House Bill 1630-Second Edition

GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2005

H 2

HOUSE BILL 1630

Committee Substitute Favorable 6/7/05

Short Title: 2005 Continuing Budget Authority/Revenue.		(Public)
Sponsors:
Referred to:

May 11, 2005

A BILL TO BE ENTITLED

AN ACT authorizing the director of the budget to continue expenditures for the operation of government at the level in effect on June 30, 2005; extending the final maturity of certain global transpark debt from july 1, 2005, until july 31, 2005; updating the reference date to the internal revenue code without conforming to the deduction for domestic production activities, state and local sales and use taxes, and certain international shipping activities; extending the eight and one-quarter percent upper individual income tax bracket as enacted in 2001 for the 2006 and 2007 taxable years; extending the estate tax until january 1, 2010; extending the additional one-half cent state sales and use tax until july 1, 2007; making sales tax changes required by the streamlined sales tax agreement; retaining the use tax line on the individual income tax return until 2010; and applying the sales tax to candy, warranty service agreements, cable services, voice mail, and satellite radio.

The General Assembly of North Carolina enacts:

Part i. BUDGET CONTINUATION

SECTION 1. The Director of the Budget may continue to allot funds for expenditure by State departments, institutions, and agencies at a level not to exceed the level of recurring expenditures authorized in S.L. 2004-124.

The Director of the Budget shall not allocate funds for any of the purposes set out in the budget reductions contained in Senate Bill 622, 4th edition, and Senate Bill 622, as it passes the House of Representatives, that are not in controversy.

Vacant positions subject to the proposed budget reductions in either Senate Bill 622, 4th edition, or Senate Bill 622, as it passes the House of Representatives, shall not be filled.

To the extent necessary to implement this authorization, there is appropriated from the appropriate State funds and cash balances, federal receipts, and departmental receipts for the 2005-2006 fiscal year funds necessary to carry out this section.

The appropriations and the authorizations to allocate and spend funds which are set out in this section shall remain in effect until the Current Operations and Capital Improvements Appropriations Act of 2005 becomes law, at which time that Act shall become effective and shall govern appropriations and expenditures. When the Current Operations and Capital Improvements Appropriations act of 2005 becomes law, the Director of the Budget shall adjust allotments to give effect to that Act from July 1, 2005.

Except as otherwise provided by this act, the limitations and directions for the 2004-2005 fiscal year set out in S.L. 2003-284 and in S.L. 2004-124 remain in effect. Session laws that applied to appropriations to particular agencies or for particular purposes apply to the funds appropriated and authorized for expenditure under this section.

Part II. Federal BLOCK GRANTs

SECTION 2. The Director of the Budget shall continue to allocate federal block grant funds at the levels provided in Sections 5.1 and 5.2 of S.L. 2004-124 and as otherwise provided by law, and appropriations from federal block grants are hereby made.

Part III. NO AUTOMATIC STEP INCREASE FOR STATE AND PUBLIC SCHOOL EMPLOYEES

SECTION 3. State employees subject to G.S. 7A-102(c), 7A-171.1, or 20-187.3 shall not move up on salary schedules or receive automatic increases, including automatic step increases, until authorized by the General Assembly.

Public school employees paid on the teacher salary schedule or the school-based administrator salary schedule shall not move up on salary schedules or receive automatic step increases until authorized by the General Assembly.

part iv. SALARY-RELATED CONTRIBUTIONS/EMPLOYER

SECTION 4.(a) The State's employer contribution rates budgeted for retirement and related benefits for the 2005-2006 fiscal year shall remain the same as they are on June 30, 2005.

SECTION 4.(b) The State's employer contribution rates established by this section are effective only until this section expires and are subject to revision in the Current Operations and Capital Improvements Appropriations Act of 2005. If the Current Operations and Capital Improvements Appropriations Act of 2005 modifies these rates, the Director of the Budget shall further modify the rates set in that act for the remainder of the 2005-2006 fiscal year so as to compensate for the different amount contributed between July 1, 2005, and the date the Current Operations and Capital Improvements Appropriations Act of 2005 becomes law so that the effective rates for the entire year reflect the rates set in the Current Operations and Capital Improvements Appropriations Act of 2005.

Part V. FUNDS SHALL NOT REVERT

SECTION 5.(a) If the provisions of either Senate Bill 622, 4th edition, or Senate Bill 622, as it passes the House of Representatives, or both, direct that funds shall not revert, the funds shall not revert on June 30, 2005. Unless these funds are encumbered on or before June 30, 2005, these funds shall not be expended after June 30, 2005, except as provided by a law enacted after June 30, 2005.

SECTION 5.(b) This section becomes effective June 30, 2005.

part vi. STATE CONTROLLER SHALL NOT TRANSFER FUNDS ON JUNE 30

SECTION 6.(a) Notwithstanding G.S. 143-15.2 and G.S. 143-15.3A, for the 2004-2005 fiscal year only, funds shall not be reserved to the Repairs and Renovations Reserve Account, and the State Controller shall not transfer funds from the unreserved credit balance to the Repairs and Renovations Reserve Account on June 30, 2005.

SECTION 6.(b) Notwithstanding G.S. 143-15.2 and G.S. 143-15.3, for the 2004-2005 fiscal year only, funds shall not be reserved to the Savings Reserve Account, and the State Controller shall not transfer funds from the unreserved credit balance to the Savings Reserve Account on June 30, 2005.

