North Carolina legislators have introduced an omnibus revenue bill that would decouple the state from changes to IRC section 163(j) and net operating losses under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
H.B. 1080, introduced May 14 by Rep. Julia Howard (R) and other Republicans, would address federal tax changes made from January 1, 2019, to May 1, 2020, including the federal CARES Act enacted March 27. The bill would also make changes to excise and sales and use taxes.
A companion bill (S.B. 727) was filed May 13 by Sen. Paul Newton (R).
The CARES Act made changes to IRC section 163(j), allowing taxpayers to deduct more business interest expense for tax years beginning in 2019 or 2020. The act increased the percentage of a taxpayer’s adjusted taxable income used to calculate the deductibility of business interest expense from 30 percent to 50 percent. H.B. 1080 would decouple from this change.
H.B. 1080 would also decouple from changes to NOLs in the CARES Act. The CARES Act allows NOLs incurred in 2018, 2019, or 2020 to be carried back for five years, and allows losses to be carried forward to tax years after December 31, 2020, without being subject to the 80 percent income limitation.
The federal economic relief bill also expanded the Small Business Administration section 7(a) loan program to include $349 billion for a new Paycheck Protection Program. The bill would decouple from that new program's loan forgiveness under section 1106 of the CARES Act.
The conformity changes would take effect once the bill is enacted.
H.B. 1080 would also add language to clarify that a digital code is taxed in the same manner as "digital property for which the digital code relates." The change would take effect once the bill becomes law.
The bill would also require marketplace facilitators that facilitate sales of prepared food and beverages, such as Uber Eats, to collect and remit local meals taxes in the five localities that levy them — Cumberland County, Dare County, Mecklenburg County, Wake County, and the town of Hillsborough. This provision would become effective on July 1 and would be applied to sales occurring on or after that date.
Howard could not be reached for comment by press time.
Eugene Chianelli of Smith Debnam Narron Drake Saintsing & Myers LLP in Raleigh told Tax Notes May 18 he heard there was testimony the previous week at the Revenue Laws Study Committee that “taxpayer-friendly provisions in the bill would blow about a $1 billion hole in the budget . . . and so it’s certainly no surprise that they want to decouple, at least to some extent.” Howard and Newton cochair the study committee.
Chianelli said changes proposed in H.B. 1080 could end up in another bill or as part of the budget. “The big question is how much are they going to decouple?” he said. “I think that’ll be the controversial item.”