Income/Franchise:
North Carolina: New Law Updates State Conformity to Internal Revenue Code and Revises PTE Tax

S.B. 147, signed by gov. 4/3/23. Effective immediately, new law generally updates corporate and individual income tax conformity with the Internal Revenue Code as in effect as of January 1, 2023 (previously, April 1, 2021), including “any provisions enacted as of that date that become effective either before or after that date.” The new law also amends various provisions pertaining to North Carolina’s elective pass-through entity tax (PTET) [see S.B. 105 (2021) and previously issued Multistate Tax Alert for more details on the PTET as originally enacted], including adding partnerships and S corporations to the list of permissible owners of a partnership electing to be taxed at the entity level effective retroactively for taxable years beginning on or after January 1, 2022. Also effective retroactively for taxable years beginning on or after January 1, 2022, North Carolina resident partners are allowed a credit for taxes paid by the pass-through entity to other states when no North Carolina PTET election is made. For taxable years beginning on or after January 1, 2023, the new law provides that resident partners and S corporation shareholders of an entity electing to pay the PTET are no longer taxed on their entire distributive share of income and are only taxed on the North Carolina-sourced income of the electing entity.

See forthcoming Multistate Tax Alert for more details on the new law changes to North Carolina’s PTET, and please contact us with any questions in the meantime.