L. Corporations Conditionally or Partially Exempt (G.S. 105-122 & 125)

  1. Non-Profit Organizations
    The following organizations and any other organization exempt from federal income tax under the Code referred to under G.S. 105-130.3 are exempt from franchise tax if they are not organized for profit and if no profit inures to the benefit of any member, shareholder or other individual:

    1. Fraternal societies, orders or associations. To quality for income tax exemption, the organization must operate under the lodge system or for the exclusive benefit of members of a fraternity that is operating under the lodge system,; and provide life, sick, accident or other benefits to the members or their dependents.
    2. Corporations organized or trusts created for religious, charitable, scientific or educational purposes, including cemetery corporations and organizations for the prevention of cruelty to children and animals.
    3. Business leagues, chambers of commerce, merchants associations and boards of trade.
    4. Civic leagues or organizations operated exclusively for the promotion of civic welfare.
    5. Clubs organized and operated exclusively for pleasure, recreation and other non-profit purposes.
    6. Mutual hail, cyclone and fire insurance companies; mutual ditch, irrigation, canning and breeding associations; mutual or cooperative telephone companies; and like organizations of a purely local character which derive their entire income from assessments, dues or fees collected from members for the sole purpose of meeting expenses.
    7. Farmer's marketing associations operating as sales agents to market the products of members or other farmers, and to return to them the proceeds, less the necessary selling expenses, on the basis of the quantity of product furnished by them.
    8. Pension, profit-sharing, stock bonus and annuity trusts established by employers for the purpose of distributing both the principal and income thereof exclusively to eligible employees or the beneficiaries of such employees. There must be no discrimination in favor of any particular employee. The interest of individual employees must be irrevocable and nonforfeitable to the extent of contributions by such employees. Exemption of a trust under the Federal income tax law is a prima facie basis for granting exemption from North Carolina franchise and income taxation.
    9. Condominium associations, homeowner associations or cooperative housing corporations not organized for profit.
    10. Cooperative or mutual associations formed under Section 54-124 of the General Statutes to conduct agricultural business on the mutual plan, and marketing associations formed under Section 54-129 of the General Statutes, are exempt from franchise tax.

  2. Corporations Fully Exempt
    Corporations which quality for the full franchise tax exemption are described below:

    1. Insurance companies subject to the tax on gross premiums are exempt from the general business franchise tax. Effective January 1, 2003, health maintenance organizations will be subject to the gross premiums tax and exempt from the general business franchise tax.
    2. Telephone membership corporations organized under Chapter 117 of the General Statutes of North Carolina are exempt from the general business franchise tax. Electric membership corporations are, however, subject to franchise taxes.

  3. Regulated Investment Companies and Real Estate Investment Trusts
    These are organizations or trusts which quality under the United States Code as a "regulated investment company" or "real estate investment trust" and file with the Revenue Department an election to be treated as such a company or trust.

    They are required to pay franchise tax; however, in determining their "capital stock, surplus, and undivided profits base" they are allowed to deduct the aggregate market value of investments in the stock, bonds, debentures, or other securities or evidences of debt of other corporations, partnerships, individuals, municipalities, governmental agencies or governments.

  4. Real Estate Mortgage Investment Conduits (REMIC) Organizations which quality under the Code as Real Estate Mortgage Investments Conduits (REMIC) are exempt from franchise tax and are also exempt from income tax to the extent the REMIC is exempt from income tax under the Code.

  5. Limited Liability Company (LLC)
    The "North Carolina Limited Liability Company Act" (Chapter 57C of the North Carolina General Statutes) permits the organization and operation of limited liability companies (LLC). A LLC is a business entity that combines the S corporation characteristic of limited liability with the flow-through features of a partnership.

    1. Exempt from Franchise Tax - The LLC is exempt from franchise tax since the LLC is excluded from the definition of organizations subject to franchise tax.
    2. Corporate Members of LLCs – Effective January 1, 2002 a corporation that is a member of a LLC and is entitled to receive at least seventy percent (70%) of the LLC's assets upon dissolution, must include the LLC's assets in the corporation's franchise tax base. The member corporation's investment in the LLC is excludible from the computation. (G.S. 105-114(c)).
    3. Files as Corporation if Required for Federal - The LLC is subject to State taxation according to its classification for federal income tax purposes. If the corporation is classified as a corporation for federal income tax purposes, then the LLC files as a corporation for North Carolina income tax purposes.
    4. Subject to Suspension and Reinstatement Provisions - The LLC is subject to the same provisions as apply to corporations relating to suspension of charter, penalties for operating with a suspended charter and reinstatement of rights after suspension of charter.