North CarolinaSB 5952025-2026 SessionSenateWALLET

AN ACT TO MAKE VARIOUS TECHNICAL, CLARIFYING, AND ADMINISTRATIVE CHANGES TO THE REVENUE LAWS; TO CONFORM TO THE FEDERAL SYSTEM FOR AUDITING PARTNERSHIPS BY IMPOSING TAX AT THE PARTNERSHIP LEVEL FOR FEDERAL CHANGES AND BY AUTHORIZING REFUNDS FOR FEDERAL CHANGES; AND TO PROVIDE TAX PARITY FOR SHORT-TERM CAR RENTALS BY EXPANDING ALTERNATE HIGHWAY USE TAX TO INCLUDE PEER-TO-PEER RENTALS.

Sponsored By: David W. Craven, Jr. (Republican), Tom McInnis (Republican)

Signed by Governor

AIRPORTSALCOHOLIC BEVERAGESAUDITING & AUDITSAVIATIONCOMMERCECOMMERCE DEPT

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Bill Overview

Analyzed Economic Effects

61 provisions identified: 20 benefits, 23 costs, 18 mixed.

Deduction for rent and utility aid

Beginning January 1, 2026, you can deduct rent or utility assistance on your State return if it was included in your federal taxable income. Your State taxable income goes down by that same dollar amount.

40% credit for corporate campus rehab

Beginning January 1, 2026, you can claim a State tax credit equal to 40% of qualified rehabilitation costs for an eligible corporate campus. You must spend at least $10,000,000 and also qualify for the federal section 47 credit. Provide federal eligibility and cost certifications. You may claim the credit in phases if placed in service over multiple years. Properties must meet strict historic, size, vacancy, and preservation standards.

NC add‑back for federal R&D write‑offs

If you deduct domestic research and experimental costs under IRC §174A(a), you must add back 80% of that amount to your NC income. You may then deduct 25% of that add‑back in each of the next four years. These rules apply to certain years starting in 2022 if you elect, and to years starting in 2025 if you do not. Asset basis does not change.

Fuel suppliers face new rules and bond

Fuel market rules expand who counts as a supplier to include owners of tax‑paid fuel entering the terminal system at non‑approved terminals. New applicants in listed classes must post a $2,000,000 bond or irrevocable letter of credit. A terminal transfer credit is allowed for certain position holders or owners of tax‑paid fuel at non‑approved entries. For some exempt motor carriers, fuel tax is due by the last day of the month after the quarter of use.

Large sellers prepay sales tax; limited relief

If you owe at least $20,000 a month in State and local sales tax, you must prepay at least 65% each month. The Secretary can reduce the required prepayment when you show the tax collected that month is held in trust for another person. This changes how much cash large collectors must send in before month‑end.

Stronger protections from financial exploitation

The law expands what counts as financial exploitation of older and disabled adults, including misuse of a power of attorney or guardianship. Banks and credit unions must report suspected abuse to trusted contacts (unless they may be the abuser), local law enforcement, and county social services for disabled adults. Institutions may notify trusted contacts, and the law defines who can be a trusted contact. They can delay or refuse suspicious transactions for up to 30 business days, with one 30‑business‑day extension, while they review. Staff who act in good faith have legal immunity, and firms must keep records for five years.

Refunds for wrongly charged fire taxes

If a governing body later rules a fire tax was illegally collected, you can ask for a refund. You have 10 years after the tax was first due or six months after payment, whichever is later. This refund process ends July 1, 2027.

Use excess business loss as NC NOL

Beginning January 1, 2022, your federal excess business loss (IRC 461(l)) is fully allowed as a North Carolina net operating loss. You can reduce NC taxable income by the same dollar amount of your excess loss.

Sales tax breaks for fabricators and bakeries

Metal fabricators qualify for the equipment and repair‑parts exemption if combined fabrication receipts, including related persons, are at least $8,000,000. Artisan bakeries qualify for their exemption only if combined receipts, including related persons, are $1,800,000 or less.

Broader powers for alcohol enforcement agents

Alcohol law‑enforcement agents who take the peace officer oath can arrest and investigate other crimes they find while enforcing listed alcohol and related laws. This expands their criminal enforcement authority statewide.

Tax proceeds sent to Highway Fund

The Secretary of Revenue sends the net tax money collected under this Article to the Highway Fund. The Department keeps its administrative costs from those receipts. This supports road building and maintenance for the public.

New local taxes on car rentals

Beginning October 1, 2026, counties and cities may add up to 1.5% each on short‑term car rentals. A regional transit authority may add up to 5% in its area. The tax applies where you pick up the vehicle, including peer‑to‑peer sharing. Rental companies must show the rate in your agreement, collect it at pickup, and send it to the local government.

