Application of Economic Recovery Act of 1981

Subject:

Requested By: Mark G. Lynch Secretary of Revenue

Question: Are the depreciation deductions made available under the Economic Recovery Tax Act of 1981 available to corporate taxable years beginning on and after 1 January 1981?

Conclusion: Yes.

The Secretary of Revenue has inquired whether the deductions allowed for accelerated depreciation by the Economic Recovery Tax Act of 1981 to taxpayers for federal purposes will also be available for State income tax purposes to corporate taxpayers. G.S. 105-130.3 provides:

"Every corporation doing business in this State shall pay annually an income tax equivalent to six percent (6%) of its net income or the portion thereof allocated and apportioned to this State. The net income or net loss of such corporation shall be the same as "taxable income" as defined in the Internal Revenue Code in effect on January 1, 1981, subject to the adjustments provided in G.S. 105-130.5." (Emphasis added.)

The question arises because the federal Act was not approved until 13 August 1981, but provides that the new depreciation provisions "shall apply to property placed in service after December 31, 1980, in taxable years ending after such date." Economic Recovery Tax and Administrative News, No. 6, August 1981.

It should also be noted that the new changes are clearly applicable to individual income taxpayers for State income tax purposes. G.S. 105-147(12) permits as a deduction "an allowance for depreciation and obsolescence of property . . . to the extent allowed or allowable for federal income tax purposes under the provisions of the Internal Revenue Code of 1954 as amended . . ." (Emphasis added)

If the meaning of "in effect on" is that the code as it existed on a given date is the Code that must be applied, then obviously the Internal Revenue Code in effect on 1 January 1981 could not include amendments from an act nor approved until 13 August 1981. However, it seems clear that the legislative intent is, with specified statutory exceptions, to conform State corporate income tax provisions with federal law. It seems that as clear that the depreciation schedule applicable to a particular item of property owned by a corporation ought logically to be the same as that applicable to an identical item owned by an individual.

If, however, the meaning of "in effect on" is that the Code as it applied with respect to a given date is the one to be given effect, then the Code provisions which apply with respect to 1 January 19i81 are those which were approved as 13 August 1981 and which "apply to property placed in service after December 31, 1981, in taxable years ending after such date."

"With respect to" and "pertaining to" are recognized and accepted meanings which may be ascribed to the word "on", and given that meaning, the provisions of G.S. 105-130.3 appear to meet the demands of both legislative intent and logic. Jerome H. Shelp Co. v. Amos, 100 Fla. 863, 130 So.699; Welch v. Gant, 161 Miss. 867, 138 So. 585.

It is therefore our opinion that the depreciation deductions made available under the Economic Recovery Tax Act of 1981 are available to corporate taxpayers for State income tax purposes for taxable years beginning on and after 1 January 1981.

Rufus L. Edmisten Attorney General

Myron C. Banks Special Deputy Attorney General