Jul 16, 2013

NCGA Week in Review: SPECIAL EDITION, July 16th


On Monday, North Carolina House Speaker Thom Tillis, Senate President Pro Tempore Phil Berger, and Governor Pat McCrory announced that a compromise has been reached on a tax reform plan. The rewrite of the tax code will be the first major overhaul of the tax code since the 1930s.
Republicans said that this version of tax reform will move North Carolina’s overall business tax climate rank from 44th to 17th in the United States, according to the Tax Foundation, located in Washington D.C.
Governor McCrory stated that lowering taxes will help the economy to grow, help people get back to work, and allow North Carolinians to have more money in the pockets so that they can invest and spend in this state.
North Carolina currently has the 5th highest unemployment rate in the country, as well as the highest personal income tax rates in the southeast. The Governor said that this reform will make North Carolina competitive with neighboring states for job creation.
Democrats argued that the tax reform plan will not leave enough money to ensure that all state services will be funded in the future. Democrats also said that this would only give tax relief for the state’s wealthiest taxpayers and corporations.
Personal Income Tax
-          Reduces the three-tiered state personal income tax bracket down to one bracket. Current personal income tax brackets have rates of 6, 7, and 7.75 percent rates. The new plan will put all citizens at a 5.8 percent rate in 2014, and 5.75 percent in 2015.
-          Retains the state child tax credit, and increases the credit for families making less than $40,000 a year.
-          Increases the standard deduction for all tax payers. The current range for the standard deduction is $3,000 - $6,000; it will be increased to $7,500 - $15,000 under the new plan.
Corporate Income Tax
-          Reduces the corporate income tax rate from 6.9 percent to 6 percent in 2014, then to 5 percent in 2015.
-          If tax revenue continues to grow under this plan, it will drop to 4 percent in 2016 and down to 3 percent in 2017.
Sales Tax
-          Preserves the sales tax refund for non-profits.
-          Beginning in 2014, the sales tax holidays for back-to-school and Energy Star appliance will be eliminated.
-          Expands the sales tax code to include service contracts.
-          Repeal the 3 percent franchise tax on electricity sales by replacing it with a 6.75 percent combined state and local sales tax.
-          End the excise tax on piped natural gas, make it subject to a combined rate of 7 percent.
-          Many services, such as lawn services and auto repairs will continue to be exempt under the new tax code.
Other Tax Reform Highlights
-          Eliminates North Carolina’s estate tax.
-          Caps the gas tax until June 30, 2015.
-          Social Security will remain exempt from taxation.
-          Charitable contributions are fully tax deductible.
This morning the House voted to accept the tax compromise on a bipartisan vote of 77-38. The bill is up for concurrence in the Senate, and is planned to be signed by the Governor later this week.
Click here to view the Tax Simplification and Reduction Act.
Please contact the Raleigh McGuireWoods Consulting team if you have any questions or comments:
Harry Kaplan, Senior Vice-President
Jeff Barnhart, Senior Vice-President
Franklin Freeman, Senior Vice-President
John Merritt, Senior Vice-President
Johnny Tillett, Senior Vice-President
Rita Harris, Vice-President
Bo Heath, Vice-President
Kerri Burke, Assistant Vice-President
Sarah Wolfe, Research Assistant
Katy Feinberg, Strategic Communications