Peer‑to‑peer and rentals taxed like others

Peer‑to‑peer vehicle sharing providers are treated as retailers for title‑related taxes. The tax base includes the vehicle’s retail value plus any regulated fees, paid when you apply for title. Beginning October 1, 2026, a highway‑use tax applies to rental gross receipts: 8% for short‑term rentals, 5% for subscriptions, and 3% for long‑term rentals. Retailers or platforms collect the tax, and renters pay it.

State tax withheld on betting winnings

Beginning January 1, 2027, if federal law requires withholding on your betting winnings, the operator must also withhold State income tax. The amount withheld equals your State income tax rate. Operators must file returns and pay the withheld tax like wage withholding.

Tougher penalties for unlisted vape products

Selling vapor or consumable products not on the State directory brings higher penalties. A second violation in 12 months means a $500–$750 fine and a 30‑day license suspension. A third or later violation means a $1,000–$1,500 fine and license revocation. Non‑directory stock can be seized and destroyed at the owner’s cost. Registry fees fund the directory’s operation, penalties go to the Civil Penalty and Forfeiture Fund, and the Secretary reports to lawmakers each year starting January 31, 2026.

Pass‑through SALT add‑back and S‑corp income

Starting January 1, 2026, S corporations, partnerships, and estates or trusts must add back any federal state and local tax deduction (IRC §164) when figuring North Carolina taxable income. Shareholders must include their pro rata share of S‑corporation income subject to NC rules. These changes can raise owners’ North Carolina taxable income.

Remote seller and marketplace nexus timing

If your gross remote sales into North Carolina exceed $100,000, you are treated as doing business here starting the first day of the first month at least 60 days after you cross the threshold. The State now uses the Streamlined Sales and Use Tax Agreement as of May 20, 2025. It also defines related persons using federal rules, which can affect receipt aggregation and exemptions.

Sports betting revenue base expands

Interactive sports wagering operators must include the cash value of bonuses or promo credits that return as a deposit or wager in gross wagering revenue. This increases the base used to figure taxes or fees for operators.

Stricter records and audits for alt fuel

Licensed alternative‑fuel providers must keep all documents that support their returns for the statute of limitations. Keep unreported transaction records for at least three years. The Department of Revenue may inspect records, audit licensed and unlicensed parties, and examine tanks and equipment to determine tax owed.

Stronger credit union oversight and fees

The Administrator can immediately remove or bar credit union officials for misconduct, with a right to a hearing within 30 days. Surety bonds must use Administrator‑approved forms; boards may buy extra coverage, and added coverage may be required within 60 days. The Division may charge additional service and supervision fees. Late required reports incur $75–$750 per day. Each credit union is examined at least every 18 months and pays the exam cost. Recordkeeping must follow rules; approved electronic copies count as records.

Fuel rules add renewable diesel, penalties

The law defines renewable diesel and treats it as diesel fuel (not jet fuel) for state rules and taxes. It also applies existing motor‑fuel offenses and penalties to alternative fuel activities. Fuel suppliers and users face the same compliance and penalty framework as for diesel and motor fuel.

State NOLs limited to individuals, trusts

North Carolina’s net operating loss rules under G.S. 105‑153.5A now apply only to individuals, estates, and trusts. Businesses that are not individuals can no longer use this State NOL provision.

New priority rules for special assessments

Beginning October 1, 2026, special assessment liens are behind all State and local tax liens but ahead of all other liens. Cities and counties still cannot get deficiency judgments in these foreclosures. This changes the order of who gets paid first if a property is foreclosed.

New partnership audit and payment rules

Beginning January 1, 2026, North Carolina follows federal partnership audit results. If a federal audit raises your distributive share, you add that amount to NC income. If it lowers it, you can deduct that amount. A final federal partnership adjustment is no longer a "federal determination." Refunds tied to these filings are due by the later of one year after you file the adjustment return or three years after the original return. The State’s assessment clock is the later of one year after that filing or three years after the original return—or six years if you do not file on time. If a partnership elects to pay tax at the partnership level, it cannot pass credits to partners for those periods, and some situations bar making that election.

New partnership audit and payment rules

After a final federal partnership adjustment, a partnership doing business in North Carolina must file a State return and pay any tax within 90 days and notify partners. Direct partners must pay within six months unless already paid. A partnership may instead elect to pay the State tax at the partnership level within six months. Tiered partners must follow these rules and can also elect partnership‑level treatment. The State partnership representative acts for all partners. If an elected partnership does not pay, the Department can collect from the partnership and then assess partners after 60 days.

Stronger oversight of state credit unions

The Administrator can order a credit union to stop unsafe or illegal practices and can run background checks on key personnel. The Administrator may waive fees, but can also levy civil penalties up to $500. Hearings follow set timelines, and parties can appeal to the Credit Union Commission and then to court. In emergencies, the Administrator can temporarily waive or suspend some compliance requirements. Filing an appeal does not stop a conservation order; it stays in effect during the appeal.

