North Carolina provides procedural tax relief


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On May 4, 2020, North Carolina Gov. Roy Cooper signed legislation waiving the accrual of interest in conjunction with the North Carolina Department of Revenue’s extension of the filing and payment deadline from April 15, 2020, to July 15, 2020, for purposes of the franchise, corporate income and individual income tax.1 The enacted legislation also extends the time to file refund claims to July 15, 2020, for any refund with a statute of limitations that would have expired on or after April 15, 2020, and before July 15, 2020. Finally, the legislation provides a credit for any employer contributions to the state Unemployment Insurance Fund made on or before April 30, 2020.

Waiver of interest and extended statute of limitations In an effort to provide relief to taxpayers amidst the COVID-19 outbreak, the Internal Revenue Service (IRS) announced in March that it would extend the filing and payment deadlines for corporate and individual income taxes from April 15, 2020, to July 15, 2020.2 Previously, the Department issued guidance announcing that it would extend the date for filing and provide penalty relief through July 15, 2020, for income and franchise tax returns originally due on April 15, 2020.3 Subsequently, the Department issued additional guidance expanding the relief to include various other taxes, including withholding and sales and use taxes.4 However, the Department specified that it does not have authority to waive interest assessed for the underpayment of taxes.5 Accordingly, while penalties related to late filing and payment were waived, interest would have continued to accrue from the original due date without legislative action. The newly enacted law waives the accrual of interest on deferred payments of corporate income and franchise tax and individual income tax for payments originally due on April 15, 2020, if paid by July 15, 2020.6 The relief from accrual of interest also applies to deferred estimated corporate income and individual income tax payments made through July 15, 2020.7

Further, the legislation extends the statute of limitations to seek a refund for corporate income, franchise, or individual income tax. Any refund claim for which the statute of limitations expires on or after April 15, 2020, and before July 15, 2020, has been extended to July 15, 2020.8 The time period for other time-sensitive actions required to be taken by taxpayers on or after April 1, 2020, and before July 15, 2020, will also be extended to July 15, 2020. Time-sensitive actions include requests for Departmental review, petitions for a contested case hearing and petitions for judicial review.9

Emergency unemployment benefits and tax credit The legislation also provides a tax credit for employer contributions made to the state Unemployment Insurance Fund.10 Any employer is allowed a tax credit for a contribution to the Unemployment Insurance Fund for contributions due for the 2020 calendar year.11 The amount of the credit is equal to the amount of contributions payable on the report filed by the employer on or before April 30, 2020.12 For employers remitting the contributions payable with the report due on or before April 30, 2020, the credit will be applied to the contributions payable on the report due on or before July 31, 2020.13 An employer must file the report to receive the credit. If the credit is in excess of the amount of contributions due, the amount in excess will be refunded.14

Commentary There has been a great deal of confusion and inconsistency amongst the states as each scrambled to respond to tax filing and payment challenges related to the COVID-19 pandemic. While many state revenue departments liberally granted a waiver of both penalty and interest for deferred payments, in North Carolina, the Department lacked the authority to waive the interest applicable to any tax payment made after the original due date. The interest relief provided by the legislation will be welcome news for taxpayers who were unable to timely remit the required payments, and aligns the state’s payment requirements to the federal income tax filing and payment deferrals. It should be noted that the interest relief does not extend to tax types other than corporate income, franchise and individual income tax.

The state unemployment contribution tax credit will further aid North Carolina employers struggling with cash flow concerns. Additional guidance is anticipated detailing any impact to employers with respect to their future state unemployment insurance tax rate.

1 COVID-19 Recovery Act, Ch. SL 2020-3 (S.B. 704), Laws 2020.
2 Notice 2020-18, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, Internal Revenue Service, March 20, 2020. The IRS later expanded the automatic extension relief to all taxpayers having a filing or payment deadline falling on or after April 1 and before July 15, whether originally or pursuant to a valid extension. This relief includes second quarter estimated tax payments. Notice 2020-23, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, Internal Revenue Service, April 9, 2020.
3 Important Notice: Department of Revenue Extends the Time to File Income and Franchise Tax Returns for July 15, 2020, N.C. Department of Revenue, March 23, 2020.
4 Important Notice: Department of Revenue Expands Penalty Relief for Taxpayers Affected by Coronavirus Disease 2019, N.C. Department of Revenue, March 31, 2020.
5 N.C. GEN. STAT. § 105-237(a).
6 Ch. SL 2020-3, § 1.1.(a).
7 Ch. SL 2020-3, § 1.1.(a).
8 Ch. SL 2020-3, § 1.1.(b).
9 Ch. SL 2020-3, § 1.1.(c).
10 Ch. SL 2020-3, § 1.2.(a), adding N.C. GEN. STAT. § 96-14.15(c).
11 N.C. GEN. STAT. § 96-14.15(c).
12 N.C. GEN. STAT. § 96-14.15(c).
13 N.C. GEN. STAT. § 96-14.15(c).
14 N.C. GEN. STAT. § 96-14.15(c).

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