SECTION 6.(c) This section becomes effective June 30, 2005.

part VII. Modify Global Transpark Debt

SECTION 7. G.S. 147-69.2(b)(11) reads as rewritten:

"(b) It shall be the duty of the State Treasurer to invest the cash of the funds enumerated in subsection (a) of this section in excess of the amount required to meet the current needs and demands on such funds, selecting from among the following:

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(11) With respect to assets of the Escheat Fund, obligations of the North Carolina Global TransPark Authority authorized by G.S. 63A-4(a)(22), not to exceed twenty-five million dollars ($25,000,000), that have a final maturity not later than ~~July 1, 2005.~~ July 31, 2005. The obligations shall bear interest at the rate set by the State Treasurer. No commitment to purchase obligations may be made pursuant to this subdivision after September 1, 1993, and no obligations may be purchased after September 1, 1994. In the event of a loss to the Escheat Fund by reason of an investment made pursuant to this subdivision, it is the intention of the General Assembly to hold the Escheat Fund harmless from the loss by appropriating to the Escheat Fund funds equivalent to the loss."

PART VIII. INCOME TAX CHANGES

SECTION 8.1. G.S. 105-228.90(b)(1b) reads as rewritten:

"(b) Definitions. - The following definitions apply in this Article:

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(1b) Code. - The Internal Revenue Code as enacted as of ~~May 1, 2004,~~January 1, 2005, including any provisions enacted as of that date which become effective either before or after that ~~date.~~date, but not including the amendments made to section 164 of the Code by section 501 of P.L. 108-357."

SECTION 8.2. G.S. 105-130.5(a) reads as rewritten:

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

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(16) The amount excluded from gross income under Subchapter R of Chapter 1 of the Code.

(17) The amount excluded from gross income under section 199 of the Code."

SECTION 8.3. Notwithstanding Section 8.1 of this act, any amendments to the Internal Revenue Code enacted after May 1, 2004, that increase North Carolina taxable income for the 2004 taxable year become effective for taxable years beginning on or after January 1, 2005.

SECTION 8.4. G.S. 105-228.90(b)(1b), as amended by Section 8.1 of this act, reads as rewritten:

"(b) Definitions. - The following definitions apply in this Article:

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(1b) Code. - The Internal Revenue Code as enacted as of January 1, 2005, including any provisions enacted as of that date which become effective either before or after that ~~date, but not including the amendments made to Section 164 of the Code by Section 501 of P.L. 108-357.~~date."

SECTION 8.5. G.S. 105-134.6(c) reads as rewritten:

"(c) Additions. - The following additions to taxable income shall be made in calculating North Carolina taxable income, to the extent each item is not included in taxable income:

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(3) Any amount deducted from gross income under section 164 of the Code as state, local, or foreign income tax or as state or local general sales tax to the extent that the taxpayer's total itemized deductions deducted under the Code for the taxable year exceed the standard deduction allowable to the taxpayer under the Code reduced by the amount the taxpayer is required to add to taxable income under subdivision (4) of this subsection.

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(9) The amount excluded from gross income under section 199 of the Code."

SECTION 8.6. Notwithstanding any other provision of law, a taxpayer whose federal taxable income for 2004 is reduced due to a charitable contribution of cash made in January 2005 for Indian Ocean tsunami relief efforts in accordance with P.L. 109-1 is not required to add back the amount of the deduction related to that contribution in determining North Carolina taxable income for 2004.

SECTION 8.7. The prefatory language of Section 39.1 of S.L. 2003-284 reads as rewritten:

"SECTION 39.1. Effective for taxable years beginning on or after ~~January 1, 2006,~~ January 1, 2008, G.S. 105-134.2(a) reads as rewritten:".

SECTION 8.8. Sections 8.4 and 8.5 of this Part become effective for taxable years beginning on or after January 1, 2005. The remainder of this Part is effective when it becomes law.

pART IX. eSTATE tAX CHANGES

SECTION 9.1. Section 30C.3(b) of S.L. 2002-126, as amended by Section 37A.4 of S.L. 2003-284 and Section 1 of S.L. 2004-170, reads as rewritten:

"SECTION 30C.3.(b) This section is effective on and after January 1, 2002, and applies to the estates of decedents dying on or after that date. ~~This section and Section 37A.5 of S.L. 2003-284 are repealed effective for the estates of decedents dying on or after July 1, 2005.~~"

SECTION 9.2. Section 4(b) of S.L. 2004-170 is repealed.

SECTION 9.3. This Part is effective when it becomes law.

part X. Sales tax changes

SECTION 10.1. Section 34.13(c) of S.L. 2001-424, as amended by Section 38.1 of S.L. 2003-284, reads as rewritten:

"SECTION 34.13.(c) This section becomes effective October 16, 2001, and applies to sales made on or after that date. This section is repealed effective for sales made on or after ~~July 1, 2005.~~ July 1, 2007. This section does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this section before the effective date of its amendment or repeal; nor does it affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal."

SECTION 10.2. Subdivisions (4a) and (4b) of G.S. 105-164.3 are recodified as subdivisions (4b) and (4c) respectively.

SECTION 10.3. G.S. 105-164.3 reads as rewritten:

"§ 105-164.3. Definitions.

The following definitions apply in this Article:

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(1a) Cable service. - The one-way transmission to subscribers of video programming or another programming service and any subscriber interaction required to select or use the service.

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(4a) Combined general rate. - The State's general rate of tax set in G.S. 105-164.4(a) plus the sum of the rates of the local sales and use taxes authorized by Subchapter VIII of this Chapter for every county in this State.