More powers and services at credit unions

State‑chartered credit unions can do activities allowed to federal credit unions if they give 45 days’ notice and the Administrator does not disapprove. Starting July 1, 2026, they may invest in approved common trust or mutual funds and in corporate bonds rated A+ or better, with internal limits. Credit unions may also offer services like money orders, electronic transfers, and safe deposit boxes and may charge reasonable fees.

New rules for state savings banks

A State savings bank needs the Commissioner’s approval to open branches or move offices, with public notice and time for comments. Approvals weigh capital, management, community impact, and convenience. Governance rules clarify board size, elections, and meeting schedules. Certain oversight records are confidential. Banks no longer need prior approval for bylaw changes.

Franchise tax math and relief updates

Franchise tax is $1.50 per $1,000 of tax base. C‑corps have a $200 minimum and up to $500 for the first $1,000,000. S‑corps pay $200 for the first $1,000,000, then $1.50 per $1,000 above that. If a corporation must include part of a noncorporate LLC’s assets in its tax base, its investment in that LLC is excluded from franchise net worth. A corporation that owns more than 80% of an insurance company may deduct its investment in that insurer from franchise net worth (effective January 1, 2019).

Easier to join and use credit unions

More people can join state credit unions. Adults at or below the federal poverty line can join if the account holder is at least 25. People who live in census tracts more than 9 miles from a bank branch can also join; if the credit union has no branch there, it must open one. A credit union may open accounts for minors and issue ATM or debit cards, and may lease safe deposit boxes to minors beginning July 1, 2026. Boards may let 16‑year‑olds vote and set 18 as the minimum age to hold office. If a member is expelled, the credit union must give written notice and allow a written appeal.

Fewer property tax bills and burial relief

Land set aside for human burial is exempt from property tax. If the land is held to sell or rent burial rights, one application covers the exemption; other burial land is exempt without applying. A local government cannot deny the exemption just because there is no survey. Also, a taxing unit cannot tax the same property more than once in a single tax year.

Piedmont Authority board pay increases

Members of the Piedmont Authority for Regional Transportation Board of Trustees now receive $100 per meeting. Pay rises from $50 to $100 for each duly conducted meeting.

Deduct certain COVID rent and utility aid

Beginning January 1, 2026, you can deduct from NC taxable income any rent or utility help you received under Section 3.3 of S.L. 2020‑4, as later amended. Your NC taxable income goes down by the amount of that aid.

Delayed start for a prior tax rule

Subsection (c) of S.L. 2022‑13 now takes effect July 1, 2030. It applies to taxes assessed on or after that date. This delay pushes back when that rule applies.

One-year tax interest relief by county

If you live or are located in a listed county, the state waives interest on some tax underpayments from September 25, 2024, through September 25, 2025. The waiver covers franchise, corporate, and individual income tax underpayments with due dates in that window. Interest on certain underpaid withholding taxes is also waived if you pay the balance by September 25, 2025.

Relief for disasters and small underpayments

The Secretary does not charge State interest or certain penalties for periods the federal government ignores for military service or presidential disasters. You do not owe underpayment interest if your tax minus withholding is under $1,000 or you had no State income‑tax liability last year.

Safe harbor for sellers who round

If pennies stop being made, a seller that rounds cash sales to the nearest five cents under the law is presumed to collect tax reasonably. The same presumption applies if the seller uses a certified tax system that remits taxes.

Fewer people needed to start a credit union

Beginning July 1, 2026, only seven adult North Carolina residents with a common bond are needed to organize a state credit union and become charter members. The old minimum was 12. This lowers the start‑up hurdle for new credit unions.

Out-of-state liquor vendors no registration

Nonresident spirituous liquor vendors no longer have to register with the Secretary under this registration law. This removes a filing step and reduces compliance for those vendors.

Yearly lists of licensed alternative-fuel firms

The Department gives licensed bulk end‑users and retailers a yearly list of licensed alternative fuel providers. Providers also get a yearly list of licensed retailers and bulk end‑users. Each list shows the name, account number, and business address.

License applications now confidential tax info

Information on a license application now counts as protected tax information. It gets the same confidentiality as tax returns and reports under state law.

Higher penalty for frivolous tax returns

The maximum penalty for filing a frivolous state tax return is now up to $2,000. A frivolous return lacks required information or shows bad faith to delay or defy tax laws. Filing one can trigger the higher penalty.

New $0.40 per ounce snuff tax

Starting July 1, 2026, snuff is taxed at $0.40 per ounce. Fractional ounces are taxed proportionally. The package’s net weight sets the tax, and prices reflect this tax.

Penalty for wrong tax payment form

If you pay a tax in a form not allowed by the Secretary, a 5% penalty applies. The penalty is at least $1 and at most $1,000. The prior waiver path for this penalty is removed.

