February 22, 1994
Ed Gillespie Securities Regulator Department of the Secretary of State 300 N. Salisbury Street Raleigh, North Carolina 27611
Re: Addition of qualified business investments credits to taxable income;
G.S. § 105-130.5(a)10; G.S. §§ 105-163.011,–163.012(d)
Dear Mr. Gillespie:
In your recent letter you request that we review the scope of the credit granted in G.S. § 105
163.011 for certain business investments. Section 163.011 in essence allows as a credit for the taxable year 25% of the invested sum. You state that the Department of Revenue taxes "the credit at a rate of 6% to 7.75% depending on the individuals’ filing status." You believe such taxation frustrates legislative purposes underlying the credit, and request that we review the department’s treatment of this preference item.
Recognition of the credit varies between individuals and corporations. For both types of taxpayers, G.S. § 105-163.012(d) requires that the credit reduce the purchaser’s "basis in the equity securities or subordinated debt" so acquired. However, G.S. § 105-130.5(a)(10) further directs corporations to add to taxable income all credits allowed by Article 4 of Chapter 105. Qualified business investment credits fall within Article 4.
The Revenue Laws Study Committee is aware of the double adjustments required for corporations utilizing these credits. It is reviewing a proposal that would eliminate for corporations the basis reduction presently imposed by G.S. § 105-163.012(d). All of these adjustments stem from substantive features of The Revenue Act; none rests upon any discretion or administrative powers delegated to the revenue department. I am sure the legislature would be delighted to receive any constructive suggestions to better achieve the goals underlying these unusual tax preferences.
We hope you find the foregoing helpful.
Reginald L. Watkins Senior Deputy Attorney General
George W. Boylan
Special Deputy Attorney General