North Carolina General Assembly Begins Tax Response to COVID-19
This Alert was updated on May 4, 2020, after the passage and signing of Senate Bill 704.
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. One of these bills – entitled An Act to Provide Aid to North Carolinians in Response to the Coronavirus Disease 2019 (COVID-19) Crisis (Senate Bill 704), contains important tax provisions that are summarized in this Alert.
Interest Waiver
In March, the Department of Revenue (DOR) 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]
Senate Bill 704 directs 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 specifically applies to first and second quarter estimated tax payments but does not apply to interest on taxes reported on returns that were due before April 15, 2020 or to interest on taxes reported on returns required to be filed on or before July 15, 2020 that are filed after that date.
Notably, the law does 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
Senate Bill 704 also extends 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, are considered timely if filed by July 15, 2020.[5] 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, have until July 15, 2020 to file the claim.
Extended Deadlines for Tax Appeals
Senate Bill 704 also extends the deadlines for taking certain actions in connection with tax appeal proceedings. The actions covered are: (i) Requests for DOR review of proposed assessments or proposed refund denials, (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 on or after April 1, 2020 and before July 15, 2020 are considered timely if filed by July 15, 2020.[6] These extensions 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 new law also makes changes to the state’s unemployment 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,[7] 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 is applied against the contribution due with the report due on July 31, 2020, and any excess credit will be refunded to the employer. An employer must file a return to receive the credit.[8]
Priority of SUTA Contribution Liens
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.[9] Senate Bill 704 clarifies that SUTA contributions are state taxes, so that property tax liens on real property do not take priority over previously filed liens for delinquent SUTA contributions.[10]
Motor Vehicle Tax Extension
The new law requires 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 five months. The bill also extends 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.[11]
Conclusion
If you would like additional information about these bills or have other North Carolina tax questions, please contact a member of Smith Anderson’s tax group. Additionally, please visit and bookmark our firm’s Coronavirus (COVID-19) Business Resource Center, which is continuously updated with useful materials and resources related to COVID-19. This tool has been made available to ensure that our clients and the broader business community stay informed on key issues that may impact their operations and to navigate the related business and legal issues during these challenging times.
[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] S.L. 2020-3, §1.1.(a).
[5] S.L. 2020-3, §1.1.(b).
[6] S.L. 2020-3, §1.1.(c).
[7] 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.
[8] S.L. 2020-3, §1.2.(a).
[9] See N.C. Gen. Stat. §105-356(a).
[10] S.L. 2020-3, §1.4.(b).
[11] S.L. 2020-3, §4.7.(e).
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