17 NCAC 05G .0502 — Original Returns

When a taxpayer files an original return for a taxable year where it properly assigns its receipts using a method of assignment, including a method of reasonable approximation, in accordance with the rules in this Subchapter, the application of such method of assignment shall be deemed to be a correct determination by the taxpayer of the state or states of assignment to which the method is properly applied. In those cases, neither the Secretary nor the taxpayer may modify the taxpayer's methodology as applied for assigning those receipts for the taxable year, through the form of an audit adjustment, amended return, or abatement application. However, the Secretary and the taxpayer may each subsequently correct factual errors or calculation errors with respect to the taxpayer's application of its filing methodology. 17 NCAC 05G .0503 Secretary's authority to adjust a taxpayer's return The Secretary's ability to review and adjust a taxpayer's assignment of receipts on a return to assign receipts consistent with the rules of this Subchapter, includes each of the following potential actions: (1) when a taxpayer fails to properly assign receipts from a sale in accordance with the rules set forth in this Subchapter, including the failure to apply a hierarchy of rules consistent with the principles of Rule .0201(2) of this Subchapter, the Secretary shall adjust the assignment of the receipts in accordance with the applicable rules in this Subchapter; (2) when a taxpayer uses a method of approximation to assign its receipts and the Secretary determines that the method of approximation employed by the taxpayer is not reasonable, the Secretary shall either substitute a method of approximation that the Secretary determines is appropriate, as provided in Article 9 of G.S. 105, or exclude the receipts from the taxpayer's numerator and denominator; (3) when the Secretary determines that a taxpayer's method of approximation has not been applied in a consistent manner with respect to similar transactions or year to year, the Secretary may require that the taxpayer apply its method of approximation in a consistent manner; (4) when a taxpayer excludes receipts from the denominator of its sales factor on the basis that the assignment of the receipts cannot be reasonably approximated, the Secretary may determine that the exclusion of those receipts is not appropriate, and may instead substitute a method of approximation that the Secretary determines is appropriate, as provided in Article 9 of G.S. 105; (5) when a taxpayer fails to retain contemporaneous records that explain the determination and application of its method of assigning its receipts, including its underlying assumptions, or fails to provide those records to the Secretary upon request, the Secretary shall treat the taxpayer's assignment of receipts as unsubstantiated, and shall adjust the assignment of the receipts in a manner consistent with the applicable rules in this Subchapter; or (6) when the Secretary concludes that a customer's billing address was selected by the taxpayer for tax avoidance purposes, the Secretary shall adjust the assignment of receipts from sales to that customer in a manner consistent with the applicable rules in this Subchapter. 17 NCAC 05G .0504 taxpayer authority to change a method of assignment on a prospective basis A taxpayer that seeks to change its method of assigning its receipts shall disclose, in the original return filed for the year of the change, the fact that the taxpayer has made the change. If a taxpayer fails to disclose the change, the Secretary may disregard the taxpayer's change and substitute an assignment method that the Secretary determines is appropriate, as provided in Article 9 of G.S. 105. 17 NCAC 05G .0505 Secretary authority to change a method of assignment on a prospective basis The Secretary may direct a taxpayer to change its method of assigning its receipts in tax returns that have not yet been filed, including changing the taxpayer's method of approximation, if upon reviewing the taxpayer's filing methodology applied in a prior tax year, the Secretary determines that the change reflects a more accurate assignment of the taxpayer's receipts within the meaning of this Subchapter, and determines that the change can be reasonably adopted by the taxpayer. The Secretary shall provide the taxpayer with a written explanation of the reason for making the change. When a taxpayer fails to comply with the Secretary's direction on future returns, the Secretary shall deem the taxpayer's method of assigning its receipts on those returns to be unreasonable, and shall substitute an assignment method that the Secretary determines is reasonable. section .0600 - further guidance