Let’s look at some selected North Carolina tax provisions that deal with motor sports. (I chose North Carolina because it seems to have more tax rules that touch on motor sports than most other states.)
But even if you have no interest in North Carolina taxation specifically, there are several points to keep in mind regarding state taxation in general:
· First, the level of detail, specifications and definitions are critical in state taxation, particularly in sales and use taxes.
· Second: be aware of the dates. Tax laws are enacted, expire or are revised and these all have effective dates.
· Third: the proper state form must be used, documentation must be kept, and the due dates for the returns must be followed. Failure to do so can result in the loss or denial of a tax benefit or refund.
· Fourth: some of the computations tend to be complex. Professional help is often needed.
With these thoughts in mind, let’s look at a few North Carolina tax laws that affect motor sports.
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Income Tax Credit For Purchases by Motor Sports-Related Entities
There’s a credit against North Carolina income taxes that can be claimed by eligible taxpayers who purchase or lease qualified items. These items must be placed in service in North Carolina[1].
These “eligible taxpayers” must be:
· Engaged in certain types of businesses,
· Provide health insurance,
· Have a good record regarding environmental and OHSA matters,
· Have no overdue tax deficiencies, and
· Meet certain wage standards.
There are twelve primary activities that can qualify for the credit. Of interest to us are two: a motor sports facility and a motor sports racing team[2].
The actual credit equals a certain percentage of the qualified investment above a certain amount. This amount depends on the North Carolina development area in which the business is located. There’s a further limitation on the tax benefit: the investment must exceed the cost of all the taxpayer’s investment in a base year. The rules tend to be complex and the limitation depends on the North Carolina county in which the business is located[3].
There are also limitations on how much tax the credit may be applied against[4].
This credit is scheduled to expire for business activities after December 31, 2012.
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What’s a “Professional Motor Sports Racing Team”?
North Carolina tax rules define this term as a racing team that:
· Is operated for a profit,
· Has a majority of its revenues coming from either sponsorship of the racing team or from prize money, and
· Competes in at least 66% of the races sponsored in a single season by a motor sports sanctioning body[5].
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Partial Refund of North Carolina Sales and Use Taxes Paid By A Professional Motor Sports Racing Team.
After July 1, 2007, a professional motor sports racing team can obtain an annual refund of 50% of North Carolina Sales and Use Taxes paid on certain items that become a part of a professional motor racing vehicle. The refund request is due by December 31 of each year for the prior fiscal year that ends June 30. Use form E-585S. This provision is repealed for purchases made after December 31, 2013
What are “items that becomes part of a motor racing vehicle”? Examples include parts, axles, batteries, bumpers, chassis, engines, seats, sheet metal, steering wheels, transmissions and wheels.
Examples of “accessories” that the sales tax refund does not apply to include tires, brake fluid, decals, drivers comfort equipment (such as drink bottle holder, cooling unit, hans devices, heat-resistant pads), fuel, grease and lubricants, Locktite, motor oil, radios, shop supplies, tear-offs, tools, track equipment, Instrumentation, telemetry, consumables, paint and welding gas[6].
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Refund of Aviation Fuel Sales Taxes.
North Carolina sales and use taxes paid on aviation fuel can be refunded if the fuel is used to transport a professional motor sports racing team or a motor sports sanctioning body:
· To or from a motor sports event in North Carolina from a point inside the state
· To a motor sports event in North Carolina from outside the state
· From a point in North Carolina to a motor sports even outside the state.
A “motor sports event” includes a motor sports race, a motor sports sponsorship event, or motor sports testing[7].
This provision expires for purchases made after December 31, 2012[8].
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Different states have different rules regarding the tax treatment of motor sport activities – Ohio and Indiana, to name two states in addition to North Carolina. The important thing to remember is each state is different. Also, keep in mind that some jurisdictions may be curtailing benefits due to the lack of state revenue caused by the current economic situation.
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Best wishes for a Merry Christmas and a Happy Holiday Season!
Until next time …
Phil Schurrer, CPA
“This posting is intended to provide general information regarding the subject matter covered. It is provided with the understanding that the author is not engaged in rendering legal, accounting, or other professional services. This information should not be used as a substitute for professional advice in specific situations. If legal advice or other expert assistance is required, the services of a professional should be sought.”
- Adopted from a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.
To insure compliance with the requirements imposed by the IRS, you are informed that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of
- Avoiding penalties under the Internal Revenue Code, or
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Taxpayers should seek professional advice based on their particular circumstances.Attorneys and other professionals dealing with specific matters and situations should also research original sources of authority.
[1] Sections 105-129.88, 105-129.83 G.S.
[2] Sec. 105-129.83(b) G.S.
[3] Sec. 105-129.88(a), (b) and (c) G.S.
[4] Sec. 105-129.84(b) G.S.
[5] North Carolina Tax Regulation 50.5.A.1
[6] Sections 105-164.3, 105-164.4, 105-164.6, 105-164.14, and 105-264
[7] North Carolina Tax Regulation 50.5.A.2
[8] Sec. 105-164.14A (a)(4) G.S.
