North Carolina Sourcing Proposal Unworkable, Groups Say

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By Andrew M. Ballard

Proposed rules to implement and administer market-based sourcing rules in North Carolina need to be revised, several groups said in comments provided to the state Department of Revenue.

According to the Washington, D.C.-based National Taxpayers Union, the proposal is a step backward for North Carolina, particularly with respect to the state’s corporate income tax. The conservative-leaning group said it was particularly concerned about the proposed shift in the rules to an “audience-based” corporate tax apportionment system.

“NCDOR’s proposed audience-based apportionment of corporate income taxes to content providers is outdated and unworkable,” the National Taxpayers Union said in a letter. The proposed approach is “archaic,” because it doesn’t take into account the advances in technology and methods now used to deliver content to consumers, the group said.

“If implemented, North Carolina would join only Massachusetts to embrace this antiquated method in recent years,” the organization said.

Delivery Methods

Under a law enacted in July, North Carolina will shift to a method of income reporting in which multistate corporations apportion income for tax purposes based on the markets where services are sold. The proposed sourcing rules, which many states have adopted in recent years, were released in October. Comments were due Jan. 3.

The proposed rules address different sales and delivery methods, including electronic transmission, professional services, related-entity transactions and sales, licensing and leasing of intangible property. Special rules covering software transactions, sales or licenses of digital goods and services and telecommunication companies also were included.

Broadcaster, Banking Concerns

In comments also released Jan. 3 by the DOR, the Washington, D.C.-based Motion Picture Association of America also expressed concern with the proposed rules as they applied to broadcasters.

According to the MPAA, the “viewing audience” approach in the rules as proposed “would make North Carolina an outlier among the states.” The industry group said in a Dec. 8 letter that streaming and mobile viewing makes ultimate viewing locations indeterminable, and it provided amendments to the rules for the DOR to consider.

The North Carolina Bankers Association also offered a proposed amendment in its comments to alter the definition of professional services in the rules to exclude those provided by banks, as state law provides specific market-based sourcing rules for banks.

AT&T also commented that any apportionment method used to attribute receipts for the communication industry should also consider the investment used to provide service.

A spokesman for the NCDOR didn’t immediately address whether the rules would be changed based on the feedback. Before a final version can take effect, the Legislature must approve the rules.

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C., at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

The National Taxpayers Union's comments are at

The Motion Picture Association's comments are at

The N.C. Bankers Association's comments are at

AT&T's comments are at

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