that subsection.

"(e)       Tax Credits for Income Taxes Paid to Other States. A resident beneficiary of an estate or trust who is taxed under the provisions of Division II on income from an estate or trust determined to be includible in his gross income under this Section shall be allowed a credit against such tax for income taxes paid by the fiduciary to another state or country on such income in accordance with the formula contained in subdivision (g)(2) of G.S. 105-161 and the requirements of subdivision (g)(3) of G.S. 105-161; provided, that if any taxes paid to another state or country for which a beneficiary has been allowed credit under this Section are at any time credited or refunded to the beneficiary, a tax equal to that portion of the credit allowed for such taxes so credited or refunded shall be due and payable from the beneficiary within 30 days from the date of receipt of the refund or notice of the credit. If the amount of such tax is not paid within 30 days of receipt or notice the beneficiary shall be subject to the penalties and interest on delinquent payments provided in G.S. 105-236 and G.S. 105-241.1."

"§ 105-163.  Grantor Trusts.

"(a)       Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners. Where it is specified in this Section that the grantor or another person shall be treated as the owner of any portion of a trust, there shall then be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under Division II in computing the taxable income or credits against the tax of an individual. Any remaining portion of the trust shall be taxed in accordance with G.S. 105-161 and G.S. 105-162."

"(b)      Reversionary Interests:

(1)        The grantor shall be treated as the owner of any portion of a trust in which he has a reversionary interest in either the corpus or the income therefrom if, as of the inception of that portion of the trust, the interest will or may reasonably be expected to take effect in possession or enjoyment within 10 years commencing with the date of the transfer of that portion of the trust.

(2)        Subdivision (1) above shall not apply to the extent that the income of a portion of a trust in which the grantor has a reversionary interest is, under the terms of the trust, irrevocably payable for a period of at least two years (commencing with the date of the transfer) to a designated beneficiary, which beneficiary qualifies as the recipient of a gift or contribution under G.S. 105-147(15) or G.S. 105-147(16).

(3)        The grantor shall not be treated under subdivision (1) as the owner of any portion of a trust where his reversionary interest in such portion is not to take effect in possession or enjoyment until the death of the individual or individuals to whom the income therefrom is payable.

(4)        Any postponement of the date specified for the reacquisition of possession or enjoyment of the reversionary interest shall be treated as a new transfer in trust commencing with the date on which the postponement is effected and terminating with the date prescribed by the postponement. However, income for any period shall not be included in the income of the grantor by reason of the preceding sentence if such income would not be so includible in the absence of such postponement.

"(c)       Other Powers of the Grantor. The grantor or other person shall be treated as the owner of any portion of a trust in which he has reserved for himself powers other than those described in subsection (b) above to the extent that he is determined to be the owner of such portion under the provisions of Sections 674 through 678 of the Internal Revenue Code of 1954 as amended unless contrary to the context or intent of this division."

Sec. 4.  The Income Tax Withholding Article of the Revenue Act, being Article 4A of Subchapter I of Chapter 105 of the General Statutes is hereby amended by:

(a)        Deleting from line 3 of G.S. 105-163.10 the reference "G.S. 105-133" and substituting therefor "G.S. 105-136";

(b)        Deleting from line 2 of subdivision (b)(2) of G.S. 105-163.11 the reference "G.S. 105-133" and substituting therefor "G.S. 105-136";

(c)        Repealing subdivision (b)(1) of G.S. 105-163.11, and redesignating subdivisions (b)(2) through (b)(5) as (b)(1) through (b)(4) respectively;

(d)        Deleting from G.S. 105-163.13 all that appears after the colon in line 5 and before the word "Any" in line 11, and substituting the following therefor: "Under penalties prescribed by law, I hereby affirm that to the best of my knowledge and belief this return, including any accompanying schedules and statements, is true and complete. (If prepared by a person other than taxpayer, his affirmation is based on all information of which he has any knowledge.)";

(e)        Repealing G.S. 105-163.19, 105-163.20, and 105-163.21.

Sec. 5.  Article 4B of Subchapter I of Chapter 105 of the North Carolina General Statutes, relating to the filing of declarations of estimated income tax by corporations is hereby amended by deleting from line 7 of G.S. 105-163.33 the reference "article 4" and substituting therefor "article 9".

