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2016-2017 End of Session Report
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Summary and status of legislation which we monitored in 2015 & 2016:


The 2017 Session of the North Carolina General Assembly adjourned at about 2:00 o’clock in the morning on June 30, 2017.   This was a Session dominated by partisan battles, predominately between the Republican controlled Legislature and the Democratic Governor.  We also saw in this Session the partial repeal of HB 2. 


            The General Assembly passed a $23 billion dollar budget bill well before the June 30th  year end.  This budget makes a series of tax cuts, to begin in 2019, reducing the personal income tax rate from 5.499% to 5.25% and raising the standard deduction to $20,000.00 from $17,500.00 for married couples filing jointly.  The budget also lowers the corporate income tax rate to 2.5% from 3%.  Finally, the budget repeals the sales tax on mill machinery and reduces the franchise tax paid by businesses by changing it to a flat rate $200.00 tax on the first $1 million dollars of a business’s net worth.   After the Governor vetoed the budget, the Senate and House quickly overrode the veto, putting the new budget in place by the end of the fiscal year.


            The following are some of the specific items of legislation to which the LAC gave considerable attention during the Session:


1.     HB 625 / SB 491:  An Act to Require Homeowners Associations, Condominium Associations, and their Management Companies to Acquire Crime and Fidelity Insurance Policies to Protect the Associations’ Membership from Loss Due to the Illegal Conduct of the Association, the Executive Board and its Employees, or a Management Company and to Require Annual Financial Audits to be Performed by Homeowners Associations and Condominium Associations.   HB 625 and SB 491 were introduced at the request of CAI, and CAI supported the bills vigorously.  Of these two bills, only HB 625 received consideration during the 2017 Session.  HB 625 amends the Condominium and Planned Community statutes to require that Executive Boards of such Associations provide for an independent financial audit conducted by a Certified Public Accountant if their respective Associations have annual revenues or expenditures for total accountant balances of $150,000 or more.  The bill requires that each Community Association or Unit Owner Association with annual assessments of at least $25,000, or $25,000 or more of total funds invested, obtain a Crime and Fidelity Insurance Policy.  The Crime and Fidelity Policy should provide coverage in the amount of 125% of total funds on deposit where invested, plus 125% of the annual budget but not more than $1 million.  If the Association is managed by a professional managing agent.  The managing agent or company shall be covered by a separate Crime and Fidelity Policy providing coverage in the total amount of all budgets of all clients of the managing agent or company, but not more than $2 million in the aggregate. HB 625 passed the House on April 21 and was referred to the Senate Rules Committee, where the bill remains.  Under the terms of the Adjournment Resolution (explained below) this bill is eligible to be considered in the Short Session in 2018. 


2.     HB 814An Act to Amend the Planned Community Act and the Condominium Act for the Purpose of Creating Consistency and Enhancing Consumer Protections.  This bill was introduced by Rep. Jonathan Jordan (Ashe County) and John Blust (Guilford County).  It would amend various provisions of the Planned Community and Condominium laws.  Similar legislation has been introduced in several previous sessions.  It has never been supported by CAI.  The bill was referred to House Judiciary III Committee, where it failed to receive any consideration.  It is now considered dead and not eligible for further consideration this year or in 2018. 


3.     HB 865:  An Act to Regulate the Practice of Community Association Property Management within the North Carolina Real Estate Commission and to Provide Education and Training for Board Members of Community Associations. This legislation was also introduced by Representatives Jordan and Blust, as well as Rep. Rodney Moore (Mecklenburg County).  This legislation is also similar to legislation filed in previous sessions.  It would require community association management to be conducted by individuals licensed by the N.C. Real Estate Commission and would require such individuals to be fully licensed by October 1, 2017.  The bill also requires registration of all Associations, to be accomplished by payment of $100.00 to the N.C. Real Estate Commission, and further requires all association executive board members to complete at least four (4) hours of education on laws related to community associations and condominiums.  Such courses are authorized to cost up to $75.00 per individual board member taking a course.  CAI does not support this legislation.  It was referred to House Judiciary III where it failed to receive any consideration.  It must also pass the House Finance Committee since it involves payment of a number of fees.  Because the bill imposes a number of mandatory fees, it might be considered eligible for consideration during the “Short Session” beginning on May 16, 2018. 


4.     SB 114Annual Report Modernization.  This bill, introduced by Sen. Andy Wells (Catawba County), amends existing law to provide that the annual reports required to be submitted by business corporations, Limited Liability Corporations (LLC’s), and Limited Liability Partnerships (LLPs) authorized to do business in North Carolina are to be submitted to the Secretary of State.  Current law allows business corporations to file annual reports with either the Department of Revenue or the Secretary of State.  There is no change to the existing requirement that LLCs and LLPs file annual reports with the Secretary of State. 


