S.L. 1963-1169

NORTH CAROLINA GENERAL ASSEMBLY

1963 SESSION

CHAPTER 1169

SENATE BILL 354

AN ACT TO MAKE TECHNICAL REVISIONS IN THE REVENUE ACT.

The General Assembly of North Carolina do enact:

Section 1. The Franchise Tax Article of the Revenue Act, being Article 3 of subchapter I of Chapter 105 of the General Statutes, is hereby amended by:

(a) Striking out of line 4 of G.S. 105-116, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the words "or public sewerage system" and the comma (,) immediately thereafter and inserting in lieu thereof the following: "system subject to regulation by the North Carolina Utilities Commission, or owning and/or operating a public sewerage system,";

(b) Inserting in the last sentence of subdivision (2) of subsection (c) of G.S. 105-122, between the figures "105-134" and the word "shall", as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the following:

"and gross receipts received from the casual sale of property used in production of income in the trade or business.";

Sec. 2. The Income Tax Article of the Revenue Act, being Article 4 of subchapter I of Chapter 105 of the General Statutes, is hereby amended by:

(a) Striking from subsection (14) of G.S. 105-132 the following:

"and territories of Alaska and Hawaii,";

(b) Redesignating subsection (a)(4) of G.S. 105-139 as subsection (a)(5) and inserting a new subsection (a)(4) to read as follows:

"(4) The net income of an estate or trust administered by a nonresident fiduciary for the benefit of a nonresident beneficiary when such income is derived from an established business or an investment in real or tangible personal property located in this State.";

(c) Striking out of subsection (a) of G.S. 105-141 the parentheses and the matter within the parentheses appearing at the end of said subsection and inserting in lieu thereof the following:

", except that even though an employee possessed a nonforfeitable right immediately before his death to receive the amounts while living, the exclusion provided in this paragraph will still apply in those cases in which the total distributions are payable within one taxable year of the distributee to such distributee by a pension, profit-sharing, stock bonus or annuity trust qualifying under the provisions of subsection (10) of G.S. 105-138";

(d) Rewriting subsection (b)(5) of G.S. 105-141, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read as follows:

"(5) Any amounts received (A) through accident or health insurance, (B) through health or accident plans financed by profit-sharing trusts or pension thrusts, (C) under workmen's compensation acts or similar acts (which have been judicially declared to provide benefits in the nature of workmen's compensation benefits, by whatever name called) as compensation for personal injuries or sickness, and (D) for damages, whether by suit or agreement on account of injuries or sickness; Provided, that any amounts received from the sources mentioned in this subsection as reimbursement for medical expenses incurred and claimed in a prior year or in prior years shall be excluded only to the extent that such amounts exceed the deduction claimed under subsection (11) of G.S. 105-147 (relating to medical, etc., expenses), except that nothing in this subsection shall be construed as preventing a taxpayer from filing an amended return for a taxable year in which a medical deduction was claimed and allowed for the purpose of reducing the amount of the medical expense deduction claimed in such year by any reimbursement for such medical expenses received in a later year when a change in the prior year is not barred by the provisions of this Article.";

(e) Striking out of subsection (b)(6) of G.S. 105-141, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the following: "The rental value of any dwelling and the appurtenances thereof furnished to a minister of the gospel as a part of his compensation nor a cash payment made to a minister of the gospel as a rental allowance to the extent that such cash payment is actually used in paying rental on a dwelling occupied by the minister together with appurtenances thereof;", and inserting in lieu thereof the following:

"The rental value of a home and the appurtenances thereof furnished to a minister of the gospel as a part of his compensation, or the rental allowance paid to him as a part of his compensation to the extent used by him to rent or provide a home including the appurtenances thereof;";

(f) Adding to subsection (b) of G.S. 105-141 a new subdivision to be designated as subdivision (10) to read as follows:

"(10) The amounts received as a scholarship at an educational institution or as a fellowship grant, including the value of contributed services and accommodations; and the amounts received to cover expenses for travel, research, clerical help, or equipment, which are incident to such scholarship or fellowship grant, but only to the extent that the amounts are so expended by the recipient and subject to the following limitations:

a. In the case of an individual who is a candidate for a degree at an educational institution the exemption from income shall not apply to that portion of any amount received which represents payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving the scholarship or fellowship grant. If teaching, research, or other services are required of all candidates (whether or not recipients of scholarship or fellowship grants) for a particular degree as a condition to receiving such degree, such teaching, research, or other services shall not be regarded as part-time employment within the meaning of this paragraph. For the purpose of this subdivision the term 'educational institution' means only an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on.