Sec. 6.  The Sales and Use Tax Article of the Revenue Act, being Article 5 of Chapter 105 of the General Statutes is hereby amended by:

(a)        Inserting in line 3 of G.S. 105-164.3(4) immediately after the first comma and immediately before the word "labor" the following: "cash discounts,".

(b)        Adding the following sentence at the end of G.S. 105-164.3(5):

"It shall also mean the maintaining in this State, either permanently or temporarily, directly or through a subsidiary, tangible personal property for the purpose of lease or rental."

(c)        Inserting immediately after the word "wholesale" and immediately before the words "and who" in line 5 of G.S. 105-164.3(10) the words "outside this State".

(d)        Deleting the words "one per cent (1%) of the sales price, and on all such sales on and after July 1, 1962, the tax shall be at the rate of" after the word "of" in line 10 and before the word "one" in line 12 in G.S. 105-164.4(1).

(e)        Deleting the words and figure "one per cent (l%)" after the word "of" in line 3 and before the words "of the" in line 4 of the third paragraph of G.S. 105-164.4(1), and substituting therefor the words and figure "one and one-half per cent (1 1/2%)".

(f)         Deleting the words "and on and after July 1, 1962, at the rate of one and one-half per cent (1 1/2%) of the sales or purchase price," after the word "State" in line 8 and before the word "but" in line 9 in the third paragraph of G.S. 105-164.4(1).

(g)        Rewriting G.S. 105-164.6(4) to read as follows:

"(4)      Where a retail sales tax has already been paid with respect to said tangible personal property in this State by the purchaser thereof, said tax shall be credited upon the tax imposed by this part. Where a retail sales or use tax has been paid with respect to said tangible personal property in another state by the purchaser thereof for storage, use or consumption in this State, said tax shall be credited upon the tax imposed by this part. If the amount of tax paid to another state is less than the amount of tax imposed by this part, the purchaser shall pay to the Commissioner an amount sufficient to make the tax paid to the other state and this State equal to the amount imposed by this part. The Commissioner of Revenue shall require such proof of payment of tax to another state as he deems to be necessary and proper."

(h)        Rewriting the third and fourth sentences of subsection (b) of G.S. 105-164.14 to read as follows:

"The refund provisions contained in this subsection shall not apply to organizations, corporations and institutions which are governmental agencies, owned and controlled by the federal, State or local governments; provided that hospitals and medical accommodations operated by an authority created under the Hospital Authorities Law, Article 12 of Chapter 131 of the General Statutes of North Carolina, shall not be excluded from the refund provisions contained in this subsection. In order to receive the refund herein provided for, such institutions and organizations shall file a written request for said refund on or before the fifteenth day of April following the close of each calendar year, and such request or requests for refund shall be substantiated by such proof as the Commissioner of Revenue may require, and no refund shall be made on applications not filed within the time allowed by this Section and in such manner as the Commissioner may otherwise require."

(i)         Rewriting the first paragraph of G.S. 105-164.16 to read as follows:

"The taxes levied under the provisions of this Article shall be due and payable in monthly installments on or before the 15th day of the month next succeeding the month in which the tax accrues, except as otherwise provided herein. Every taxpayer liable for the tax imposed by this Article shall on or before the fifteenth day of the month next succeeding the month in which the tax accrues make out, prepare and render a return on the form prescribed by the Commissioner, containing a true and correct statement showing the total gross sales, accompanied by an itemized statement showing the amount of sales in each group of exemptions and exclusions covered by G.S. 105-164.13 which are not subject to the tax or are not used as a measurement of the taxes due by such taxpayer together with such other information as the Commissioner may require and at the time of making such monthly return such taxpayer shall compute the taxes due and shall pay to the Commissioner the amount of taxes shown to be due. When the total amount of tax for which a taxpayer is liable for any month is consistently less than five dollars ($5.00), such taxpayer may file a quarterly return with remittance of tax in lieu of a monthly return on or before the fifteenth day of January, April, July, and October of each year for the preceding three months' period upon making application to the Commissioner to use such basis of filing. Returns shall be signed by the retailer or his duly authorized agent."