In addition, Senate Bill 114 mandates the electronic filing of annual reports for business corporations, LLCs and LLPs.  Existing law allows these reports to be filed either electronically or by paper.  The bill amends the information that must be included in the annual report to also include the e-mail address of the registered agent and the physical business addresses of the principal officers and any person who has authority to bind the corporation.  It also states that filing certain incomplete or inaccurate information on the report is punishable by a fine of $250.00.   For business entities having gross revenues less than $175,000.00 in their fiscal year ending in 2017, the effective date for the required electronic filing is January 1, 2019.


The annual report filing fees are changed to $125 for business corporations, LLCs and LLPs for consistency among all filers.     


Senate Bill 114 provides a new requirement for nonprofits to file the same annual report as referenced above, but there is no fee for filing.  Nonprofit corporations, in addition to business corporations, LLCs, and LLPs that do not file an annual report, will not be allowed a refund of sales and use taxes paid under Article 5 of G.S. Chapter 105.  The Secretary of State and Department of Revenue are to develop a process for verifying whether an applicant for a refund under G.S. 105-164 has submitted all required annual reports, and it requires the sharing of relevant information between the two agencies for that purpose.


G.S. 105-232 is amended to increase the fee for the cost of reinstatement by a suspended business corporation or LLC to the Secretary of State from $25.00 to $50.00.  The fee is collected by the Department of Revenue, but the bill directs the Secretary of Revenue to remit $25.00 from each fee collected to the Secretary of State to be used to cover its share of the cost of reinstatement.  Any funds in excess of the amount needed to cover the Secretary of State’s share of the cost of reinstatement are to revert to the General Fund.  The $25.00 that the Department of Revenue currently collects for reinstatements is entirely reverted to the General Fund.  That procedure would not change under this proposed bill.


Lastly, the bill directs the Joint Legislative Program Evaluation Oversight Committee to amend its 2018-19 Program Evaluation Division work plan to direct the Program Evaluation Division to study the effect implementation of this act will have on the staffing levels and customer service demands of the Secretary of State and Department of Revenue. 


The bill received numerous hearings and an abundance of study and scrutiny.  It passed the Senate and House and was returned to the Senate for concurrence with House Amendments on June 29th.    In the hours prior to adjournment, the bill was on the Senate Floor for consideration; however, the Senate withdrew the bill from the Floor and re-referred the bill to the Senate Rules Committee.   Under the provisions of the Adjournment Resolution, as explained below, SB 114 is alive and eligible for consideration during the August 3rd Special Session of the General Assembly.  It may also be considered during the Short Session in 2018. 


5.     SB 16:    An Act to Provide Further Regulatory Relief to Citizens of North Carolina.  This bill was introduced by Sen. Andy Wells (Catawba County).  The bill covered a number of significant regulatory reform issues that are totally unrelated to community associations or condominiums.  It passed the Senate and when considered on the Floor of the House on June 15th, Rep. Jonathan Jordan added the following provision by amendment: The Legislative Research Commission shall study the creation of a Mediation and Arbitration Board that will serve as a mediator and arbitrator of disputes between the owners of properties located in a Homeowners or Property Owners Associations and the governing entities of such Homeowners or Property Owners Associations.   The Legislative Research Commission shall report its findings and recommendations to the 2018 Regular Session of the 2017 General Assembly when it convenes.  The amendment passed unanimously and the bill was returned to the Senate for concurrence with this and other House amendments.  Sen. Wells does not support this or other House amendments and moved not to concur in the House amendments.  The Senate accordingly voted not to concur and to appoint a Conference Committee to work out differences.  The Conference Committee was not able to come to a conclusion by the time of adjournment on June 30th; however, any successful conference report would be eligible for consideration if the General Assembly returns for a Special Session on August 3.


6.     SB 415An Act to Clarify the Definition of Collection Agency to Exclude Persons Engaged in Routine Billing Services.  This bill was introduced by Sen. Dan Bishop (Mecklenburg County), Sen. Paul Newton (Cabarrus and Union Counties) and Sen. Mike Woodard (Caswell, Durham and Person Counties) to exempt certain accounting firms and operations from regulation as collection agencies under Chapter 58 of the General Statutes by the N.C. Department of Insurance.  When the bill was considered on the Floor of the House, Rep. Jordan raised the question whether Planned Communities or Condominium Associations were treated as collection agencies and whether an amendment to the bill might be prudent.   The Department of Insurance represented to Rep. Jordan that community and condominium associations are not treated as collection agencies and are not currently regulated.  A staff attorney for the General Assembly wrote Rep. Jordan an opinion that associations are not regulated as collection agencies and an amendment would not be necessary.  Rep. Jordan decided to withdraw his amendment, and the bill passed the House.  It was ratified on June 22nd, and it has been sent to the Governor for his consideration. 


