(a) Purpose. Royaltypayments received for the use of intangible property in this State are incomederived from doing business in this State. This section provides taxpayers withan option concerning the method by which these royalties can be reported fortaxation when the recipient and the payer are related members. As provided inthis section, these royalty payments can be either (i) deducted by the payerand included in the income of the recipient, or (ii) added back to the incomeof the payer and excluded from the income of the recipient.
(b) Definitions. Thefollowing definitions apply in this section:
(1) Component member. Definedin section 1563(b) of the Code.
(1a) Intangible property. Copyrights, patents, and trademarks.
(2) North Carolinaroyalty. An amount charged that is for, related to, or in connection with theuse in this State of intangible property. The term includes royalty andtechnical fees, licensing fees, and other similar charges.
(3) Own. To owndirectly, indirectly, beneficially, or constructively. The attribution rules ofsection 318 of the Code apply in determining ownership under this section.
(4) Related entity. Anyof the following:
a. A stockholder who isan individual, or a member of the stockholder's family enumerated in section318 of the Code, if the stockholder and the members of the stockholder's familyown in the aggregate at least eighty percent (80%) of the value of thetaxpayer's outstanding stock.
b. A stockholder, or astockholder's partnership, limited liability company, estate, trust, orcorporation, if the stockholder and the stockholder's partnerships, limitedliability companies, estates, trusts, and corporations own in the aggregate atleast fifty percent (50%) of the value of the taxpayer's outstanding stock.
c. A corporation, or aparty related to the corporation in a manner that would require an attributionof stock from the corporation to the party or from the party to the corporationunder the attribution rules of section 318 of the Code, if the taxpayer owns atleast eighty percent (80%) of the value of the corporation's outstanding stock.
(5) Related member. Aperson that, with respect to the taxpayer during any part of the taxable year,is one or more of the following:
a. A related entity.
b. A component member.
c. A person to or fromwhom there would be attribution of stock ownership in accordance with section1563(e) of the Code if the phrase "5 percent or more" were replacedby "twenty percent (20%) or more" each place it appears in thatsection.
(6) Royalty payment. Eitherof the following:
a. Expenses, losses,and costs paid, accrued, or incurred for North Carolina royalties, to theextent the amounts are allowed as deductions or costs in determining taxableincome before operating loss deduction and special deductions for the taxableyear under the Code.
b. Amounts directly orindirectly allowed as deductions under section 163 of the Code, to the extentthe amounts are paid, accrued, or incurred for a time price differentialcharged for the late payment of any expenses, losses, or costs described inthis subdivision.
(7) Trademark. Atrademark, trade name, service mark, or other similar type of intangible asset.
(8) Use. Use ofintangible property includes direct or indirect maintenance, management,ownership, sale, exchange, or disposition of the intangible property.
(c) Election. For thepurpose of computing its State net income, a taxpayer must add royalty paymentsmade to, or in connection with transactions with, a related member during thetaxable year. This addition is not required for an amount of royalty paymentsthat meets any of the following conditions:
(1) The related memberincludes the amount as income on a return filed under this Part for the sametaxable year that the amount is deducted by the taxpayer, and the relatedmember does not elect to deduct the amount pursuant to G.S. 105‑130.5(b)(20).
(2) The taxpayer canestablish that the related member during the same taxable year directly orindirectly paid, accrued, or incurred the amount to a person who is not arelated member.
(3) The taxpayer canestablish that the related member to whom the amount was paid is organizedunder the laws of a country other than the United States, the country has acomprehensive income tax treaty with the United States, and the country imposesa tax on the royalty income of the related member at a rate that equals orexceeds the rate set in G.S. 105‑130.3.
(d) IndirectTransactions. For the purpose of this section, an indirect transaction orrelationship has the same effect as if it were direct. (2001‑327, s. 1(b);2003‑416, s. 15; 2006‑66, s. 24A.3(a); 2006‑196, s. 10.)