(j)         Rewriting G.S. 105-164.17 to read as follows:

"§ 105-164.17.  Reports and Payment of Use Tax. Every person storing, using or consuming tangible personal property in this State shall file with the Commissioner a return for the preceding month or quarter, as provided in G.S. 105-164.16 of this Article, in such form as may be prescribed by him showing the total cost price of the tangible personal property purchased or received by such person during such preceding month or quarter, the storage, use or consumption of which is subject to the tax imposed by this Article and such other information as the Commissioner may deem necessary for the proper administration of this Article. The returns shall be accompanied by a remittance of the amount of tax herein imposed during the month or quarter covered by the return. Returns shall be signed by the person liable for the tax or his duly authorized agent."

(k)        Inserting immediately after the word "monthly" and immediately before the word "remittance" in line 9 of G.S. 105-164.21 the words "or quarterly".

(l)         Inserting immediately after the word "monthly" and immediately before the word "return" both in lines 2 and 5 of G.S. 105-164.41 the words "or quarterly".

Sec. 7.  Gift Taxes. Article 6 of Chapter 105, relating to gift taxes is hereby amended by rewriting subsection (a) of Section 105-188.1 to read as follows:

"(a)       For purposes of this Article 'general power of appointment' shall mean any power of appointment which is exercisable in favor of the individual possessing the power (hereinafter in this Section referred to as the 'possessor'), his estate, his creditors, or the creditors of his estate; except that:

1.         A power to consume, invade, or appropriate property for the benefit of the possessor which is limited by an ascertainable standard relating to the health, education, support or maintenance of the possessor shall not be deemed a general power of appointment.

2.         In the case of a power of appointment which is exercisable by the possessor only in conjunction with another person:

a.         If the power is not exercisable by the possessor except in conjunction with the creator of the power, such power shall not be deemed a general power of appointment.

b.         If the power is not exercisable by the possessor except in conjunction with a person having a substantial interest, in the property subject to the power, which is adverse to exercise of the power in favor of the possessor, such power shall not be deemed a general power of appointment. For the purposes of this clause a person who, after the death of the possessor, may be possessed of a power of appointment (with respect to the property subject to the possessor's power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power.

c.         If (after the application of clauses a. and b.) the power is a general power of appointment and is exercisable in favor of such other person, such power shall be deemed a general power of appointment only in respect of a fractional part of the property subject to such power, such part to be determined by dividing the value of such property by the number of such persons (including the possessor) in favor of whom such power is exercisable.

d.         For purposes of clauses b. and c., a power shall be deemed exercisable in favor of a person if it is exercisable in favor of such person, his estate, his creditors, or the creditors of his estate."

Sec. 8.  Article 8C of Subchapter I of Chapter 105 of the North Carolina General Statutes is hereby amended by rewriting G.S. 105-228.16 to read as follows:

"§ 105-228.16.  Deductions From Gross Income. In computing entire net income there shall be allowed as deductions the following items:

(1)        All ordinary and necessary expenses paid or accrued during the taxable year.

(2)        Rental expense paid or accrued during the taxable year.

(3)        All unearned discount and interest paid during the taxable year except interest paid in connection with income exempt from taxation under this Article and except interest deemed excessive under G.S. 105-130.6.

(4)        Taxes paid or accrued except taxes based on net income, taxes assessed for local benefit of a kind tending to increase the value of the property assessed and any other taxes not deductible for corporate income tax purposes under the provisions of Division I of Article 4.

(5)        Dividends received from stock issued by any corporation to the extent provided in G.S. 105-130.7.

(6)        Net economic losses to the extent provided in G.S. 105-130.8 and other losses as provided in Division I of Article 4.

(7)        Loans or debts ascertained to be worthless and actually charged off during the taxable year, if connected with business and if the amount has previously been included in gross income in a return under this Article; or, in the discretion of the Commissioner of Revenue, a reasonable addition to a reserve for bad debts. Provided, that amounts which are deductible for federal income tax purposes shall be prima facie allowable hereunder.

(8)        A reasonable allowance for depreciation and obsolescence to the extent provided for corporation income tax purposes in Division I of Article 4.

(9)        Contributions to religious, charitable, educational, literary and like organizations to the extent provided in subdivision (1) of G.S. 105-130.9.

(10)      Contributions to the State of North Carolina, any of its institutions, instrumentalities, agencies, or political subdivisions, and contributions to educational institutions located within North Carolina as provided in subdivision (2) of G.S. 105-130.9.

