K. Deduction of Contributions (G.S. 105-130.9(1), (2) and (3))
- Preliminary Statement
Subject to certain limitations, contributions or gifts made by a corporation within the income year to qualified donees are deductible in determining net income.
- Charitable Contribution Defined
For purposes of this section charitable contributions are defined per section 170 (c) of the Internal Revenue Code.
- Contributions Limited to 5% of Net Income (G.S. 105-130.9 (1))
The deduction for contributions made to qualified organizations other than contributions made to the State of North Carolina, a municipality in North Carolina, or any of their institutions, instrumentalities, or agencies, and to qualified educational institutions located within North Carolina are limited to an amount not exceeding five percent (5%) of the corporation's net income as determined before the deductions for contributions. State law does not permit a corporation to carryover unused contributions to subsequent years.
- Contributions Fully Deductible (G.S. 105-130.9 (2))
Contributions or gifts made by a corporation to the State of North Carolina, a county in North Carolina, a municipality in North Carolina, or any of their institutions, instrumentalities, or agencies, and to qualified educational institutions located within North Carolina are fully deductible in arriving at net income or loss. "Educational institution" means only an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where the educational activities are carried on. This term, however, is deemed to include the institution's departments, schools and colleges as well as a group of educational institutions and an organization (corporation, trust, foundation, association or other entity) organized and operated exclusively to receive, hold, invest and administer property and to make expenditures to or for the sole benefit of an educational institution or group of such institutions.
Example: Corporation B deducted contributions of $100 to a North Carolina county agency, $50 to a college located in North Carolina and $50 to other qualified donees in determining net income of $1000 before deduction of a net economic loss of $500. The allowable contributions deduction is computed as follows:
Net income $1,000 Add: Contributions 200 Net income before net economic
$1,200 Less: Net economic loss brought
500 Net income before contributions
$ 700 Less allowable contributions:
Under subdivision (1) 5% of $700
College located in North Carolina
North Carolina county agency
100 185 Net taxable income $ 515
- Contributions by Corporations Allocating Net Income (G.S. 105-130.9 (3))
A corporation which is required to apportion its total net income to North Carolina by using the allocation and apportionment methods in G.S. 105-130.4 must deduct from total net income allocable to North Carolina the contributions it made to North Carolina donees qualified in subdivisions (1) and (2) of G.S. 105-130.9.
However, the deduction for contributions made to North Carolina donees qualified in subdivision (1) of G.S. 105-130.9 is limited to 5% of total net income allocated to North Carolina as computed before this deduction. Furthermore, the contributions which qualify as a direct deduction from total net income allocated to North Carolina cannot be deducted in arriving at the corporation's total net income subject to apportionment.
Example: Corporation C's records show net income of $114,000 before the deductions for a net economic loss and contributions. Contributions total $6,200 and include $200 to a North Carolina agency, $2,000 to other North Carolina donees and $4,000 to qualified donees located outside North Carolina.The deduction for contributions is determined as follows:
Net income before contributions and net economic loss deductions $114,000 Less: Contributions to donees outside N.C. 4,000 Total $110,000 Less: Total nonbusiness income 10,000 Total business income $100,000 Apportionable to N.C. - 35% $35,000 Add: Nonbusiness income directly allocable to N.C. 1,000 Total income allocated to N.C.: $36,000 Less: Allowable portion of net economic loss deduction 6,000 Total income allocated to N.C. before contributions to N.C. donees $30,000 Less contributions:
North Carolina donees (5% of $30,000)
North Carolina county agency
200 1,700 Net taxable income $28,300