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(4d) Computer supply. - An item that is considered a 'school computer supply' under the Streamlined Agreement.

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(10) Food. - Substances that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value. The substances may be in liquid, concentrated, solid, frozen, dried, or dehydrated form. The term does not include an alcoholic beverage, as defined in G.S. 105-113.68, or a tobacco ~~products,~~ product, as defined in G.S. 105-113.4.

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(37a) Satellite digital audio radio service. - A radio communication service in which audio programming is digitally transmitted by satellite to an earth-based receiver, whether directly or via a repeater station.

(37b) School supply. - An item that is commonly used by a student in the course of study and is considered a 'school supply', a 'school art supply', or 'school instructional material' under the Streamlined Agreement.

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(45a) Streamlined Agreement. - The Streamlined Sales and Use Tax Agreement adopted November 12, 2002, as amended on November 19, 2003, November 16, 2004, and April 16, 2005."

SECTION 10.4. G.S. 105-164.4(a), as amended by Section 10.1 of this Part, reads as rewritten:

"(a) A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and one-half percent (4.5%).

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(1b) The rate of three percent (3%) applies to the sales price of each ~~aircraft, boat, railway car, or locomotive~~ aircraft or boat sold at retail, including all accessories attached to the item when it is delivered to the purchaser. The maximum tax is one thousand five hundred dollars ($1,500) per article.

~~(1c)~~ ~~The rate of one percent (1%) applies to the sales price of the following articles~~:

a. ~~Horses or mules by whomsoever sold.~~

b. ~~Semen to be used in the artificial insemination of animals.~~

c. Sales of fuel, other than electricity, to farmers to be used by them for any farm purposes other than preparing food, heating dwellings, and other household purposes. The quantity of fuel purchased or used at any one time shall not in any manner be a determinative factor as to whether any sale or use of fuel is or is not subject to the one percent (1%) rate of tax imposed by this subdivision.

d. Sales of fuel, other than electricity, to manufacturing industries and manufacturing plants for use in connection with the operation of such industries and plants other than sales of fuels to be used for residential heating purposes. The quantity of fuel purchased or used at any one time shall not in any manner be a determinative factor as to whether any sale or use of fuel is or is not subject to the rate of tax provided in this subdivision.

e. Sales of fuel, other than electricity, to commercial laundries or to pressing and dry-cleaning establishments for use in machinery used in the direct performance of the laundering or the pressing and cleaning service.

f. ~~Sales to freezer locker plants of wrapping paper, cartons and supplies consumed directly in the operation of such plant.~~

~~(1d)~~ The rate of one percent (1%) applies to the sales price of the articles listed in G.S. 105-164.4A. The maximum tax is eighty dollars ($80.00) per article. As used in G.S. 105-164.4A and G.S. 105-187.51, the term "accessories" does not include electricity.

a. ~~through k. Recodified as § 105-164.4A by Session Laws 1999-360, s. 3(a), effective August 4, 1999.~~

~~(1e)~~ The rate of three percent (3%) applies to the sales price of each mobile classroom or mobile office sold at retail, including all accessories attached to the mobile classroom or mobile office when it is delivered to the purchaser. The maximum tax is one thousand five hundred dollars ($1,500) per article. Each section of a mobile classroom or mobile office that is transported separately to the site where it is to be placed is a separate article.

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(4c) The ~~rate of six percent (6%)~~combined general rate applies to the gross receipts derived from providing telecommunications service. A person who provides telecommunications service is considered a retailer under this Article. Telecommunications service is taxed in accordance with G.S. 105-164.4C.

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(6) The ~~rate of five percent (5%)~~combined general rate applies to the gross receipts derived from providing ~~direct to home satellite service to subscribers in this State.~~any of the following broadcast services to a subscriber in this State. A person engaged in the business of providing ~~direct-to-home satellite service~~any of these services is considered a retailer under this ~~Article.~~Article:

a. Direct-to-home satellite service.

b. Cable service.

c. Satellite digital audio radio service. For service received by a mobile or portable station, the service is sourced to the subscriber's business or home address.

(7) The ~~rate of six percent (6%)~~combined general rate applies to the sales price of spirituous liquor other than mixed beverages. As used in this subdivision, the terms 'spirituous liquor' and 'mixed beverage' have the meanings provided in G.S. 18B-101.

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(9) The general rate of tax applies to the sales price of a warranty agreement, a maintenance agreement, a repair contract, or a similar service agreement or contract by which the seller agrees to maintain or repair tangible personal property. A person who sells a service agreement or contract is considered a retailer under this Article."

SECTION 10.5. G.S. 105-164.4A is repealed.

SECTION 10.6. G.S. 105-164.4C(b)(2) reads as rewritten:

"(2) Charges for directory assistance, directory listing that is not yellow-page classified listing, call forwarding, call waiting, three-way calling, caller ID, voice mail, and other similar services."

SECTION 10.7. G.S. 105-164.4C(c)(11) is repealed.

SECTION 10.8. G.S. 105-164.6 reads as rewritten:

"§ 105-164.6. ~~Imposition of~~Complementary use tax.

(a) Tax. - An excise tax at the following percentage rates is imposed on the storage, use, or consumption in this State of tangible personal property purchased inside or outside the State for storage, use, or consumption in the State:at the applicable rate set in G.S. 105-164.4 is imposed on the items listed below. The applicable rate is the rate and maximum tax, if any, that would apply to the sale of the item.