(11)      Reasonable contributions to qualified employees' pension trusts within the taxable year.

(12)      Premiums paid by banks upon the purchase of bonds to the following extent:

(a)        Amortization of bond premiums on tax-exempt bonds shall be mandatory for all taxpayers. Amortization for the taxable year shall be accomplished by lowering the basis or adjusted basis of the bond, with no deduction against gross income for the year.

(b)        Amortization of bond premiums on taxable bonds shall be elective for all taxpayers. The amortizable premium for the taxable year may be deducted from gross income only if an adjustment is made to the basis of the bond.

(c)        For purposes of this subsection, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation and bearing interest and includes any like obligation issued by any government or political subdivision thereof.

(13)      Interest upon the obligations of the State of North Carolina or a political subdivision thereof received or accrued during the taxable year. Provided, that the deduction of accrued interest shall be permitted only if the taxpayer has included accrued income in his gross income for the taxable year. Provided further, that in the event that any court of competent jurisdiction shall rule that the deduction of the interest of the obligations of the State of North Carolina or a political subdivision thereof from the base of the tax levied by this Article violates the Constitution of this State or the Constitution of the United States, such deduction shall be disallowed and such interest shall be included in the entire net income of the taxpayer.

(14)      Reasonable payments made to the beneficiaries or to the estate of a deceased employee, paid by reason of the death of the employee to the extent provided for corporate income tax purposes in Division I of Article 4.

(15)      Deduction of accrued expenses, contributions, taxes, rental expense, or interest expense shall be subject to the limitations imposed upon corporate income taxpayers by Article 4."

Sec. 9.  Article 9 of Subchapter I of Chapter 105 of the North Carolina General Statutes is hereby amended by:

(a)        Amending G.S. 105-236 as follows:

(1)        Rewriting subparagraph (5) to read as follows:

"(5)      Negligence. For negligent failure to comply with any of the provisions of this subchapter, or rules and regulations issued pursuant thereto, without intent to defraud, there shall be assessed, as a penalty, an additional tax of ten per cent (10%) of the deficiency due to such negligence; provided, that in the case of income tax, if gross income is understated by as much as twenty -five per cent (25%), or deductions, exclusive of personal exemptions, are overstated by as much as twenty-five per cent (25%) of gross income, or if there is a combination of understatement of gross income and overstatement of deductions, exclusive of personal exemptions, equaling twenty-five per cent (25%) of gross income, there shall be assessed, as a penalty, an additional tax equal to twenty-five per cent (25%) of the total deficiency; provided further, that in the case of sales and use taxes, if it is established that the total tax liability is understated by twenty-five per cent (25%) or more as a result of any

(a)        omission or understatement of gross sales, gross receipts or gross purchases;

(b)        overstatement of exemptions or deductions;

(c)        incorrect application of a lesser rate of tax; or

(d)        any combination of the foregoing; there shall be assessed as a penalty an additional tax equal to twenty-five per cent (25%) of the total deficiency. If a penalty is assessed under subdivision (6) of this Section, no additional penalty for negligence shall be assessed with respect to the same deficiency."

(2)        Adding at the end of subparagraph (7) the following: "Notwithstanding any other provisions of law or any other statute of limitations, no prosecution for any violation brought hereunder shall be barred before the expiration of three years from the date of such violation.";

(3)        Inserting in line 3 of subparagraph (7) following the comma and preceding the word "or" the following: "Subchapter V, or Chapter 18 of the General Statutes,";

(4)        Inserting in the catch line of subparagraph (8) following the word "Collect" and preceding the word "or" the following: ", Withhold,"; and by inserting in line 2 of subparagraph (8) following the first comma and preceding the word "account" the following: "withhold,";

(5)        Striking from line 1 of subparagraph (11) the words "The failure to do any act required by or under"; and inserting in lieu thereof the following: "Any violation of"; and by striking from line 2 the words "or by" which appear immediately following the comma and preceding the word "subchapter".

(b)        Striking from line 5 of the second paragraph of G.S. 105-241.4 the words "under protest" which appear immediately following the word "tax" and immediately preceding the word "and".

Sec. 10.  Chapter 18 of the North Carolina General Statutes relating to the regulation of intoxicating liquors is hereby amended by deleting all that appears after the word "of" in line 7 of subdivision (1) of G.S. 18-73 and before the word "subsection" in line 9 of subdivision (1) of G.S. 18-73.

