Jul 1, 2013

NCGA Week in Review: Special Edition, Tax Reform Update

Senate Moves Forward with Tax Reform

The Senate passed its newest version tax reform this afternoon in the Senate Finance Committee.  The committee hearing comes at a time where the House is not in Raleigh and negotiations continue between the House and the Governor’s office. Senate Leader Phil Berger has said, “Tax reform negotiations with the House continue. We’ve made a lot of progress and have reached consensus in several key areas. We hope the bill in the Senate Finance Committee on Monday will represent a final agreement. But if not, we’re confident we can work out any remaining differences in conference.”

The new plan unveiled this afternoon included some key differences from the latest Senate’s negotiated package with the House, of which include:
·         Personal Income Tax: Flat rate of 5.75% in 2014
·         Itemized Deductions: Retains mortgage interest and property taxes on real estate
·         Corporate Income Tax: 6.4% (2014); 5% (2015); 4% (2016); 2% (2017); Elimination (2018)
·         Corporate Income Tax Credits: Elimination of all without a sunset in 2014
·         Business Privilege Tax: Incremental tax for all businesses with limited liability.
·         Franchise Tax: Minimal changes
·         Sales Tax
o    Adds service contracts (2014)
o    Food/Groceries: No change
o    Packaging: Exemptions phased out
o    Non-profits (refund): Increases cap for refund ($10.5 million in 2014; $7 million in 2015; $5 million in 2016; $2.85 million in 2017).
·         Gas Tax: Caps for one year at current rate
·         New Revenue Law Study: Privilege taxes, diesel fuel tax, nonprofits, franchise tax, and expansion of sales tax base.
As the House and Senate continue to negotiate on tax reform, key provisions will include the corporate income tax rate, personal income tax rate and sales tax refund cap for non-profits.