G. Allocation and Apportionment Procedures (G.S. 105-130.4)
- Preliminary Statement
A corporation which is taxable both within and without North Carolina is required
to allocate and apportion its entire net income or loss to North Carolina
in accordance with the statutory formula under G.S. 105-130.4.
No corporation is allowed to use any alternative formula or method of reporting
its income to North Carolina except upon written order of the Tax Review Board.
Any return in which any formula or method other than as prescribed by statute
is used without the permission of such Board is not a lawful return.
- Alternate Apportionment Formula
If any corporation believes that the statutory allocation formula allocates
a greater portion of its income than is reasonably attributable to business
or earning in this State may request the Tax Review Board for permission to
use an adjusted allocation formula which it believes would more properly allocate
its income to North Carolina.
The petition must be filed with the Board not later than 90 days after the
regular or extended due date of the tax return. Taxpayers should address all
correspondence in connection with such petitions to the Secretary of the Tax
Review Board, Revenue Building, Raleigh, North Carolina 27604.
- Statutory Procedures for Reporting Net Income or Loss to North Carolina
- Determine Net Income Everywhere
The corporation should determine its net income or loss from
its entire operations conducted everywhere during the income
year in accordance with the instructions given in subject:
"Computation of Net Income." In computing
such net income only contributions to donees outside North
Carolina are deductible. Contributions to qualified North
Carolina donees are deductible only from total income allocated
to North Carolina, computed in Step h.
- Determine Nonbusiness Income
The corporation should review its entire net income or loss
as computed in Step a to determine whether any items of nonbusiness
income, loss and expense qualify for direct allocation to
North Carolina and other states pursuant to G.S. 105-130.4,
subdivisions (d) through (h). To qualify for direct allocation,
such income, loss and expense must have been realized or incurred
in a business activity unrelated to and not constituting an
integral part of the corporation's regular trade or business
conducted everywhere during the income year. Any expenses
directly and/or indirectly related to a nonbusiness activity
must be considered in the computation of nonbusiness income
to be allocated. (See Subject: "Attribution of Expenses
to Nontaxable Income and to Nonbusiness Income and Property".)
- Determine Apportionable Business Income
The corporation determines its apportionable business income or loss by
deducting all nonbusiness income or loss directly allocable to North Carolina
and other states (computed in Step b) from its entire net income
or loss (computed in Step a).
- Compute Apportionment Factors
The corporation is required to determine and compute the apportionment
factor applicable to its principal business operations conducted everywhere
during the income year. The value of nonbusiness property and items of
nonbusiness income, loss and expense directly allocable to North Carolina
and other states must be excluded in computing the apportionment factors.
- Apportion Business Income to North Carolina
The corporation determines the amount of its apportionable business income
or loss attributable to North Carolina by applying the factor computed
in Step d to the total business income or loss as computed in Step
- Determine Total Income Allocable to North Carolina
The corporation should review the total amount of non-business
income or loss as computed in Step b and list separately
the amount of such income or loss directly allocable to North
Carolina. This amount, added to the amount of business income
or loss apportioned to this State in Step e, represents
the total amount of the corporation's entire net income or
loss to North Carolina.
- Tax Credit Addback and Percentage Depletion Deduction Before Net
Economic Loss Deduction
The amount of any tax credit claimed against the corporation's
income tax liability must be added to the amount of income
allocated and apportioned to North Carolina. Also, the amount
of percentage depletion over cost depletion on North Carolina
property must be deducted before claiming any net economic
loss carryover deduction.
- Determine Total North Carolina Income Before Deductions for Contributions
to North Carolina Donees
To determine total North Carolina income before the deduction for contributions
to North Carolina donees, the corporation deducts the allowable portion
of any net economic loss for a prior year or years from the total income
determined in Step g.
- Determine Total Net Taxable Income in North Carolina
Finally, the corporation arrives at its net taxable income in North Carolina
by deducting contributions made to qualified North Carolina donees from
the amount of total North Carolina income as computed in Step h.