The North Carolina General Assembly convened on April 28, 2020, and a number of bills immediately were introduced to address various aspects of the coronavirus (COVID-19) crisis. Several of these bills included important tax-related provisions. This Alert summarizes the tax provisions in the legislation introduced to date. Please note that none of these provisions have yet been passed by either chamber. 

Senate Bill 704 and House Bill 1039  

The most important tax provisions were included in Senate Bill 704, the COVID-19 Recovery Act, and its House companion bill, H1039, the COVID-19 Response Act – Economic Support. 

Interest Waiver 

As expected, both bills would provide interest relief for taxpayers affected by COVID-19. 

As background, the Department of Revenue (DOR) previously exercised its authority under section 105-263(b) of the General Statutes to extend the 2020 due date for filing income and franchise tax returns. Returns originally due April 15, 2020 were extended until July 15, 2020. This extension applied to returns due from individuals, corporations, partnerships, trusts and estates.[1] The DOR also previously exercised its authority under section 105-237 to waive failure to pay penalties for income and franchise taxpayers as long as they paid taxes otherwise due on April 15, 2020 by July 15, 2020.[2] 

However, the DOR explained in the penalty waiver Notice that it lacked statutory authority to waive interest. As a result, even though income and franchise taxpayers were granted extensions until July 15, 2020 to file returns and pay taxes, they would still be required to pay interest on the amounts deferred from the original due date of their returns until the date of payment. 

On March 31, 2020, the Department expanded its filing and penalty relief to cover sales taxes, withholding taxes and various excise taxes. Under the expanded relief, returns and taxes due during the period from March 15, 2020 through July 15, 2020, would be considered timely filed and paid if the required action was taken by July 15, 2020.[3] 

Both the House and Senate COVID-19 response bills would direct the DOR to waive the accrual of interest on any income or franchise tax return for the period from April 15, 2020 through July 15, 2020. This relief would apply to returns filed by individuals, corporations, partnerships, estates and trusts.[4] The interest relief would also cover first and second quarter estimated tax payments[5] and would appear also to require the waiver of interest that would otherwise accrue during this period regardless of whether the return in question was originally due on April 15, 2020 and regardless of whether the return is filed by July 15, 2020. 

Notably, the bill would not waive the accrual of interest on other taxes, such as sales taxes, for which the DOR provided penalty relief in its March 31, 2020 Notice. 

Extended Deadline for 2016 Refund Claims 

The House and Senate bills would also extend the dates for filing certain refund claims. Any claim for a refund of income or franchise taxes, which, under the statute of limitations, would otherwise be due between April 15, 2020 and July 15, 2020, would be considered timely if filed by July 15, 2020.[6] Refund claims are generally required to be filed within three years from the date the return was due. Thus, taxpayers wishing to claim a refund of 2016 taxes reported on returns filed on April 15, 2017, and which would otherwise have been due April 15, 2020, would have until July 15, 2020 to file the claim. 

Extended Deadlines for Tax Appeals 

The bills would also extend the deadlines for taking certain actions in connection with tax appeal proceedings. The actions covered are: (i) Requests for DOR review of proposed assessments, (ii) contested case petitions before the Office of Administrative Hearings (OAH) challenging a notice of final determination and (iii) requests for judicial review of OAH decisions. Any of these filings otherwise required to be made after April 1, 2020 and before July 15, 2020 would be considered timely if filed by July 15, 2020.[7] These extensions would apply to contests involving any tax subject to the uniform tax appeal procedures and not just to income and franchise taxes. 

SUTA Contribution Credit 

The House and Senate bills would also make changes to the state’s unemployed insurance program and the State Unemployment Tax Act (“SUTA”) that provides funding for the program. While most of these changes are beyond the scope of this Alert,[8] they include a SUTA tax credit for employers equal to the amount of the unemployment insurance contributions payable on the SUTA report due on April 30, 2020. If the employer has already remitted the contributions shown on the report, the credit would be applied against the contribution due with the report due on July 31, 2020, and any excess credit would be refunded to the employer.[9] 

Priority of SUTA Contribution Liens 

Under existing law, the Division of Employment Security may seek collection of a delinquent SUTA contribution payment by placing a lien on the delinquent employer’s property. 

The priority of liens, including tax liens, generally is determined by when they were recorded. A special rule, however, provides that property tax liens on real property take priority over previously recorded liens except for previously recorded liens for state taxes.[10] The bills would clarify that SUTA contributions are state taxes, so that property tax liens on real property would not take priority over previously filed liens for delinquent SUTA contributions.[11] 

Motor Vehicle Tax Extension 

The Senate bill would require the Division of Motor Vehicles to extend the validity of vehicle registrations and certain other credentials that would otherwise expire between March 1, 2020 and August 1, 2020 for six months. The bill would also extend the due date for the payment of any motor vehicle tax that is tied to registration expiration so as to correspond with the extended expiration date.[12] While no corresponding provision is included in H1039, a corresponding provision is included in H1043.[13] 

House Bill 1045 

Finally, H1045, entitled Emergency Assistance for Commercial Fishermen, would provide funding to the Department of Environmental Quality’s Division of Marine Fisheries to make grants of up to $2,500 to commercial fishermen. The bill would also provide that the amount of any such grant would be deducted from federal adjusted gross income in computing North Carolina taxable income.[14] 

Conclusion

Smith Anderson will update this Alert as tax-related legislation moves through the General Assembly.

[1] See Important Notice: Department of Revenue Extends the Time to File Income and Franchise Tax Returns to July 15, 2020 (March 23, 2020).

[2] See Important Notice: Department of Revenue Provides Special Penalty Relief (March 19, 2020).

[3] See Important Notice: Department of Revenue Expands Penalty Relief for Taxpayers Affected by Coronavirus Disease 2019 (COVID-19) (March 31, 2020).

[4] S704, §6.17.(a); H1039, §1.1.(a).

[5] See C. Avrette, Summary of House Bill 1039 (April 28, 2020).

[6] S704, §6.17.(b); H1039, §1.2.(a).

[7] S704, §6.17.(c); H1039, §1.2.(b).

[8] These changes include provisions to ensure the program is administered flexibly, as encouraged by Congress under the Families First Coronavirus Response Act, and changes recommended by the Joint Legislative Oversight Committee on Unemployment Insurance.

[9] S704, §6.18.(a); H1039, §2.1.(a).

[10] See N.C. Gen. Stat. §105-356(a).

[11] S704, §6.20.(b); H1039, §2.2.(c).

[12] S704, §6.2.(d).

[13] H1043, §5.(d).

[14] H1045, §4.