(1) At the applicable percentage rate of the purchase price of each item or article of tangible personal property that is stored, used, or consumed in this State. The applicable percentage rate is the rate and the maximum tax, if any, that applies to a sale of the property that is stored, used, or consumed.Tangible personal property purchased inside or outside this State for storage, use, or consumption in this State. This subdivision includes property that becomes part of a building or another structure.

(2) At the applicable percentage rate of the monthly lease or rental price paid, contracted, or agreed to be paid by the lessee or renter to the owner of tangible personal property that is stored, used, or consumed in this State. The applicable percentage rate is the rate and the maximum tax, if any, that applies to a lease or rental of the property that is stored, used, or consumed.Tangible personal property leased or rented inside or outside this State for storage, use, or consumption in this State.

(3) Services sourced to this State.

(b) ~~An excise tax at the general rate of tax set in G.S. 105-164.4 is imposed on the purchase price of tangible personal property purchased inside or outside the State that~~Liability. - The tax imposed by this section is payable by the person who purchases, leases, or rents tangible personal property or who purchases a service. If the property purchased becomes a part of a building or other structure in the ~~State. The purchaser of the property is liable for the tax. If the purchaser is a contractor, the contractor and owner are jointly and severally liable for the tax; if~~State and the purchaser is a ~~subcontractor, the subcontractor and contractor~~contractor or subcontractor, the contractor, the subcontractor, and the owner of the building are jointly and severally liable for the tax. The liability of ~~an owner or a contractor~~a contractor, a subcontractor, or an owner who did not purchase the property is satisfied ~~if the purchaser delivers to the owner or contractor before final settlement between them~~by receipt of an affidavit from the purchaser certifying that the tax has been paid.

(c) Where a retail sales tax has already been paid with respect to tangible personal property in this State by the purchaser thereof, the tax shall be credited upon the tax imposed by this Part. Where a retail sales and use tax is due and has been paid with respect to tangible personal property in another state by the purchaser for storage, use or consumption in this State, the tax shall be credited upon the tax imposed by this Part.Credit. - A credit is allowed against the tax imposed by this section for the following:

(1) The amount of sales or use tax paid on the item to this State. Payment of sales or use tax to this State on an item by a retailer extinguishes the liability of a purchaser for the tax imposed under this section.

(2) The amount of sales tax paid on the item to another State. If the amount of tax paid to ~~another~~the other state is less than the amount of tax imposed by this Part, the purchaser shall pay to the Secretary an amount sufficient to make the tax paid to the other state and this State equal to the amount imposed by this Part. The Secretary of Revenue shall require such proof of payment of tax to another state as he deems necessary. No credit shall be given under this subsection for sales or use taxes paid in another state if thatsection, the difference is payable to this State. The credit allowed by this subdivision does not apply to tax paid to a state that does not grant a similar credit for sales or use taxes paid in North Carolina.

~~(d)~~ Every person storing, using or otherwise consuming in this State tangible personal property purchased or received at retail either within or without this State shall be liable for the tax imposed by this Article and the liability shall not be extinguished until the tax has been paid to this State. Provided, however, that a receipt from a registered retailer engaged in business in this State given to the purchaser in accordance with the provisions of this Article shall be prima facie sufficient to relieve the purchaser from liability for the tax to which such receipt may refer and the liability of the purchaser shall be extinguished upon payment of the tax by any retailer from whom he has purchased the property.

~~(e)~~ ~~Except as provided herein the tax so levied is and shall be in addition to all other taxes whether levied in the form of excise, license, privilege or other taxes.~~

(f) Registration. - Before a person may engage in business in this State selling or delivering tangible personal property for storage, use, or consumption in this State, the person must obtain a certificate of registration from the Department. To obtain a certificate of registration, a person must register with the Department.

The holder of the certificate of registration must pay the tax levied under this Article. A certificate of registration is valid unless it is revoked for failure to comply with the provisions of this Article or becomes void. A certificate issued to a retailer becomes void if, for a period of 18 months, the retailer files no returns or files returns showing no sales."

SECTION 10.9. G.S. 105-164.13 reads as rewritten:

"§ 105-164.13. Retail sales and use tax.

The sale at retail and the use, storage, or consumption in this State of the following tangible personal property and services are specifically exempted from the tax imposed by this Article:

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(1) ~~Commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, and seeds~~Any of the following items sold to a farmer for ~~agricultural purposes.~~use by the farmer in the planting, cultivating, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals. A 'farmer' includes a dairy operator, a poultry farmer, an egg producer, a livestock farmer, a farmer of crops, and a farmer of an aquatic species, as defined in G.S. 106-758.

a. Commercial fertilizer, lime, land plaster, plastic mulch, plant bed covers, and seeds.

b. Farm machinery, attachment and repair parts for farm machinery, and lubricants applied to farm machinery. The term 'machinery' includes implements that have moving parts or are operated or drawn by an animal. The term does not include implements operated wholly by hand or motor vehicles required to be registered under Chapter 20 of the General Statutes.

c. A horse or mule.

d. Fuel other than electricity.

(1a) A container sold to a farmer, as defined in subdivision (1) of this section, used for a purpose set out in that subdivision or in packaging and transporting the farmer's product for sale.