(a) Purpose. Royaltypayments received for the use of intangible property in this State are incomederived from doing business in this State. This section provides taxpayers withan option concerning the method by which these royalties can be reported fortaxation when the recipient and the payer are related members. As provided inthis section, these royalty payments can be either (i) deducted by the payerand included in the income of the recipient, or (ii) added back to the incomeof the payer and excluded from the income of the recipient.
(b) Definitions. Thefollowing definitions apply in this section:
(1) Component member. Definedin section 1563(b) of the Code.
(1a) Intangible property. Copyrights, patents, and trademarks.
(2) North Carolinaroyalty. An amount charged that is for, related to, or in connection with theuse in this State of intangible property. The term includes royalty andtechnical fees, licensing fees, and other similar charges.
(3) Own. To owndirectly, indirectly, beneficially, or constructively. The attribution rules ofsection 318 of the Code apply in determining ownership under this section.
(4) Related entity. Anyof the following:
a. A stockholder who isan individual, or a member of the stockholder's family enumerated in section318 of the Code, if the stockholder and the members of the stockholder's familyown in the aggregate at least eighty percent (80%) of the value of thetaxpayer's outstanding stock.
b. A stockholder, or astockholder's partnership, limited liability company, estate, trust, orcorporation, if the stockholder and the stockholder's partnerships, limitedliability companies, estates, trusts, and corporations own in the aggregate atleast fifty percent (50%) of the value of the taxpayer's outstanding stock.
c. A corporation, or aparty related to the corporation in a manner that would require an attributionof stock from the corporation to the party or from the party to the corporationunder the attribution rules of section 318 of the Code, if the taxpayer owns atleast eighty percent (80%) of the value of the corporation's outstanding stock.
(5) Related member. Aperson that, with respect to the taxpayer during any part of the taxable year,is one or more of the following:
a. A related entity.
b. A component member.
c. A person to or fromwhom there would be attribution of stock ownership in accordance with section1563(e) of the Code if the phrase "5 percent or more" were replacedby "twenty percent (20%) or more" each place it appears in thatsection.
(6) Royalty payment. Eitherof the following:
a. Expenses, losses,and costs paid, accrued, or incurred for North Carolina royalties, to theextent the amounts are allowed as deductions or costs in determining taxableincome before operating loss deduction and special deductions for the taxableyear under the Code.
b. Amounts directly orindirectly allowed as deductions under section 163 of the Code, to the extentthe amounts are paid, accrued, or incurred for a time price differentialcharged for the late payment of any expenses, losses, or costs described inthis subdivision.
(7) Trademark. Atrademark, trade name, service mark, or other similar type of intangible asset.
(8) Use. Use ofintangible property includes direct or indirect maintenance, management,ownership, sale, exchange, or disposition of the intangible property.
(c) Election. For thepurpose of computing its State net income, a taxpayer must add royalty paymentsmade to, or in connection with transactions with, a related member during thetaxable year. This addition is not required for an amount of royalty paymentsthat meets any of the following conditions:
(1) The related memberincludes the amount as income on a return filed under this Part for the sametaxable year that the amount is deducted by the taxpayer, and the relatedmember does not elect to deduct the amount pursuant to G.S. 105‑130.5(b)(20).
(2) The taxpayer canestablish that the related member during the same taxable year directly orindirectly paid, accrued, or incurred the amount to a person who is not arelated member.
(3) The taxpayer canestablish that the related member to whom the amount was paid is organizedunder the laws of a country other than the United States, the country has acomprehensive income tax treaty with the United States, and the country imposesa tax on the royalty income of the related member at a rate that equals orexceeds the rate set in G.S. 105‑130.3.
(d) IndirectTransactions. For the purpose of this section, an indirect transaction orrelationship has the same effect as if it were direct. (2001‑327, s. 1(b);2003‑416, s. 15; 2006‑66, s. 24A.3(a); 2006‑196, s. 10.)