Sec. 11.  Chapter 53A of the General Statutes of North Carolina, relating to Business Development Corporations is hereby amended by rewriting subsection (e) of § 53A-15 to read as follows:

"(e) In computing entire net income there shall be allowed as deductions the following items:

(1)        All ordinary and necessary expenses paid or accrued during the taxable year.

(2)        Rental expense paid or accrued during the taxable year.

(3)        All unearned discount and interest paid during the taxable year except interest paid in connection with income exempt from taxation under Article 4 of Chapter 105 of the General Statutes and except interest deemed excessive under G.S. 105-130.6.

(4)        Taxes paid or accrued except taxes based on net income, taxes assessed for local benefit of a kind tending to increase the value of the property assessed and any other taxes not deductible for corporate income tax purposes under Division I of Article 4 of Chapter 105 of the General Statutes.

(5)        Dividends received from stock issued by any corporation to the extent provided in G.S. 105-130.7.

(6)        Net economic losses to the extent provided in G.S. 105-130.8 and other losses as provided in Division I of Article 4 of Chapter 105 of the General Statutes.

(7)        Loans or debts ascertained to be worthless and actually charged off during the taxable year, if connected with business and if the amount has previously been included in gross income in a return under this Section; or, in the discretion of the Commissioner of Revenue, a reasonable addition to a reserve for bad debts. Provided, that amounts which are deductible for federal income tax purposes shall be prima facie allowable hereunder.

(8)        A reasonable allowance for depreciation and obsolescence to the extent provided for corporation income tax purposes in Division I of Article 4 of Chapter 105 of the General Statutes.

(9)        Contributions to religious, charitable, educational, literary and like organizations to the extent provided in subdivision (1) of G.S. 105-130.9.

(10)      Contributions to the State of North Carolina, any of its institutions, instrumentalities, agencies, or political subdivisions, and contributions to educational institutions located within North Carolina as provided in subdivision (2) of G.S. 105-130.9.

(11)      Reasonable contributions to qualified employees' pension trusts within the taxable year; provided, exemption of any such trust under the federal income tax laws shall constitute prima facie evidence that it is a "qualified employees' pension trust" within the meaning of this subdivision.

(12)      Premiums paid upon the purchase of bonds to the following extent:

(a)        Amortization of bond premiums on tax-exempt bonds shall be mandatory for all taxpayers. Amortization for the taxable year shall be accomplished by lowering the basis or adjusted basis of the bond with no deduction against gross income for the year.

(b)        For purposes of this subsection, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation and bearing interest and includes any like obligation issued by any government or political subdivision thereof.

(13)      Interest upon the obligations of the State of North Carolina or a political subdivision thereof received or accrued during the taxable year. Provided, that the deduction of accrued interest shall be permitted only if the taxpayer has included accrued income in his gross income for the taxable year. Provided further that in the event that any court of competent jurisdiction shall rule that the deduction of the interest of the obligations of the State of North Carolina or a political subdivision thereof from the base of the tax levied by this Article violates the Constitution of this State or the Constitution of the United States, such deduction shall be disallowed and such interest shall be included in the entire net income of the taxpayer.

(14)      Reasonable payments made to the beneficiaries or to the estate of a deceased employee, paid by reason of the death of the employee to the extent provided for corporate income tax purposes in Division I of Article 4 of Chapter 105 of the General Statutes.

(15)      Deduction of accrued expenses, contributions, taxes, rental expense, or interest expense shall be subject to the limitations imposed upon corporate income taxpayers by Article 4 of Chapter 105 of the General Statutes."