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(2a) Any of the following substances when purchased for use on animals or plants, as appropriate, held or produced for commercial purposes. This exemption does not apply to any equipment or devices used to administer, release, apply, or otherwise dispense these substances:

a. Remedies, vaccines, medications, litter materials, and feeds for animals.

b. Rodenticides, insecticides, herbicides, fungicides, and pesticides.

c. Defoliants for use on cotton or other crops.

d. Plant growth inhibitors, regulators, or stimulators, including systemic and contact or other sucker control agents for tobacco and other crops.

e. Semen.

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(4c) Any of the ~~following:~~following items concerning the housing, raising, or feeding of animals:

a. Commercially manufactured facilities to be used for commercial purposes for housing, raising, or feeding animals or for housing equipment necessary for these commercial activities.

b. Building materials, supplies, fixtures, and equipment that become a part of and are used in the construction, repair, or improvement of an enclosure or a structure specifically designed, constructed, and used for housing, raising, or feeding animals or for housing equipment necessary for one of these commercial activities.

c. Commercially manufactured equipment, and parts and accessories for the equipment, used in a facility that is exempt from tax under this subdivision or in an enclosure or a structure whose building materials are exempt from tax under this subdivision.

(4d) Any of the following tobacco items:

a. The lease or rental of tobacco sheets used in handling tobacco in the warehouse and transporting tobacco to and from the warehouse.

b. A metal flue sold for use in curing tobacco, whether the flue is attached to a handfired furnace or used in connection with a mechanical burner.

c. A bulk tobacco barn or rack, parts and accessories attached to the tobacco barn or rack, and any similar apparatus, part, or accessory used to cure or dry tobacco or another crop.

(4e) A grain, feed, or soybean storage facility, and parts and accessories attached to the facility.

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(5a) Mill ~~machinery and~~ machinery, mill machinery parts and ~~accessories~~ accessories, and manufacturing fuel that are subject to tax under Article 5F of this Chapter.

(5b) Sales to a telephone company regularly engaged in providing telephone service to subscribers on a commercial basis of central office equipment, switchboard equipment, private branch exchange equipment, and parts and accessories for the equipment.

(5c) Sales of towers, broadcasting equipment, or parts and accessories for the equipment to a radio or television company regulated by the Federal Communications Commission or to a cable service provider.

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(10) Sales of the following to commercial laundries or to pressing and dry cleaning ~~establishments of articles~~establishments:

a. Articles or materials used for the identification of garments being laundered or dry cleaned, wrapping paper, bags, hangers, starch, soaps, detergents, cleaning fluids and other compounds or chemicals applied directly to the garments in the direct performance of the laundering or the pressing and cleaning service.

b. Laundry and dry-cleaning machinery, parts and accessories attached to the machinery, and lubricants applied to the machinery.

c. Fuel, other than electricity, used in the direct performance of the laundering or the pressing and cleaning service.

(10a) Sales of the following to a major recycling ~~facility of (i) lubricants~~facility:

a. Lubricants and other additives for motor vehicles or machinery and equipment used at the ~~facility and (ii) materials,~~facility.

b. Materials, supplies, parts, and accessories, other than machinery and equipment, that are not capitalized by the taxpayer and are used or consumed in the manufacturing and material handling processes at the facility.

~~(10b)~~ c. ~~Sales to a major recycling facility of electricity~~Electricity used at the facility.

d. Equipment that is subject to tax under Article 5F of this Chapter.

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~~(18)~~ Funeral expenses, including coffins and caskets, not to exceed one thousand five hundred dollars ($1,500). All other funeral expenses, including gross receipts for services rendered, shall be taxable at the general rate of tax set in G.S. 105-164.4. However, "services rendered" shall not include those services which have been taxed pursuant to G.S. 105-164.4(4), or to those services performed by any beautician, cosmetologist, hairdresser or barber employed by or at the specific direction of the family or personal representative of a deceased; and "funeral expenses" and "services rendered" shall not include death certificates procured by or at the specific direction of the family or personal representative of a deceased. Where coffins, caskets or vaults are purchased direct and a separate charge is paid for services, the provisions of this subdivision shall apply to the total for both.

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(45) Sales of the following items to an interstate passenger air carrier ~~or an interstate air courier~~ for use at its ~~hub: aircraft lubricants, aircraft repair parts, and aircraft accessories.~~hub:

a. Aircraft lubricants, aircraft repair parts, and aircraft accessories.

b. Aircraft simulators for flight crew training.

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(45b) Sales of the following items to an interstate air courier for use at its hub:

a. Aircraft lubricants, aircraft repair parts, and aircraft accessories.

b. Materials handling equipment, racking systems, and related parts and accessories for the storage or handling and movement of tangible personal property at an airport or in a warehouse or distribution facility.

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(54) Tangible personal property sold to a seller of a service agreement subject to tax under G.S. 105-164.4(a)(9) and attached or applied to the item agreed to be serviced as part of its maintenance or repair."

SECTION 10.10. G.S. 105-164.13B(a) reads as rewritten:

"(a) State Exemption. - Food is exempt from the taxes imposed by this Article unless the food is included in one of the subdivisions in this subsection. The following food items are subject to tax:

~~(1)~~ ~~Alcoholic beverages, as defined in G.S. 105-113.68.~~

(2) Dietary supplements.

(3) Food sold through a vending machine.

(4) Prepared food.

(5) Soft drinks.

(6) Repealed.

(7) Candy."

SECTION 10.11. G.S. 105-164.13C(a) reads as rewritten:

"(a) The taxes imposed by this Article do not apply to the following items of tangible personal property if sold between 12:01A.M. on the first Friday of August and 11:59 P.M. the following Sunday:

(1) Clothing with a sales price of one hundred dollars ($100.00) or less per item.

