L. Corporations Conditionally or Partially Exempt (G.S. 105-122
- 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:
- 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.
- 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.
- Business leagues, chambers of commerce, merchants associations
and boards of trade.
- Civic leagues or organizations operated exclusively for
the promotion of civic welfare.
- Clubs organized and operated exclusively for pleasure, recreation
and other non-profit purposes.
- 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.
- 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.
- 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.
- Condominium associations, homeowner associations or cooperative
housing corporations not organized for profit.
- 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
- Corporations Fully Exempt
Corporations which quality for the full franchise tax exemption
are described below:
- 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.
- 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.
- Regulated Investment Companies and Real Estate Investment
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.
- 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.
- 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.
- 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.
- 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)).
- 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.
- 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.