b. In the case of an individual who is not a candidate for a degree at an educational institution, the exemption from income tax shall apply only if all of the following conditions are met:

1. The amount received does not represent payment for teaching, research, or other employment;

2. The grantor of the scholarship is an organization described in subsection (15) of G.S. 105-147, the United States, the State of North Carolina, a political subdivision of this State, or any of their agencies or instrumentalities;

3. The amount received does not exceed an amount equal to three hundred dollars ($300.00) times the number of months for which the recipient received amounts under the scholarship or fellowship grant during the taxable year; and

4. The recipient has not been entitled to exclude amounts received as a scholarship or fellowship grant while not a candidate for a degree at an educational institution for thirty‑six (36) months, whether or not consecutive.";

(g) Adding to subsection (b) of G.S. 105-141 a new subdivision to be designated as subdivision (11) to read as follows:

"(11) Any amounts received as reimbursement through insurance or from any other source for losses of such nature as those allowable under subsections (9)a and (9)b of G.S. 105-147 only to the extent that such losses when claimed as a deduction on a return required to be filed by the provisions of this Article did not serve to reduce the amount of tax owed by the taxpayer.";

(h) Inserting a new Section to be designated as G.S. 105-141.3 to read as follows:

"§ 105-141.3. Adjusted Gross Income Defined. The words 'adjusted gross income' for the purposes of this Article shall mean gross income taxable under this Article less all expenses allowed as deductions by this Article which were incurred in deriving such income.";

(i) Rewriting subsection (e) of G.S. 105-142 to read as follows:

"(e) The amount actually distributed or made available to any employee or the beneficiary of an employee by an employees' trust, which qualifies under subsection (10) of G.S. 105-138 as an exempt organization, shall be taxable to the employee or his beneficiary in the year in which distributed or made available; provided, that if such employee has made contributions to such trust, and the benefits are received as periodic payments, the amounts annually received shall be taxed as an annuity as provided in G.S. 105-141.1. The amount actually received or made available to the employee or his beneficiary which consists of corporate shares or other securities shall be taken into account in determining the amount distributed or made available at their fair market value, except that the net unrealized appreciation in the corporate shares or other securities of the employer corporation shall not be included in determining such amount distributed or made available for purposes of this subsection.";

(j) Inserting between the word "price" and the period (.) at the end of subdivision (g)(2) of G.S. 105-142 the following:

"; provided further, that this method of reporting income from installment sales shall not be used by individuals who are not residents of this State or by foreign corporations not domesticated in this State unless such nonresident individual or corporation files a bond with the Commissioner of Revenue in such amount and with such sureties as the Commissioner shall deem necessary to secure the payment of any taxes which were deferred with respect to any gain from such sale or other disposition; and, provided further, that if a timely election is made to report a gain from an installment sale on the basis prescribed in this subsection such election shall be binding on the taxpayer and he may not after the date prescribed by law for filing his return change to another method of reporting such gains, and in like manner if a timely election is made to report a gain on other than the installment basis such election shall likewise be binding on the taxpayer."

And inserting in subsection (g)(3) of G.S. 105-142 a new subdivision to be designated as subdivision d. to read as follows:

"d. If an individual, who has elected to report in the manner prescribed in subdivision (1) a gain from a sale such as described in either subdivision (1) or (2), removes himself from this State, any unrealized or unreported income from such installment sales made while a resident of this State must be reported for income tax purposes on the return filed with this State by such individual for the year in which the individual removes himself from this State unless such individual files a bond with the Commissioner of Revenue in such amount and with such sureties as the Commissioner shall deem necessary to secure the payment of any taxes which were deferred.";

(k) Rewriting subsection (a) of G.S. 105-144, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read as follows:

"(a) Except as provided in subsection (c-1) of this Section, in ascertaining the gain or loss from the sale or other disposition of property:

(1) For property acquired after January 1, 1921 and before July 1, 1963, the basis shall be the cost thereof; provided, however, that in the case of property which was included in the last preceding annual inventory used in determining net income in a return under this Article, such inventory value shall be the basis in lieu of cost.