(2) School supplies with a sales price of one hundred dollars ($100.00) or less per item.

(3) Computers with a sales price of three thousand five hundred dollars ($3,500) or less per item.

(3a) Computer supplies with a sales price of two hundred fifty dollars ($250.00) or less per item.

(4) Sport or recreational equipment with a sales price of fifty dollars ($50.00) or less per item."

SECTION 10.12. G.S. 105-164.14(a) reads as rewritten:

"(a) Interstate Carriers. - An interstate carrier is allowed a refund, in accordance with this section, of part of the sales and use taxes paid by it on the purchase in this State of railway cars and locomotives, and fuel, lubricants, repair parts, and accessories ~~purchased in this State~~ for a motor vehicle, railroad car, locomotive, or airplane the carrier operates. An 'interstate carrier' is a person who is engaged in transporting persons or property in interstate commerce for compensation. The Secretary shall prescribe the periods of time, whether monthly, quarterly, semiannually, or otherwise, with respect to which refunds may be claimed, and shall prescribe the time within which, following these periods, an application for refund may be made.

An applicant for refund shall furnish the following information and any proof of the information required by the Secretary:

(1) A list identifying the railway cars, locomotives, fuel, lubricants, repair parts, and accessories purchased by the applicant inside or outside this State during the refund period.

(2) The purchase price of the items listed in subdivision (1) of this subsection.

(3) The sales and use taxes paid in this State on the listed items.

(4) The number of miles the applicant's motor vehicles, railroad cars, locomotives, and airplanes were operated both inside and outside this State during the refund period.

(5) Any other information required by the Secretary.

For each applicant, the Secretary shall compute the amount to be refunded as follows. First, the Secretary shall determine the ratio of the number of miles the applicant operated its motor vehicles, railroad cars, locomotives, and airplanes in this State during the refund period to the number of miles it operated them both inside and outside this State during the refund period. Second, the Secretary shall determine the applicant's proportional liability for the refund period by multiplying this mileage ratio by the purchase price of the items identified in subdivision (1) of this subsection and then multiplying the resulting product by the tax rate that would have applied to the items if they had all been purchased in this State. Third, the Secretary shall refund to each applicant the excess of the amount of sales and use taxes the applicant paid in this State during the refund period on these items over the applicant's proportional liability for the refund period."

SECTION 10.13. Part 4 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

"§ 105-164.15A. Effective date of rate changes for services.

The effective date of a rate change for a service taxable under this Article is administered as follows:

(1) For a rate increase, the new rate applies to the first billing period that starts on or after the effective date.

(2) For a rate decrease, the new rate applies to bills rendered on or after the effective date."

SECTION 10.14. Part 4 of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

"§ 105-164.21B. Credit for local cable television franchise taxes.

A cable service provider is allowed a credit against the tax imposed by G.S. 105-164.4(a)(6) for the amount of local franchise tax payable under G.S. 153A-154 and G.S. 160A-214 on its gross receipts for that service. To comply with G.S. 105-164.4(a)(6) and apply the credit allowed under this section, a cable service provider may collect tax from its subscribers at the rate set in G.S. 105-164.4(a)(6) less the rate of the local franchise tax payable on its gross receipts for that service."

SECTION 10.15. G.S. 105-164.28 reads as rewritten:

"§ 105-164.28. Certificate of resale.

(a) Seller's Responsibility. - A seller who accepts a certificate of resale from a purchaser of tangible personal property has the burden of proving that the sale was not a retail sale unless all of the following conditions are met:

(1) For a sale made in person, the certificate is signed by the ~~purchaser,~~ purchaser and states the purchaser's name, address, ~~and~~ registration number, and ~~describes the type of tangible personal property generally sold by the purchaser in the regular course of business.~~type of business.

(2) For a sale made in person, the ~~purchaser is engaged in the business of selling~~ tangible personal property ~~of the type sold.~~sold is the type of property typically sold by the type of business stated on the certificate.

(3) For a sale made over the Internet or by other remote means, ~~the sales tax registration number given by the purchaser matches the number on the Department's registry.~~the seller obtains the purchaser's name, address, registration number, and type of business and maintains this information in a retrievable format in its records.

(b) ~~Liabilities.~~ Purchaser's Liability. - A purchaser who does not resell property purchased under a certificate of resale is liable for any tax subsequently determined to be due on the sale. A seller of property sold under a certificate of resale is jointly liable with the purchaser of the property for any tax subsequently determined to be due on the sale only if the Secretary proves that the sale was a retail sale."

SECTION 10.16. G.S. 105-164.42B(1) reads as rewritten:

"§ 105-164.42B. Definitions.

The following definitions apply in this Part:

(1) Agreement. - ~~The~~ Streamlined ~~Sales and Use Tax Agreement.~~Agreement, as defined in G.S. 105-164.3.

…."

SECTION 10.17. Part 7A of Article 5 of Chapter 105 of the General Statutes is amended by adding a new section to read:

"§ 105-164.42K. Registration and effect of registration.

Registration under the Agreement satisfies the registration requirements under this Article. A seller who registers under the Agreement within 12 months after the State becomes a member of the Agreement and who meets the following conditions is not subject to assessment for sales tax for any period before the effective date of the seller's registration:

(1) The seller was not registered with the State during the 12-month period before the effective date of this State's participation in the Agreement.