7.     The 2017 – 2018 State Budget.  SB 257:  The Appropriations Act of 2017.  In addition to provisions for the appropriation of State funds, the final budget bill also includes several sections incorporating new tax and revenue provisions.  For example, the budget includes some sales and use tax changes affecting repairs, maintenance and installations, most of which are intended to adopt preexisting N.C. Department of Revenue guidelines for clarification of the application of sales and use tax laws previously passed in 2015 and 2016.  There may be a few substantive changes, but they tend to favor the taxpayer, not the Department of Revenue.  A new provision for a “mixed transaction contract” threshold has been increased from 10% to 25%, which should exclude more transactions.  Also, the term “capital improvement” has been redefined in a way that is intended to be easier for contractors, customers and suppliers to understand.  However, this sales and use tax law on repairs, maintenance and installations continues to evolve.  It will be incumbent upon all parties to be aware of the law and to collect the sales tax on repairs, maintenance and installations exemptions as required.


8.     HB 349:  An Act to Allow Currituck County to use Developer Funds for the Construction of Roads to Allow for Interconnectivity of Subdivision Streets and Roads. This new law applies to Currituck County only.  Under general law, a county ordinance may provide that a developer may provide funds for roads in lieu of building roads, but the county must transfer those funds to the municipality. This new law removes that transfer requirement and allows the county to use the funds for roads in conjunction and pursuant to an agreement with the NC Department of Transportation.  


9.     HB 376: An Act to Make Changes to the General Statutes Relating to Subdivision Improvement Guarantees. This bill passed the House and is pending in the Senate Rules Committee, where it is eligible for consideration in the 2018 Session.  Similar to Session Law 2017-49 referenced above, Section 1 of this bill would modify the same general law that a developer may provide funds for roads in lieu of building roads by providing that, if the subdivision is not located in whole or in part within a municipality, the county may contract with “another entity” for the development of the roads.  Section 2 of this bill provides that, if a performance guarantee is insufficient to complete the required improvements, or if the subdivision is not completed, then the performance guarantee may be administered in accordance with “standards” adopted by the governing body to whom the guarantee is payable. 


10.  HB 457:   An Act to Make Changes to State Law Concerning Performance Guarantees on County Subdivision Streets Offered for Public Dedication.  This bill passed the House and is pending in the Senate Rules Committee, where it is eligible for consideration in the 2018 Session.  This bill would add a new 5 page statute applicable to county subdivision streets outside of municipalities. It proposes a retroactive application to development plans approved on or after October 1, 2010, that include an offer of dedication of roads that have been fully completed.  Following are some highlights from the bill:


-           Allows counties to finance improvements to bring streets to acceptanble standards and to recover those costs through assessments levied upon lots in the development.


-           The county ordinance may or may not require performance guarantees for new street dedication; if a guarantee is not required, the county shall not require completion of the roads prior to plat recordation.


-           The county ordinance must require residual performance guarantees.


-           If the developer chooses not to provide a performance guarantee, the plat may still be recorded but the developer must provide a residual performance guarantee in order to obtain building permits.


-           Sets the amount of performance guarantee at 125% of the engineer’s estimated cost; requires the guarantee to be extended or a new guarantee issued until required improvements are complete; and allows the guarantee to be reduced as improvements are completed, subject to minimum amounts of the residual guarantee, which is used for maintenance and repairs pending dedication acceptance.


-           Provides for NC Department of Transportation’s required acceptance of roads with an offer of dedication for developments approved on or after October 1, 2010, subject to certain standards; provides for time limits for the Division of Highways to accept dedication and allows for conditional acceptance of a dedication.


-           Provides several conditions that may not be used as a basis for denial or delay of acceptance of road dedication.


-           Provides for the development of a “street database” with the status of roads, including whether the roads are maintained by the federal, state or city government or are private streets, and whether roads pending dedication are subject to a “financial consideration” being in place for maintenance and repair until accepted. 


11.  Adjournment Resolution.   The final act of the General Assembly was the passage of SB 686:  the Adjournment Resolution, which authorizes the General Assembly to return for Special Sessions under very limited circumstances on August 3rd (such as the consideration of conference reports and Gubernatorial vetoes), September 6, November 15 (for redistricting purposes), and ultimately, on May 16, 2018, for the 2018 “Short Session”. 


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