(2) For property acquired before January 1, 1921, the basis for the purpose of ascertaining gain, shall be the fair market value of the property at January 1, 1921, or the cost of the property, whichever is greater; and the basis for determining loss, shall be the cost of the property in all cases, if such cost is known or determinable.

(3) For property acquired on or after July 1, 1963, the basis shall be as follows:

a. For property acquired by purchase, the cost thereof, provided that in the case of property which was included in the last preceding annual inventory used in determining net income in a return under this Article, such inventory value shall be used in lieu of cost.

b. For property acquired by gift, the same basis as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if the basis (as adjusted) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value; provided that if a gift tax is paid to this State with respect to such property the basis shall be increased by the amount of the gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift.

c. For property acquired by bequest, devise, or descent, either the fair market value at the date of death of the former owner, or in the case of an election under G.S. 105-9.1 the fair market value at the alternate valuation date at which time a value is established for inheritance tax purposes.

The basis of property so determined under this subsection (a) shall be adjusted for capital additions or losses applicable to the property and for depreciation, amortization, and depletion, allowed or allowable."

(l) Rewriting subsection (5) of G.S. 105-147 to read as follows:

"(5) All interest paid during the income year except interest paid or accrued in connection with the ownership of real or personal property from which income is derived but is not taxable under this Article, and except interest paid by a subsidiary to a parent corporation as defined in G.S. 105-143.";

(m) Rewriting subsection (6) of G.S. 105-147 to read as follows:

"(6) a. Taxes paid or accrued during the income year except those taxes with respect to which a deduction is denied under subdivision b. of this subsection.

b. No deduction shall be allowed for the following taxes:

1. Taxes on net income by whatever name called and excess profits taxes.

2. Gift, inheritance, and estate taxes.

3. Federal tax on undistributed earnings.

4. Sales taxes, gasoline taxes, automobile license, and registration fees, unless incurred in the operation of a trade or business.

5. Social security and unemployment taxes paid by an employee or self-employed person.

6. That part of social security and unemployment taxes required to be deducted by the employer from the earnings of an employee.

7. Taxes or assessments assessed for local benefit of a kind tending to increase the value of property assessed.

8. Taxes paid or accrued in connection with the ownership of real or tangible personal property from which income is derived but is not taxable under this Article.";

(n) Rewriting subsection (4) of G.S. 105-148, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read: "(4) Sick pay."; rewriting subsection (5) of said Section to read: "(5) Child care payments."; and changing the word "Commutation" in subsection (7) of said Section to "Commuting";

(o) Adding at the end of the second paragraph of subsection (7) of G.S. 105-147, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the following:

"Provided, in no case may the deduction claimed by the beneficiary exceed the income distributed or distributable to such beneficiary.";

(p) Rewriting the paragraph numbered 2. of G.S. 105-147(9)d. to read as follows:

"2. The net economic loss for any year shall mean the amount by which allowable deductions for the year other than personal exemptions, non-business deductions and prior year losses shall exceed income from all sources in the year including any income not taxable under this Article.";

and repealing the paragraph numbered 5. of said subsection in its entirety, and redesignating the paragraph numbered 6. as 5.;

(q) Rewriting subsection (11) of G.S. 105-147 to read as follows:

"(11) a. Amounts expended by an individual during the year for medical care for himself, herself, his or her qualifying spouse and his or her dependents, to the extent that the total of such expenses actually paid in the income year and not compensated for by insurance or otherwise shall exceed five per cent (5%) of his or her adjusted gross income; provided, that the total allowable deduction in any taxable year shall not exceed five thousand dollars ($5,000.00).

b. For the purpose of this subsection:

1. The term 'medical care' means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body; for transportation primarily for and essential to medical care; and for insurance against illness or accident other than insurance against loss of earnings.