(2) When the seller registered, the seller had not received a letter from the Department notifying the seller of an audit.

(3) The seller continues to be registered under the Agreement and to remit tax to the State for at least 36 months."

SECTION 10.18. G.S. 105-164.43 reads as rewritten:

"§ 105-164.43. Secretary to make regulations.

Subject to the provisions of G.S. 105-262 the Secretary shall from time to time promulgate such rules and regulations not inconsistent with this Article for making returns and for the ascertainment, assessment, and collection of the tax imposed hereunder as he may deem necessary to enforce its provisions, and upon request shall furnish any taxpayer with a copy of such rules and regulations. All provisions with respect to reviews and appeals from the Secretary's decisions as provided by G.S. 105-241.2, 105-241.3 and 105-241.4 shall be applicable to this section.

Subject to the provisions of Article 7A of this Chapter, the Secretary may develop databases that provide information as to the boundaries of taxing jurisdictions and the tax rates applicable to those taxing jurisdictions. A seller that relies on the information provided in these databases is not liable for underpayments of tax attributable to erroneous information provided by the Secretary in those databases."

SECTION 10.19. G.S. 105-164.44F(a) reads as rewritten:

"(a) Amount. - The Secretary must distribute to the cities part of the taxes imposed by G.S. 105-164.4(a) (4c) on telecommunications service. The Secretary must make the distribution within 75 days after the end of each calendar quarter. The amount the Secretary must distribute is eighteen and ~~twenty-six hundredths percent (18.26%)~~three one-hundredths percent (18.03%) of the net proceeds of the taxes collected during the quarter, minus two million six hundred twenty thousand nine hundred forty-eight dollars ($2,620,948). This deduction is one-fourth of the annual amount by which the distribution to cities of the gross receipts franchise tax on telephone companies, imposed by former G.S. 105-120, was required to be reduced beginning in fiscal year 1995-96 as a result of the 'freeze deduction.' The Secretary must distribute the specified percentage of the proceeds, less the 'freeze deduction' among the cities in accordance with this section."

SECTION 10.20. The title of Article 5F of Chapter 105 of the General Statutes reads as rewritten:

"Article 5F.

Mill ~~Machinery.~~Machinery, Manufacturing Fuel, and Recycling Equipment."

SECTION 10.21. Article 5F of Chapter 105 of the General Statutes is amended by adding new sections to read:

"§ 105-187.51A. Tax imposed on manufacturing fuel.

A privilege tax is imposed on a manufacturing industry or plant that purchases fuel to operate the industry or plant. The tax is one percent (1%) of the sales price of the fuel. The tax does not apply to electricity or piped natural gas.

"§ 105-187.51B. Tax imposed on recycling equipment.

(a) Tax. - A privilege tax is imposed on a major recycling facility that purchases any of the following tangible personal property for use in connection with the facility:

(1) Cranes, structural steel crane support systems, and foundations related to the cranes and support systems.

(2) Port and dock facilities.

(3) Rail equipment.

(4) Material handling equipment.

(b) Rate. - The tax is one percent (1%) of the sales price of the tangible personal property. The maximum tax is eighty dollars ($80.00) per article."

SECTION 10.22. G.S. 105-187.52 reads as rewritten:

"§ 105-187.52. Administration.

The privilege ~~tax this Article imposes on a person listed in G.S 105-187.51 is an additional~~taxes imposed by this Article are in addition to the State use tax. Except as otherwise provided in this Article, the collection and administration of ~~this tax~~these taxes is the same as the State use tax imposed by Article 5 of this Chapter."

SECTION 10.23. G.S. 105-467(a) is amended by adding a new subdivision to read:

"(a) Sales Tax. - The sales tax that may be imposed under this Article is limited to a tax at the rate of one percent (1%) of the transactions listed in this subsection. The sales tax authorized by this Article does not apply to sales that are taxable by the State under G.S. 105-164.4 but are not specifically included in this subsection.

…

(7) The sales price of a service agreement or contract subject to the general rate of tax under G.S. 105-164.4(a)(9)."

SECTION 10.24. Section 18 of S.L. 2000-120, as amended by Section 44.1 of S.L. 2003-284, reads as rewritten:

"Section 18. Section 7 of this act becomes effective January 1, 2001. Sections 10 and 11 of this act become effective for taxable years beginning on or after January 1, ~~2005.~~ 2010. The remainder of this act is effective when it becomes law."

SECTION 10.25. G.S. 105-151.21(b) reads as rewritten:

"(b) Definitions. - The following definitions apply in this section:

(1) Farm machinery. - Machinery ~~subject to~~ exempt from State sales tax ~~at the rate of one percent (1%)~~ under G.S. ~~105-164.4A.~~105-164.13(4e).

(2) Property taxes. - The principal amount of taxes levied and assessed by a taxing unit under Subchapter II of this Chapter. The term does not include costs, penalties, interest, or other charges that may be added to the principal amount.

(3) Taxing unit. - Defined in G.S. 105-273."

SECTION 10.26. Subdivision (b)(5) of Section 5 of Part IV of Chapter 908 of the 1983 Session Laws, as amended by Chapter 821 of the 1989 Session Laws and S.L. 2001-347, reads as rewritten:

"(b) Definitions. The definitions in G.S. 105-164.3 apply to this Part insofar as they are not inconsistent with the provisions of this Part. In addition, the following definitions apply in this Part:

…

(5) Prepared Food and Beverages. - The term ~~has the same meaning as the term "prepared food" in G.S. 105-164.3.~~includes the following:

a. Prepared food, as defined in G.S. 105-164.3.

b. An alcoholic beverage, as defined in G.S. 18B-101, that meets at least one of the conditions of prepared food under G.S. 105-164.3."

