GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

S	1 

SENATE BILL 34*

Short Title:  Adjust City Receipts Tax Share.	(Public)

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Sponsors: Senators Cochrane, Cooper, Kerr, Shaw of Cumberland, and Soles.

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Referred to:  Finance.

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February 3, 1997

A BILL TO BE ENTITLED
AN ACT TO ADJUST THE SHARE THE CITIES RECEIVE FROM THE STATE GROSS RECEIPTS TAX TO MAKE THE DISTRIBUTION MORE EQUITABLE.
The General Assembly of North Carolina enacts:
Section 1.  Article 3 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-116.1.  Distribution of gross receipts taxes to cities.
(a)	Distribution. – The Secretary shall distribute to the cities part of the taxes collected under this Article on electric power companies, natural gas companies, and telephone companies.  Each city's share for a calendar quarter is the percentage distribution amount for that city minus one-fourth of the hold-back amount for that city.  The Secretary shall make the distribution within 75 days after the end of each calendar quarter.
(b)	Percentage Amount. –  The percentage distribution amount for a city is three and nine hundredths percent (3.09%) of the gross receipts derived during the preceding quarter by an electric power company, a natural gas company, or a telephone company from sales within the city that are taxable under G.S. 105-116 or G.S. 105-120.
(c)	Hold-back Amount. – The hold-back amount reflects the amount of growth in the gross receipts taxes that occurred during the 1991-92 through 1994-95 fiscal years, the 'freeze' years.  The total amount distributed to cities during that period was fixed at the total amount that would have been distributed during the 1990-91 fiscal year if the Governor had not reduced the distribution for that year as part of the effort to balance the State budget.  During the freeze years, cities received a part of the fixed amount based on taxable sales within the cities.  For the 1995-96 fiscal year and subsequent years, the limit on the amount distributed was removed and the distribution reverted to its prior percentage basis with the added requirement of deducting the growth that occurred in the freeze years.
The hold-back amount for a city is determined by comparing the amount each city received from gross receipts taxes in the 1995-96 fiscal year and in the 1990-91 fiscal year and then adjusting that amount, if required, in accordance with this subsection.  If, in the 1995-96 fiscal year, a city received at least ninety-five percent (95%) of the amount it received in the 1990-91 fiscal year, the hold-back amount for that city is the amount by which the city's 1995-96 percentage distribution amount was reduced.  If, in the 1995-96 fiscal year, a city received less than ninety-five percent (95%) of the amount it received in the 1990-91 fiscal year, the hold-back amount for that city is the amount determined by the following calculation:
(1)	Increase the city's 1990-91 distribution by adding the amount by which the city's 1995-96 percentage distribution amount was reduced.
(2)	Compare the increased 1990-91 amount with the city's 1995-96 distribution.
(3)	If the increased 1990-91 distribution is less than or equal to the city's 1995-96 distribution, the hold-back amount for the city is the amount by which the city's 1995-96 distribution amount was reduced.
(4)	If the increased 1990-91 distribution is more than the city's 1995-96 distribution, the hold-back amount for the city is the difference between the increased 1990-91 distribution and the 1995-96 distribution."
Section 2.  G.S. 105-116 reads as rewritten:
"§ 105-116.  Franchise or privilege tax on electric power, natural gas, water, and sewerage companies.
(a)	Tax. – An annual franchise or privilege tax is imposed on a person, firm, or corporation, other than a municipal corporation, that is:
(1)	An electric power company engaged in the business of furnishing electricity, electric lights, current, or power.
(2)	A natural gas company engaged in the business of furnishing piped natural gas.
(3)	A water company engaged in owning or operating a water system subject to regulation by the North Carolina Utilities Commission.
(4)	A public sewerage company engaged in owning or operating a public sewerage system.
The tax on an electric power company is three and twenty-two hundredths percent (3.22%) of the company's taxable gross receipts from the business of furnishing electricity, electric lights, current, or power. The tax on a natural gas company is three and twenty-two hundredths percent (3.22%) of the company's taxable gross receipts from the business of furnishing piped natural gas. The tax on a water company is four percent (4%) of the company's taxable gross receipts from owning or operating a water system subject to regulation by the North Carolina Utilities Commission. The tax on a public sewerage company is six percent (6%) of the company's taxable gross receipts from owning or operating a public sewerage company. A company's taxable gross receipts are its gross receipts from business inside the State less the amount of gross receipts from sales reported under subdivision (b)(2). A company that engages in more than one business taxed under this section shall pay tax on each business. A company is allowed a credit against the tax imposed by this section for the company's investments in certain entities in accordance with Division V of Article 4 of this Chapter.
(b)	Report and Payment. – The tax imposed by this section is payable monthly or quarterly as specified in this subsection. A report is due quarterly. An electric power company or a natural gas company shall pay tax monthly. A monthly tax payment is due by the last day of the month that follows the month in which the tax accrues, except the payment for tax that accrues in May. The payment for tax that accrues in May is due by June 25. An electric power company or a natural gas company is not subject to interest on or penalties for an underpayment of a monthly amount due if the company timely pays at least ninety-five percent (95%) of the amount due and includes the underpayment with the next report the company files. A water company or a public sewerage company shall pay tax quarterly when filing a report.
A quarterly report covers a calendar quarter and is due by the last day of the month that follows the quarter covered by the report. A company shall submit a report on a form provided by the Secretary. The report shall include the company's gross receipts from all property it owned or operated during the reporting period in connection with its business taxed under this section and shall contain the following information:
(1)	The company's gross receipts for the reporting period from business inside and outside this State, stated separately.
(2)	The company's gross receipts from commodities or services described in subsection (a) that are sold to a vendee subject to the tax levied by this section or to a joint agency established under G.S. Chapter 159B or a city having an ownership share in a project established under that Chapter.
