Over the last several years, North Carolina has been incrementally revising its tax structure. On September 18, 2015, Governor Pat McCrory signed House Bill 97 (H.B. 97), which contained several additional changes to North Carolina tax law. Two noteworthy provisions relate to the apportionment formula, and they include:
- The phase in of single sales factor apportionment. The phase in occurs over three years beginning in 2016, replacing the existing double-weighted sales factor apportionment for both income and franchise tax.
- Requirement to file an informational report, showing the company’s 2014 sales factor as if it were computed using market based sourcing rules. This requirement only affects corporate multistate taxpayers with apportionable income greater than $10 million, and North Carolina apportionment percentage less than 100%.
The Corporation must include, with its 2015 filing, Form CD-400 MS, Market-Based Sourcing Information Report. The 2014 sales factor is required to be computed based on the market-based provisions outlined in H.B. 97. A potential non-filing penalty of $5,000 may be assessed for failure to file the informational report. The collected information will assist North Carolina is deciding whether to transition from cost-of–performance sourcing to market based sourcing.
More information can be found on the North Carolina Department of Revenue website.