SECTION 10.27. Subdivision (a)(2) of Section 2 of Chapter 413 of the 1993 Session Laws, as amended by S.L. 2001-347, reads as rewritten:

"Sec. 2. Definitions; Sales and Use Tax Statutes. - (a) The definitions in G.S. 105-164.3 apply to this act to the extent they are not inconsistent with the provisions of this act. In addition, the following definitions apply in this act:

…

(2) Prepared food and beverages. - The term ~~has the same meaning as the term "prepared food" in G.S. 105-164.3.~~includes the following:

a. Prepared food, as defined in G.S. 105-164.3.

b. An alcoholic beverage, as defined in G.S. 18B-101, that meets at least one of the conditions of prepared food under G.S. 105-164.3."

SECTION 10.28. Section 2 of Chapter 449 of the 1985 Session Laws, as amended by Chapter 826 of the 1985 Session Laws, Chapter 177 of the 1991 Session Laws, and S.L. 2001-347, reads as rewritten:

"Sec. 2. Definitions. The definitions in G.S. 105-164.3 apply in this act. In addition, the following definitions apply in this act.

(1) Net proceeds. - Gross proceeds less the cost to the county of administering and collecting the tax.

(2) Prepared food and beverages. - The term ~~has the same meaning as the term "prepared food" in G.S. 105-164.3.~~includes the following:

a. Prepared food, as defined in G.S. 105-164.3.

b. An alcoholic beverage, as defined in G.S. 18B-101, that meets at least one of the conditions of prepared food under G.S. 105-164.3."

SECTION 10.29. Subsection (b) of Section 1 of Chapter 449 of the 1993 Session Laws, as amended by S.L. 2001-347, reads as rewritten:

"(b) Definitions; Sales and Use Tax Statutes. - The definitions in G.S. 105-164.3 apply to this section to the extent they are not inconsistent with the provisions of this section. The provisions of Article 5 and Article 9 of Chapter 105 of the General Statutes apply to this section to the extent they are not inconsistent with the provisions of this section.~~In addition,~~ For the purposes of this section, the term 'prepared food and beverages' ~~has the same meaning as the term "prepared food" in G.S. 105-164.3.~~ includes the following:

(1) Prepared food, as defined in G.S. 105-164.3.

(2) An alcoholic beverage, as defined in G.S. 18B-101, that meets at least one of the conditions of prepared food under G.S. 105-164.3.

~~The provisions of Article 5 and Article 9 of Chapter 105 of the General Statutes apply to this section to the extent they are not inconsistent with the provisions of this section.~~"

SECTION 10.30. Subdivision (3) of Section 2 of Chapter 594 of the 1991 Session Laws, as amended by S.L. 2001-347, reads as rewritten:

"Sec. 2. Definitions. The definitions in G.S. 105-164.3 apply to this act to the extent they are not inconsistent with the provisions of this act. The following definitions also apply in this act:

…

(3) Prepared food and beverage. - The term ~~has the same meaning as the term "prepared food" in G.S. 105-164.3.~~includes the following:

a. Prepared food, as defined in G.S. 105-164.3.

b. An alcoholic beverage, as defined in G.S. 18B-101, that meets at least one of the conditions of prepared food under G.S. 105-164.3."

SECTION 10.31. Section 3.1 of S.L. 2001-347, as amended by Section 13 of S.L. 2003-416, reads as rewritten:

"SECTION 3.1. Part 1 of this act is effective when it becomes law and expires January 1, 2006, unless one of the following occurs: (i) 15 states have adopted the Streamlined Sales and Use Tax Agreement, or (ii) states representing a combined resident population equal to at least ten percent (10%) of the national resident population, as determined by the 2000 federal decennial census, have adopted the Agreement.law."

SECTION 10.32. Notwithstanding G.S. 105-164.44F, as amended by Section 10.19 of this Part, the amount the Secretary must distribute to the cities is eighteen and twenty-six hundredths percent (18.26%) of the net proceeds of the sales tax imposed on telecommunications service under G.S. 105-164.4(a)(4c) collected for the months of July 2005 and August 2005 and eighteen and three one-hundredths percent (18.03%) of the net proceeds of the tax collected for the month of September 2005.

SECTION 10.33. Sections 10.1, 10.2, 10.24, 10.32, and 10.33 of this Part are effective when they become law. The changes made by Section 10.3 of this Part to G.S. 105-164.3(4d) and (37b), the changes made by Section 10.4 of this Part to G.S. 105-164.4(1c), (1d), and (1e), all of the changes made by Section 10.9 of this Part except the addition of subdivision (54), and Sections 10.5, 10.11, 10.17, 10.18, 10.20, 10.21, and 10.22 become effective January 1, 2006. Section 10.25 is effective for taxable years beginning on or after January 1, 2006. The remainder of this Part becomes effective September 1, 2005, Section 10.19 of this Part applies to distributions to cities of the net proceeds of the sales tax imposed on telecommunications service under G.S. 105-164.4(a)(4c) collected for calendar quarters that begin on or after October 1, 2005.

part XI. EFFECTIVE DATE

SECTION 11. Parts I through VI of this act become effective June 30, 2005, and expire 30 days after they become law. Except as otherwise provided, the remainder of this act is effective when it becomes law.