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North Carolina Governor Signs IRC Conformity Bill 

Posted on July 1, 2020

North Carolina Gov. Roy Cooper (D) has signed a bill into law that will decouple the state from business tax relief in the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Cooper announced June 30 that he signed H.B. 1080 along with 11 other bills.

The bill updates North Carolina’s reference to the Internal Revenue Code from January 1, 2019, to May 1, 2020. It also makes changes to excise and sales and use taxes.

Under the bill, North Carolina will decouple from provisions of the CARES Act designed to help improve liquidity for businesses that have been affected by the COVID-19 pandemic. The provisions would have reduced state revenues at a time when the state is facing a $5 billion shortfall. 

They include changes to IRC section 163(j) that allow taxpayers to deduct more business interest expense for tax years beginning in 2019 and 2020 and that increase from 30 percent to 50 percent the percentage of a taxpayer’s adjusted taxable income used to calculate the deductibility of business interest expense. 

The state will also decouple from changes to net operating losses under the CARES Act. The 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 bill will conform the state's tax code to the lowered threshold amount for the medical expense deduction, which dropped from 10 percent to 7.5 percent for the 2019 and 2020 tax years.

Lowering the threshold is expected to reduce general fund revenue by about $36 million in fiscal 2021, but the bill will transfer $36 million from the state’s Medicaid Transformation Reserve to offset that revenue loss, according to the bill’s fiscal note.

H.B. 1080 will also conform to the exclusion from gross income of any amount of indebtedness forgiven on a loan covered under the CARES Act's Paycheck Protection Program.

The bill adds language to clarify that digital codes for digital property are taxed in the same manner as the "property for which the digital code relates" and that the state's economic nexus threshold applies only to remote marketplace facilitators. 

The bill will 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 is effective July 1 and applies to sales occurring on or after that date. 

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