2. The term 'qualifying spouse' means a spouse who has not claimed a two thousand dollar ($2,000.00) personal exemption.

3. The term 'dependents' means those individuals qualifying as dependents under the provisions of subdivision (5) of subsection (a) of G.S. 105-149.";

(r) Rewriting the proviso beginning on line 15 of subsection (15) of G.S. 105‑147, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read as follows:

"Provided, that in the case of such contributions or gifts by corporations, the amount allowed as a deduction hereunder shall be limited to an amount not in excess of five per centum (5%) of the corporation's net income as computed without the benefit of this subdivision or subdivision (16) of this Section; and, provided further, that contributions made to North Carolina donees by corporations allocating a part of their total net income outside this State shall not be allowed under this subdivision, but shall be allowed under subdivision 18(c) of this Section; and, provided, that in the case of such contributions or gifts by partnerships such amounts shall be allocated to each partner on the basis of the ratio used for determining each partner's share of the distributive gain or loss of the partnership, and shall be claimed to the extent allowable on each partner's individual return; and, provided further, that in the case of such contributions or gifts by individuals, the amount allowed as a deduction shall be limited to an amount not in excess of fifteen per centum (15%) of the individual's adjusted gross income.";

(s) Changing the period (.) at the end of subsection (16) of G.S. 105-147 to a comma (,) and adding the following:

"and contributions or gifts by persons or corporations to educational institutions located within North Carolina, no part of the net earnings of which inures to the benefit of any private stockholder or individual.";

(t) Striking from line 2 of subdivision c. of subsection (18) of G.S. 105-147, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the word "may" and inserting in lieu thereof the word "shall"; striking from line 3 of said subdivision c. the word "net" and inserting in lieu thereof the word "total"; inserting in line 8 of said subdivision c, between the words "to" and "donees", the words "North Carolina"; striking the last word from line 11 of said subdivision c, being the word "the", and inserting in lieu thereof the word "this"; and changing the semicolon (;) in line 12 of said subdivision c. to a period (.) and striking the remainder of the subdivision;

(u) Striking out the second sentence of subsection (21) of G.S. 105-147 beginning on line 6 of said subsection, and striking out the word "further" appearing in line 10 of said subsection;

(v) Changing the semicolon (;) following the word "deduction" appearing in line 11 of subsection (22) of G.S. 105-147 to a period (.) and striking out the remainder of the sentence and inserting in lieu thereof the following:

"For the purpose of this subsection, the phrase 'adjusted gross income' shall mean adjusted gross income as denned in G.S. 105-141.3 of this Article.";

(w) Changing the comma (,) appearing in the second line of subsection (a)(2) of G.S. 105-149, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to a period (.) and striking out the remainder of that sentence and inserting in lieu thereof the following:

"In the case of an individual who qualifies as 'head of household' as defined in subsection (3) of G.S. 105-132, two thousand dollars ($2,000.00); provided that the 'head of household' exemption shall not be allowable to a married woman living with her husband except as provided in subsection (c)(2) of G.S. 105-149.";

(x) Rewriting subsection (a)(5) of G.S. 105-149, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read as follows:

"(5) Three hundred dollars ($300.00) for each dependent (as defined below) whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than one thousand dollars ($1,000.00), or who is a child of the taxpayer either under 19 years of age or a student regularly enrolled for full-time study in a school, college, or other institution of learning. For the purpose of the preceding sentence, the term 'child' means an individual who is a son or daughter (natural or adopted), or a stepson or stepdaughter of the taxpayer.

For the purposes of this subsection, the term 'dependent' means any of the following individuals over half of whose support, for the calendar year in which the taxable year of the taxpayer begins was received from the taxpayer:

a. A son or daughter (or a descendant of either), a stepson, a stepdaughter, a brother or sister (including a brother or sister of the half blood), a stepbrother, stepsister, father or mother (or an ancestor of either), a stepfather, a stepmother, a son or daughter of a brother or sister, a brother or sister of the father or mother, a son-in-law, a daughter-in-law, a father-in-law, a mother-in-law, a brother-in-law, or a sister-in-law of the taxpayer;

b. An individual who was a member of the same household as the taxpayer;

c. A former member of the same household as the taxpayer or an individual who otherwise qualifies as a dependent of the taxpayer, who for the taxable year of such taxpayer receives institutional care required by reason of a physical or mental disability.

The exemption provided in this subdivision for children of taxpayers shall be allowed only to the person entitled to the two thousand dollar ($2,000.00) exemption provided in subdivision (2) of this subsection except, however, that where husband and wife are divorced and have children of their marriage for which they would otherwise be entitled to an exemption hereunder, the parent furnishing the chief support of his (or her) child during the income year shall be entitled to said exemption, irrespective of whether said parent has custody of said child or children or is head of the household during said year.

