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April
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The two provisions that
will impact most North Carolina taxpayers are the 30 percent
bonus depreciation allowance and the extension of the net
operating loss carryback period from two to five years.
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Tax Watch
How the federal
economic stimulus law will impact your state taxes
The
economic stimulus legslation signed by President Bush last
month -- the Job Creation and Worker Assistance Act of 2002 --
contains several income tax provisions that may impact you
company and individual tax returns due April 15. The N.C.
Department of Revenue said it has received several inquiries
about how the legislation will impact North Carolina income
tax returns, since the state's current statutory reference to
the Internal Revenue Code is to the code as enacted as of Jan.
1, 2001.
Each year the legislature considers updating the reference to
the Internal Revenue Code to adopt the changes enacted by
Congress to the code since the last update. Until the
legislature takes action this summer, it is uncertain whether
the Act's income tax provisions will be adopted for North
Carolina income tax purposes.
The two provisions included in the federal legislation that
will impact most North Carolina taxpayers are the 30 percent
bonus depreciation allowance and the extension of the net
operating loss carryback period from two to five years. The
additional 30 percent bonus depreciation allowance is
available for certain assets placed in service after Sept. 10,
2001, and before Sept. 11, 2004. Taxpayers are still entitled
to the normal first-year depreciation on the remaining basis
of the asset after reducing the basis by the bonus
depreciation. This provision affects both corporate and
individual income taxpayers.
Because North Carolina's income tax returns do not provide
instructions on how to report depreciation in a manner
different than that reported on the federal return, the state
Revenue Department will process current year original returns
as if the code reference date included the provisions in the
Job Creation and Worker Assistance Act. If the legislature
elects not to adopt the bonus depreciation provision,
taxpayers who claimed the bonus depreciation on their original
returns must amend their returns and pay any tax and interest
due.
Taxpayers who have already filed original returns and who now
are filing amended federal returns to claim the bonus
depreciation should delay filing amended North Carolina
returns until the legislature determines whether it will adopt
the bonus depreciation provision. If a taxpayer files an
amended return to claim the bonus depreciation, the Department
of Revenue will not process that amended return until the
matter is resolved legislatively.
The carryback period for net operating losses occurring in tax
years ending in 2001 and 2002 is extended from two to five
years for federal income tax purposes. For state income tax
purposes, this change affects only individual income taxpayers
because North Carolina does not follow the net operating loss
provisions for corporate income tax purposes. Individuals
filing amended federal returns to carry back a 2001 or 2002
net operating loss should delay filing amended North Carolina
returns until the legislature determines whether it will adopt
the additional carryback period provision. If a taxpayer files
an amended return to claim a carryback of a 2001 or 2002 net
operating loss, the Revenue Department will not process that
amended return until the matter is resolved legislatively.
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