ATR Comments on North Carolina Department of Revenue Proposal

Americans for Tax Reform sent the following letter to North Carolina legislators today in response to rules recently proposed by the North Carolina Department of Revenue:

October 13, 2016

To: Members of the North Carolina General Assembly

From: Americans for Tax Reform

Re: Proper Market-Based Income Sourcing


Dear Members of the North Carolina General Assembly,

On behalf of Americans for Tax Reform (ATR) and our supporters across North Carolina, I write today to express concerns and raise objections to the North Carolina Department of Revenue’s proposed administrative rules that were recently published in the North Carolina Register regarding market-based sourcing. While North Carolina has been a national leader in tax reform in recent years, the Department of Revenue’s proposal to move to an audience-based corporate tax apportionment methodology would be a step in the wrong direction that results in higher taxes.

While ATR supports market-based sourcing, we oppose the proposal by the N.C. Department of Revenue to include an audience-based calculation of broadcasters’ tax liability, which we believe is an unsound approach – and constitutes a tax increase. Most other states smartly do not use audience-based methodology, which fails to correspond properly to in-state business activity.

A company’s corporate tax liability in North Carolina should be apportioned based on the business it does with customers in North Carolina. However, by using an audience-based methodology for apportionment, which would be the result of the Department of Revenue’s proposed rules, North Carolina would be taxing broadcasters based not on the revenue they earn from their actual customers in North Carolina, which include advertisers and cable and satellite companies, but on the revenue earned from the customers of others.

By moving to the audience-based methodology, as the Department of Revenue’s proposed rules would do, North Carolina would require broadcasting companies to calculate their state corporate tax liability based on information that is not even on their own books. Given the unsoundness of this outdated approach, recent years have seen several states move away from an audience-based approach to apportionment.

These states have moved to what is referred to as a “commercial domicile approach.” The commercial domicile approach, unlike the audience-based method, appropriately calculates a company’s state corporate tax liability based on their commerce with in-state partners and customers. By adopting the outdated audience-based methodology as proposed by the Department of Revenue, North Carolina would join Massachusetts as the only state in the last dozen years to adopt viewing audience apportionment for broadcasters.

I thank you and your colleagues for the impressive collection of pro-taxpayer, free market reforms you have enacted in recent years. However, ATR considers the N.C. Department of Revenue’s proposed audience-based method of market sourcing to be an unjustified tax increase that is out-of-step with the impressive record of conservative reforms the state has enacted in recent years. As such, I urge you to oppose the Department of Revenue’s proposal to move to the audience-based methodology for corporate tax apportionment. ATR will be working to educate North Carolinians on where elected officials stand on this important matter. If you have any questions or if ATR can be of assistance, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or [email protected].


Grover Norquist


Americans for Tax Reform