Idle exporters can lose licenses

The Secretary can cancel an exporter’s license if the exporter stops operating in the State for one year. The Secretary may also cancel a license when the licensee asks in writing. Existing notice and cancellation procedures continue to apply.

More licenses for delivery vapor sellers

Retail dealers that make delivery sales of vapor products must hold a vapor products license for each location that receives or stores non‑tax‑paid vapor products for those sales. This applies when that site is different from any other already‑licensed location. Expect extra license applications and fees for each such site.

New licenses and checks for vape sellers

Businesses that make, receive, or store tobacco or vapor products must get a location‑specific license. There is one license for other tobacco products and another for vapor and alternative nicotine products. ALE can make unannounced inspections, report violations, and seize and destroy products that are not on the registry. The Secretary of Revenue keeps a database of violations.

New registration for alcohol businesses

Wine shippers, local ABC boards, and certain permit holders (like wineries, breweries, distilleries, importers, and wholesalers) must register with the Secretary. This adds a registration step for these businesses and boards.

Alcohol sales: new reports and remittance

Distilleries must pay the excise tax on sales in a distillery estate and file a joint monthly report with the local ABC board by the 15th. Starting July 1, 2026, nonresident vendors must file monthly sales reports, and wine shipper permittees must file annual reports.

New employer withholding schedules and closures

If you withhold $250 to $1,999 per month, you file monthly. If you withhold $2,000 or more per month, you follow semiweekly payday rules and file quarterly. The Department may close your withholding account after 18 months with no returns or zero withholding.

Yearly reporting on players’ big winnings

Once a year, the Secretary may require interactive sports wagering operators to report players who won $2,000 or more last year. Reports must include player identity, tax ID, address, wagers, outcomes, and winnings.

New cap on some credit union investments

Starting July 1, 2026, a credit union may invest no more than 12.5% of its net worth in agencies, companies, or associations that support credit union operations and liquidity. This lowers the allowed share for these investments.

Rounding cash sales to nearest nickel

If pennies stop being made, sellers may round only the cash part of a sale to the nearest five cents using set rules. You can always pay the exact legal‑tender amount to avoid rounding. ABC stores must follow this starting July 1, 2027. Rounding does not change the listed price or the sales tax owed. Businesses and ABC stores that follow the statute get legal protection from lawsuits based on the rounding. Local ABC boards count rounded‑up cents as gross receipts, but those cents are ignored in some distribution formulas.

Cash rounding and $1 tax adjustments

If pennies are no longer made, in‑person cash tax payments are rounded down to the nearest five cents; amounts under five cents go to zero. A taxing unit may adopt a June 15 resolution to treat non‑in‑person shortfalls of $1.00 or less as fully paid. With that resolution, it may also keep overpayments of $1.00 or less unless you ask for a refund before the fiscal year ends.

Conservation donation credit cap clarified

For certain real property donation credits, the law clarifies that the cap calculation refers to tax payments made by or on behalf of the individual. The annual joint ceiling stays $5 million, with $3.25 million prioritized. This is an administrative clarification for claimants.

New tax method for estates and trusts

Beginning January 1, 2026, NC taxes estates and trusts on taxable income computed under federal rules with State adjustments and apportionment. The fiduciary pays the tax. State adjustments are split between the estate or trust and beneficiaries based on distributions during the year.

Tax code date, rounding, and payment timing

North Carolina now uses the Internal Revenue Code as of July 5, 2025. Sales tax is computed to three decimals and rounded up when the third digit is 5 or more; retailers may round per item or on the invoice. A filing extension does not extend the time to pay the tax shown on a return.

Clearer definition of shared-ride trips

A shared‑ride service is now defined as a for‑hire ground trip where a provider matches one rider with another rider. This clarifies when a trip counts as a shared ride for drivers and riders.

How tax foreclosures count under federal law

For federal law purposes, a North Carolina tax foreclosure sale under G.S. 105‑374 is not treated as a non‑judicial sale. This clarifies how these sales are classified under federal rules.

Tax collection centralized; fewer payment options

Tax and related duties move into the Department of Revenue, replacing references to the Commissioner with the Secretary. Taxing units cannot accept deeds, notes, bonds, payments in kind, or most offsets to pay taxes. Only offsets from certain pre‑July 1 contracts are allowed.

New investment options for credit unions

Starting July 1, 2026, a credit union may invest up to 1% of its net worth in certain technology or fintech small businesses. It may keep holding an investment even if the investment’s status or form changes. It may also make otherwise impermissible investments to fund its employee benefit plan, under Administrator rules, and hold them only while plan obligations exist. A credit union can serve as trustee or custodian for deferred compensation plans, invest funds in its deposits, and must keep records for each participant.

Sponsors & Cosponsors

Cosponsors

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