C. Telephone Companies (G.S. 105-120)

Note: This section addresses franchise tax due on receipts generated on or before December 31, 2001. The franchise tax on telephone companies was repealed effective January 1, 2002, and replaced with G.S. 105-164.4C that consolidates all taxes on telecommunications services into a single State sales tax. As a result, telephone companies that are corporations will be subject to the general business franchise tax effective January 1,2002.

  1. Basis for Taxation
    Every person, firm, or corporation, foreign or domestic, owning and/or operating a business entity for the provision of Local Telecommunication Service in this State, is subject to an annual franchise or privilege tax at the rate of 3.22% on gross receipts derived from services that are obligated to be furnished by such telephone company. Companies subject to the franchise tax levied under this section are also required to collect and remit to the State a sales tax at the rate of 3% of total billings.

    Gross receipts derived from telecommunications service or private telecommunications service as defined under G.S. 105-120 are subject to a six and one-half percent (6½%) sales tax rather than the combined 3.22% franchise tax and three percent (3%) sales tax.

  2. Due Date of the Return and Tax
    Returns are due quarterly and should contain, in addition to the other information, the total gross receipts from such business in North Carolina for the preceding calendar quarter. Payments by EFT are required if the average amount of tax is at least $20,000 a month. Payments are due monthly or quarterly depending on the company's monthly franchise tax liability as shown below:

    1. Monthly franchise tax average of less than $3000
      Companies pay tax quarterly when filing the quarterly reports which are due the last day of the month that follows the quarter covered by the report.

    2. Monthly franchise tax average of $3000 or more
      Companies pay tax monthly and are required to remit at least ninety-five percent (95%) of the tax due in each of the first two months of a calendar quarter with any underpayment includable in the quarterly report. Monthly payments are due by the last day of the month that follows the month the tax accrues, except the payment for tax that accrues in May is due by June 25.

  3. Forms to be Used for Filing
    Form CD-311 is to be used for filing the reports.

  4. Special Exemption
    Amounts derived from interstate commerce, advertising receipts, carrier access or billing fees and pole rental receipts are not included in the franchise tax base. The receipts received from sales for resale are considered charges between telephone companies not subject to the tax.

    Mutual or cooperative telephone associations or companies and municipal corporations are not required to file Form CD-311.

  5. Distribution to Municipalities
    An amount equal to 3.09% of the gross receipts generated from local business conducted within a municipality subject to the franchise tax is returned to the respective municipality. To be eligible for a distribution, a municipality must first be legally incorporated and have either elected officials or interim officials appointed by the Legislature.