Sec. 12.  Article 3 of Chapter 119 of the General Statutes of North Carolina relating to Gasoline and Oil Inspection is hereby amended by:

(a)        Adding a new Section immediately following G.S. 119-16.1 and immediately preceding G.S. 119-17, to be designated as G.S. 119-16.2, and to read as follows:

"§ 119-16.2.  Application for License. Any person, firm or corporation having in his possession kerosene on which the inspection fee has not been paid, and who is not required to be licensed under the provisions of G.S. 105-433, shall, prior to the commencement of doing business, file a duly acknowledged application for a license with the Commissioner of Revenue on a form prescribed by the Commissioner setting forth the name under which such distributor transacts or intends to transact business within this State, the address of each place of business and a designation of the principal place of business. If such distributor is a firm or association, the application shall set forth the name and address of each person constituting the firm or association, and if a corporation, the names and addresses of the principal officers and such other information as the Commissioner of Revenue may require. Each distributor shall at the same time file a bond in such amount, not exceeding twenty thousand dollars ($20,000.00) in such form and with such surety or sureties as may be required by the Commissioner of Revenue, conditioned upon the rendition of the reports and the payment of the tax hereinafter provided for. Upon approval of the application and bond, the Commissioner of Revenue shall issue to the distributor a nonassignable license with a duplicate copy of each place of business of said distributor in this State, a copy of which shall be displayed conspicuously at each such place of business and shall continue in force until surrendered or cancelled. No distributor shall sell, offer for sale, or use any kerosene within this State, until such license has been issued. Any distributor failing to comply with or violating any of the provisions of this Section shall be guilty of a misdemeanor and upon conviction thereof shall be fined not less than one hundred dollars ($100.00), nor more than five thousand dollars ($5,000.00), or imprisoned for not more than 24 months or both.

"(b)      Adding the following sentence at the end of the second paragrah of G.S. 119-18: "Distributors of kerosene licensed under G.S. 119-16.2 shall file reports as required by the Commissioner of Revenue, by not later than the twentieth of each month, and remit to the Commissioner of Revenue one quarter of a cent (1/4 of 1%) inspection fee per gallon on all kerosene received during the preceding month.

"(c)       Inserting immediately after the symbol and numerals "§ 105-433," in line 5 of G.S. 119-19 the word and numerals "or § 119-16.2"; and by striking out the period at the end of that paragraph and by adding the word and numerals "or § 119-16.2."

Sec. 13.  The Intangibles Tax Article, being Article 7 of Chapter 105 of the North Carolina General Statutes is hereby amended by:

a.         Deleting from line 13 of G.S. 105-212 the reference "105-138, subdivision (10)" and substituting therefor "105-161(f)(1)a."

Sec. 14.  The Special Fuels Tax Article, being Article 36A of Chapter 105 of the General Statutes is hereby amended by:

a.         Adding at the end of G.S. 105-449.20 the following: "In all cases where a user-seller actually sells or uses an amount in addition to that reported to the Commissioner as having been purchased from a supplier licensed under this Article proof of such additional sales or use shall constitute prima facie evidence that all fuel in excess of that so reported was acquired tax-free."

b.         Adding at the end of G.S. 105-449.21 the following: "Each user-seller shall at the time of rendering such statement pay to the Commissioner the tax or taxes for the preceding calendar month which may be due because of fuel imported or acquired tax-free in any manner whatsoever."

Sec. 15.  Article 36B of Chapter 105 of the General Statutes of North Carolina relating to Highway Fuel Use Tax is hereby amended by deleting the words and figures "in the amount of ten thousand dollars ($10,000.00)" immediately after the word "bond" in line 2 and immediately before the word "payable" in lines 2 and 3 of G.S. 105-449.40 and substituting in lieu thereof the following: "in an amount no less than five hundred dollars ($500.00) nor more than ten thousand dollars ($10,000.00)". Article 36B of Chapter 105 of the General Statutes of North Carolina is further amended by adding a new Section to be designated "§ 105-449.24" and to read as follows:

"§ 105-449.24.  Exemptions, Rebates, and Refunds. The provisions of G.S. §§ 105-439, -446.1, and -449 relating to exemptions from, and rebates and refunds of tax levied on gasoline shall also apply to the taxes levied by this Article on special fuels."

Sec. 16.  This Act shall not affect the liability of any taxpayer arising prior to the effective date of the applicable Section hereof.

Sec. 17.  All laws and clauses of laws in conflict with this Act are hereby repealed.

Sec. 18.  Sections 1, 6, 7, 9, 10, 12, 13 and 14 of this Act shall be effective from and after July 1, 1967. Section 2 of this Act shall become effective July 1, 1968, and shall apply to all returns due on or after that date. Sections 3, 4, 5, 8, and 11 of this Act shall be effective and shall apply to all taxable years beginning on or after January 1, 1967.

In the General Assembly read three times and ratified, this the 4th day of July, 1967.