(3)	The amount of and price paid by the company for commodities or services described in subsection (a) that are purchased from others engaged in business in this State and the name of each vendor.
(4)	For an electric power company or a natural gas company, the company's gross receipts from the sale within each city of the commodities and services described in subsection (a).
A company shall report its gross receipts on an accrual basis.  If a company's report does not state the company's taxable gross receipts derived within a city, the Secretary must determine a practical method of allocating part of the company's taxable gross receipts to the city.
(c)	Gas Special Charges. – Gross receipts of a natural gas company do not include the following:
(1)	Special charges collected within this State by the company pursuant to drilling and exploration surcharges approved by the North Carolina Utilities Commission, if the surcharges are segregated from the other receipts of the company and are devoted to drilling, exploration, and other means to acquire additional supplies of natural gas for the account of natural gas customers in North Carolina and the beneficial interest in the surcharge collections is preserved for the natural gas customers paying the surcharges under rules established by the Commission.
(2)	Natural gas expansion surcharges imposed under G.S. 62-158.
(d)	Distribution. – " 
" Part of the taxes imposed by this section on electric power companies and natural gas companies is distributed to cities under G.S. 105-116.1.
(e)	Local Tax. – So long as there is a distribution to cities from the tax imposed by this section, no city shall impose or collect any greater franchise, privilege or license taxes, in the aggregate, on the businesses taxed under this section, than was imposed and collected on or before January 1, 1947.  If any municipality shall have collected any privilege, license or franchise tax between January 1, 1947, and April 1, 1949, in excess of the tax collected by it prior to January 1, 1947, then upon distribution of the taxes imposed by this section to municipalities, the amount distributable to any municipality  shall be credited with such excess payment."
Section 3.  G.S. 105-120 reads as rewritten:
"§ 105-120.  Franchise or privilege tax on telephone companies.
(a)	Tax. – An annual franchise or privilege tax is imposed on a person, firm, or corporation, that owns or operates a business entity for the provision of local telecommunications service.  The tax is three and twenty-two hundredths percent (3.22%) of the company's taxable gross receipts.  A company's taxable gross receipts are its receipts from providing local telecommunications service, including receipts from rentals and other similar charges, less its receipts from telecommunications access charges.  A company is allowed a credit against the tax imposed by this section for the company's investments in certain entities in accordance with Division V of Article 4 of this Chapter.
(b)	Report and Payment. – The tax imposed by this section is payable monthly or quarterly as specified in this subsection.  A report is due quarterly.  A company that is liable for an average of less than three thousand dollars ($3,000) a month in tax imposed by this section may, with the approval of the Secretary of Revenue, pay tax quarterly when filing a report.  All other companies shall pay tax monthly.  A monthly tax payment is due by the last day of the month that follows the month in which the tax accrues, except the payment for tax that accrues in May.  The payment for tax that accrues in May is due by June 25.  A company is not subject to interest on or penalties for an underpayment of a monthly amount due if the company timely pays at least ninety-five percent (95%) of the amount due and includes the underpayment with the next report the company files.
A quarterly report covers a calendar quarter and is due by the last day of the month that follows the quarter covered by the report.  A company shall submit a report on a form provided by the Secretary.  The report shall state the company's gross receipts for the reporting period from providing local telecommunications service and from providing local telecommunications service within each city served.  If a company's report does not state the company's taxable gross receipts derived within a city, the Secretary must determine a practical method of allocating part of the company's taxable gross receipts to the city.  A company shall report its gross receipts on an accrual basis.
(c)	Distribution. – " 
" Part of the tax imposed by this section is distributed to cities under G.S. 105-116.1.
	(d)	No Local Tax. – Counties and cities may not impose a license, franchise, or privilege tax on a company taxed under this section or under G.S. 105-164.4(a)(4c).
(e)	Definitions. – For purposes of this section:
(1)	'Local telecommunications service' means telecommunications service provided wholly within a LATA entitling the user to access to a local telephone exchange for the privilege of telephonic quality communication with substantially all persons in the local telephone exchange.  Provided, however, local telecommunications service does not include intraLATA or interLATA toll telecommunications service, or private telecommunications service.
(2)	'LATA' is a Local Access and Transport Area representing a geographical area comprising one or more telephone exchange areas.
(3)	'InterLATA telecommunications' is telecommunications service provided between two or more LATAs.
(4)	'Toll telecommunications service' means:
a.	A telephonic quality communication for which:
1.	There is a toll charge that varies in amount with the distance and elapsed transmission time of each individual communication; and
2.	The charge is paid within the United States.
b.	A service that entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radiotelephone stations in a specified area that is outside the local telephone exchange.
(5)	'Private telecommunications service' means a service furnished to a subscriber that entitles the subscriber to exclusive or priority use of a communications channel or group of channels.
(6)	'Telecommunications access charges' means charges paid to a provider of local telecommunications service for access to an interconnection with the local telephone exchange."
Section 4.  If the hold-back amount of a city is adjusted under G.S. 105-116.1(c), as enacted by this act, the Secretary must distribute two times the amount of the adjustment to the city by July 15, 1997.  This distribution is made to restore to the affected cities the amount by which their hold-back would have been reduced if the adjustment had been in effect since the 1995-96 fiscal year.  The amount needed to make the distribution required by this section shall be drawn from the amount of gross receipts taxes imposed by G.S. 105-116 and otherwise retained by the State.
Section 5.  This act is effective when it becomes law.