(a) Purpose. Royaltypayments received for the use of intangible property in this State are incomederived from doing business in this State. This section provides taxpayers withan option concerning the method by which these royalties can be reported fortaxation when the recipient and the payer are related members. As provided inthis section, these royalty payments can be either (i) deducted by the payerand included in the income of the recipient, or (ii) added back to the incomeof the payer and excluded from the income of the recipient.
(b) Definitions. Thefollowing definitions apply in this section:
(1) Component member. Definedin section 1563(b) of the Code.
(1a) Intangible property. Copyrights, patents, and trademarks.
(2) North Carolinaroyalty. An amount charged that is for, related to, or in connection with theuse in this State of intangible property. The term includes royalty andtechnical fees, licensing fees, and other similar charges.
(3) Own. To owndirectly, indirectly, beneficially, or constructively. The attribution rules ofsection 318 of the Code apply in determining ownership under this section.
(4) Related entity. Anyof the following:
a. A stockholder who isan individual, or a member of the stockholder's family enumerated in section318 of the Code, if the stockholder and the members of the stockholder's familyown in the aggregate at least eighty percent (80%) of the value of thetaxpayer's outstanding stock.
b. A stockholder, or astockholder's partnership, limited liability company, estate, trust, orcorporation, if the stockholder and the stockholder's partnerships, limitedliability companies, estates, trusts, and corporations own in the aggregate atleast fifty percent (50%) of the value of the taxpayer's outstanding stock.
c. A corporation, or aparty related to the corporation in a manner that would require an attributionof stock from the corporation to the party or from the party to the corporationunder the attribution rules of section 318 of the Code, if the taxpayer owns atleast eighty percent (80%) of the value of the corporation's outstanding stock.
(5) Related member. Aperson that, with respect to the taxpayer during any part of the taxable year,is one or more of the following:
a. A related entity.
b. A component member.
c. A person to or fromwhom there would be attribution of stock ownership in accordance with section1563(e) of the Code if the phrase "5 percent or more" were replacedby "twenty percent (20%) or more" each place it appears in thatsection.
(6) Royalty payment. Eitherof the following:
a. Expenses, losses,and costs paid, accrued, or incurred for North Carolina royalties, to theextent the amounts are allowed as deductions or costs in determining taxableincome before operating loss deduction and special deductions for the taxableyear under the Code.
b. Amounts directly orindirectly allowed as deductions under section 163 of the Code, to the extentthe amounts are paid, accrued, or incurred for a time price differentialcharged for the late payment of any expenses, losses, or costs described inthis subdivision.
(7) Trademark. Atrademark, trade name, service mark, or other similar type of intangible asset.
(8) Use. Use ofintangible property includes direct or indirect maintenance, management,ownership, sale, exchange, or disposition of the intangible property.
(c) Election. For thepurpose of computing its State net income, a taxpayer must add royalty paymentsmade to, or in connection with transactions with, a related member during thetaxable year. This addition is not required for an amount of royalty paymentsthat meets any of the following conditions:
(1) The related memberincludes the amount as income on a return filed under this Part for the sametaxable year that the amount is deducted by the taxpayer, and the relatedmember does not elect to deduct the amount pursuant to G.S. 105‑130.5(b)(20).
(2) The taxpayer canestablish that the related member during the same taxable year directly orindirectly paid, accrued, or incurred the amount to a person who is not arelated member.
(3) The taxpayer canestablish that the related member to whom the amount was paid is organizedunder the laws of a country other than the United States, the country has acomprehensive income tax treaty with the United States, and the country imposesa tax on the royalty income of the related member at a rate that equals orexceeds the rate set in G.S. 105‑130.3.
(d) IndirectTransactions. For the purpose of this section, an indirect transaction orrelationship has the same effect as if it were direct. (2001‑327, s. 1(b);2003‑416, s. 15; 2006‑66, s. 24A.3(a); 2006‑196, s. 10.)