Nothing in this subdivision shall be construed to allow one spouse to claim a three hundred dollar ($300.00) exemption for the other spouse.";

(y) Deleting in their entireties subdivision (2) of subsection (a) and subsection (d) of G.S. 105-151 and renumbering the remaining subsections and subdivisions accordingly, this subsection to become effective as of January 1, 1964;

(z) Changing the period (.) at the end of subdivision (1) of subsection (a) of G.S. 105-151 to a semicolon (;) and adding the following:

"provided, that whenever a taxpayer who is deemed to be a resident of this State under the provisions of this Article and who is deemed also to be a resident of another state or country under the laws of such other state or country the Commissioner of Revenue may, in his discretion, allow a credit against the taxes imposed by this Article for such taxes imposed by and paid to such other state or country on income taxed under this Article.";

(aa) Striking from the second paragraph of G.S. 105-155 the sentence beginning on line 8 of said paragraph and reading as follows: "Any individual who willfully makes and subscribes a return which he does not believe to be true and correct as to every material matter, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be subject to a fine not to exceed one thousand dollars ($1,000.00) or imprisonment not to exceed six (6) months, or both, in the discretion of the court.";

(bb) Changing the semicolon (;) in line 5 of subsection (a) of G.S. 105-157, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to a period (.) and striking the remainder of the sentence; striking out in its entirety the second paragraph of subsection (a) (1961 Cumulative Supplement) of said Section; rewriting the third paragraph of subsection (a) of said Section (1961 Cumulative Supplement) to read as follows:

"If the taxpayer is a corporation and the amount of the tax exceeds fifty dollars ($50.00), payment may be made in two equal installments: one-half on the date the return is filed, and one-half on or before the fifteenth day of the sixth month following the month in which the return was originally due to be filed, with interest on the deferred payment at the rate of six per cent (6%) per annum from the date the return was originally due to be filed. If the taxpayer is a corporation and the amount of the tax exceeds four hundred dollars ($400.00), payment may be made in four equal installments: one-fourth at the time of filing the return, one-fourth on or before the fifteenth day of the third month following the month in which the return was originally due to be filed, one-fourth on or before the fifteenth day of the sixth month following the month in which the return was originally due to be filed, and one-fourth on or before the fifteenth day of the ninth month following the month in which the return was originally due to be filed, with interest on deferred payments at the rate of six per cent (6%) per annum from the date the return was originally due to be filed."; striking out in its entirety subsection (b) of G.S. 105-157; and renumbering subsection (c) of said Section as subsection (b);

(cc) Rewriting the first sentence of G.S. 105-159 to read as follows:

"If the amount of the net income for any year of any taxpayer under this Article, as reported or as reportable to the United States Treasury Department, is changed, corrected, or otherwise determined by the Commissioner of Internal Revenue or other officer of the United States of competent authority, such taxpayer, within two (2) years after receipt of Internal Revenue Agent's report or supplemental report reflecting the corrected or determined net income shall make return under oath or affirmation to the Commissioner of Revenue of such corrected, changed or determined net income. In making any assessment or refund under this Section, the Commissioner shall consider all facts or evidence brought to his attention, whether or not the same were considered or taken into account in the Federal assessment or correction."; and changing the figures "105-161" appearing in line 19 of said Section to read "105-236";

(dd) Deleting from line 6 of the paragraph numbered (4) of G.S. 105-134 the words "during the income year";

(ee) Inserting in subdivision a.1.III. of the numbered paragraph or subsection (6) of G.S. 105-134, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, between the words "that" and "any" in line 4 of said subdivision, the following: "any such property newly acquired which, in the course of acquisition or construction, had not been actually used or operated in the taxpayer's business during the income year and";

(ff) Deleting from subdivision (6)b. of G.S. 105-134, beginning on line 28 of said subdivision, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, the following: "that in determining the taxable income of a railroad company operating two or more lines of railroad not physically connected, when one of such railroad lines is located wholly within this State, the actual earnings and expenses of such line in this State, insofar as they may be severable, shall be used in determining net income taxable in this State. Provided further,";

(gg) Deleting the final paragraph following subsection (11) of G.S. 105-138 in its entirety and inserting a new Section to be designated as G.S. 105-138.1 to read as follows:

"§ 105-138.1. Regulated Investment Companies and Real Estate Investment Trusts. Any North Carolina organization or trust which, in the opinion of the Commissioner of Revenue of North Carolina, qualifies as either a 'regulated investment company' under the provisions of United States Code Annotated Title 26, Section 851, or as a 'real estate investment trust' under the provisions of United States Code Annotated Title 26, Section 856, and which files with the North Carolina Department of Revenue its election to be treated as a 'regulated investment company' or as a 'real estate investment trust' shall be taxed under this Article upon only that part of its net income which is not distributed or declared for distribution to shareholders during the income year or (a), with respect to a regulated investment company, within thirty (30) days after the end of the income year and (b), with respect to a real estate investment trust, by the time required by law for the filing of the return for the income year.";

(hh) Striking from subsection (b)(4) of G.S. 105-141 the last sentence thereof;

(ii) Rewriting G.S. 105-144.3 to read as follows:

"§ 105-144.3. Bond Premium Amortization by Bondholder. (a) Amortization of bond premiums on tax-exempt bonds shall be mandatory for all taxpayers. Amortization for the taxable year shall be accomplished by lowering the basis or adjusted basis of the bond, with no deduction against gross income for the year.

(b) Amortization of bond premiums on taxable bonds shall be elective for all taxpayers. The amortizable premium for the taxable year may be deducted only if an adjustment is made to the basis of the bond.

(c) For the purposes of this Section, the term 'bond' means any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation and bearing interest and includes any like obligation issued by any government or political subdivision thereof.";

(jj) Rewriting subsection (c)(3) of G.S. 105-145 to read as follows:

"(3) As used in this Section, the term 'reorganization' shall mean:

a. A statutory merger or consolidation.

b. The acquisition by one corporation, in exchange solely for all or a part of its voting stock, of stock of another corporation which the acquiring corporation controls immediately after such acquisition (whether or not it had control immediately before the acquisition).

c. The acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which controls the acquiring corporation), of substantially all the properties of another corporation, but in determining whether the exchange is solely for voting stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, is disregarded.

d. A transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or one or more of its shareholders (including those who were shareholders immediately before the acquisition) or any combination thereof is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed to the shareholders tax-free or partially tax-free.

e. A recapitalization.

f. A mere change in identity, form, or place of organization, however effected.";

(kk) Inserting a new subsection in G.S. 105-148 to be designated as subsection (8) and to read as follows:

"(8) Contributions to any governmental unit, instrumentality, agency or institution other than those contributions allowable as deductions in subsections (15) and (16) of G.S. 105-147."; and

(ll) Rewriting lines 1 and 2 of G.S. 105-138 to read as follows:

"§ 105-138. Conditional and Other Exemptions. (a) The following organizations shall be exempt from taxation under this Article except as provided in subsection (b) of this Section:"; and adding at the end of said Section a new subsection to be designated as subsection (b) to read as follows:

"(b) Organizations described in paragraphs (1), (3), (4), (5), (6),(7), (8), (9) or (10) of subsection (a) of this Section shall be subject to the tax provided for in G.S. 105-134 to the following extent:

Gross income derived by any organization from any trade or business the conduct of which is not substantially related (aside from the need of the organization for income) to the exercise or performance of those functions constituting the basis for its exemption in subsection (a) of this Section, less all deductions allowed by this Article directly connected with carrying on such trade or business and less one thousand dollars ($1,000.00); provided, this paragraph shall not apply to interest, royalties, dividends or rents; provided further, this paragraph shall not apply to any trade or business (1) in which substantially all the work in carrying on such trade or business is performed for the organization without compensation; or (2) which is the selling of merchandise, substantially all of which is given to it; or (3) which is carried on by an organization described in G.S. 105-138 (a)(3) primarily for the convenience of its members, students, patients or employees. Provided further, this paragraph shall not apply to net income derived from research (1) performed by a college, university or hospital; or (2) performed for the United States, its instrumentalities or any State or political subdivision thereof; or (3) performed by an organization operated primarily for the purpose of carrying on fundamental research, the results of which are freely available to the general public."

(mm) Except as herein otherwise provided, this Section shall be effective as to income years beginning on and after January 1, 1963.

Sec. 3. The Sales and Use Tax Article of the Revenue Act, being Article 5 of subchapter I of Chapter 105 of the General Statutes, is hereby amended by:

(a) Changing the period (.) at the end of subsection (2) of G.S. 105-164.4, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to a semicolon (;) and adding thereafter the following:

"except that whenever a rate of less than three per cent (3%) is applicable to a sale of property which is leased or rented, the lower rate of tax shall be due on such lease or rental proceeds.";

(b) Repealing G.S. 105-164.33 and G.S. 105-164.34;

"§ 105-164.38. Tax Shall Be a Lien. The tax imposed by this Article shall be a lien upon the stock of goods and/or any other property of any person subject to the provisions of this Article who shall sell out or in any manner transfer his business or stock of goods or shall quit business, and such person shall be required to make out the return provided for under Division IV of this Article within thirty (30) days after the date he sold out his business or stock of goods or quit business and his successor in business or the purchaser of the entire stock of goods shall be required to withhold sufficient of the purchase money or money's worth in the event there is an exchange of properties to cover the amount of said taxes due and unpaid until such time as the former owner shall produce a receipt from the Commissioner showing that the taxes have been paid or a certificate that no taxes are due. If the purchaser of a business or stock of goods shall fail to withhold purchase money as above provided, and the taxes shall be due and unpaid after the thirty-day period allowed, he shall be personally liable for the payment of the taxes accrued and unpaid on account of the operation of the business by the former owner. The transferee shall be liable for payment of any sales and/or use taxes due by the transferor to the extent of the purchase price paid by the transferee or fair market value of the property transferred whichever is greater. The transferee or successor in business and the liability of the transferee or successor in business shall be subject to the provisions of G.S. 105-241.1, G.S. 105-241.2, G.S. 105-241.3, G.S. 105-241.4 and to other remedies for the collection of taxes to the same extent as if the transferee or successor in business had incurred the original tax liability."; and

(d) Striking from line 7 of G.S. 105-164.41 the following: "which shall be investigated and approved by the Attorney General,".

(e) By inserting the words "railway locomotive, railway car" after the word "airplane" in lines 9 and 13 of G.S. 105-164.4(1).

Sec. 4. The Intangible Personal Property Tax Article of the Revenue Act, being Article 7 of subchapter I of Chapter 105 of the General Statutes, is hereby amended by inserting in G.S. 105-202, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, between the word "claims" and the word "and" in line 2 of said Section, the following:

", deposits or investments in out-of-State building and loan and savings and loan associations".

Sec. 5. Article 36 of subchapter V of Chapter 105 of the General Statutes relating to the gasoline tax is hereby amended by:

(a) Repealing G.S. 105-443; and

(b) Striking from line 6 of G.S. 105-449.30 the words and figures "five cents (5¢)" and inserting in lieu thereof the words and figures "six cents (6¢)".

Sec. 6. The General Administration Article of the Revenue Act, being Article 9 of subchapter I of Chapter 105 of the General Statutes, is hereby amended by:

(a) Rewriting subsection (4) of G.S. 105-236, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to read as follows:

"(4) Failure to Pay Tax When Due. In the case of failure to pay any tax when due, without intent to evade the tax, there shall be an additional tax, as a penalty, of ten per cent (10%) of the tax; provided, that such penalty shall in no event be less than five dollars ($5.00)."; striking from lines 5 and 6 and from line 14 of subsection (5) of said Section (1961 Cumulative Supplement) the following: ", but in no event less than twenty-five dollars ($25.00)"; and striking from line 15 of said subsection the words and figures "subdivisions (3) or" and inserting in lieu thereof the word "subdivision";

(b) Inserting in subsection (b) of G.S. 105-242 after the word "summonses" and the period (.) following said word, in line 15 of said subsection, the following:

"Provided, if the taxpayer no longer resides within North Carolina or cannot be located therein the notice may be served upon the taxpayer by Registered or Certified Mail, return receipt requested, and such service shall be conclusively presumed to have been made upon the exhibition of the return receipt.";

(c) Changing the period (.) at the end of the third paragraph of subsection (c) of G.S. 105-242, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, to a semicolon (;) and adding thereafter the following:

"provided, in the event of the death of the judgment debtor or his absence from the State before the expiration of the ten-year period herein provided, the running of said ten-year period shall be stopped for the period of his absence from the State or during the pendency of the settlement of the estate and for one year thereafter, and the time elapsed during the pendency of any action or actions to set aside the judgment debtor's conveyance or conveyances as fraudulent, or the time during the pendency of any insolvency proceeding, or the time during the existence of any statutory or judicial bar to the enforcement of the judgment shall not be counted in computing the running of said ten-year period. And, provided further, that any execution sale which has been instituted upon any such judgment before the expiration of the ten-year period may be completed after the expiration of the ten-year period, notwithstanding the fact that resales may be required because of the posting of increased bids. Provided further, that, notwithstanding the expiration of the ten-year period provided and notwithstanding the fact that no proceedings to collect the judgment by execution or otherwise has been commenced within the ten-year period, the Commissioner of Revenue may accept any payments tendered upon said judgments after the expiration of said ten-year period.";

(d) Adding the following new sentence at the end of G.S. 105-269:

"Whenever it shall be deemed expedient by the Commissioner of Revenue to employ local counsel to assist in bringing suit in an out-of-State court, the Commissioner, with the concurrence of the Attorney General, may employ such local counsel on the basis of a negotiated retainer or in accordance with prevailing Commercial Law League rates."; and

(e) Adding a new Section to Article 9 of subchapter I of Chapter 105 of the General Statutes to read as follows:

"The provisions of this Article shall be applicable to taxes levied under subchapter V of Chapter 105 of the General Statutes and to inspection fees levied under Chapter 119 of the General Statutes."

And G.S. 105-437, G.S. 105-449.24, G.S. 105-449.53 and G.S. 119-20 are hereby repealed.

(f) The provisions of this Section shall be effective as of July 1, 1963.

Sec. 7. That subsection (28) of G.S. 105-164.13, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, be rewritten to read as follows:

"(28) Sales of newspapers by newspaper street vendors and by newsboys making house to house deliveries."

Sec. 8. That subsection (2) of G.S. 105-164.13, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes of North Carolina be rewritten to read as follows:

"(2) Seeds; feeds for livestock and poultry; rodenticides, insecticides, herbicides, fungicides, pesticides for livestock, poultry and agriculture."

Sec. 9. That G.S. 105-164.13, as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes of North Carolina, be amended by adding a new subdivision thereto to be numbered and to read as follows:

"(4.1) Baby chicks and poults sold for commercial poultry or egg production."

Sec. 10. That subdivision (3) of subsection (b) of G.S. 105-65.1 be amended by changing the comma after the word "application" in line 8 of said subdivision to a semicolon (;), and striking out the remainder of that sentence and inserting in lieu thereof the following:

"Provided, that such licenses shall not be transferable to any other dispensers except under the following conditions: If at any time during the license tax year an applicant or license holder shall elect to replace a licensed machine by new or unlicensed machine, he may notify the Commissioner by letter, enclosing the vending license of such machine to be replaced, and giving the serial number of the replacement machine and the serial number of the machine being replaced and certifying that the machine being replaced has been withdrawn from his operation by sale or otherwise, and advising the Commissioner of the disposition of the machine being replaced. A new license will thereupon be issued for the replacement machine without the payment of further license tax for the balance of the license tax year in which the replacement occurs."

Sec. 11. That G.S. 105-164.4(1)(i), as the same appears in the 1961 Cumulative Supplement to Volume 2C of the General Statutes, be amended by deleting all of the words appearing after the word "companies" in line 3 of said subsection and adding in lieu thereof the following:

"regularly engaged in providing telephone and telegraph service to subscribers on a commercial basis."

Sec. 12. That G.S. 105-99 be amended by striking out the words appearing therein, to wit:

"For the first 100 pumps — four dollars ($4.00) per pump." and by inserting in lieu thereof the following words and figures, to wit: "For the first 50 pumps — two dollars ($2.00) per pump. For 51 additional pumps and not more than 100 pumps — four dollars ($4.00) per pump."

Sec. 13. All laws and clauses of laws in conflict with this Act are hereby repealed.

Sec. 14. Except as herein otherwise provided, this Act shall be in full force and effect on and after July 1, 1963.

In the General Assembly read three times and ratified, this the 25th day of June, 1963.