Raleigh, N.C. — One of the most common digs Democratic-allied groups are taking at state House Speaker Thom Tillis in his U.S. Senate campaign involves a tax break on boats and planes.
Tillis, a Republican, is running to unseat first-term Democratic Sen. Kay Hagan. North Carolina's U.S. Senate campaign is already the subject of millions of dollars in television spending by non-candidate groups on both sides of the political divide.
Democrats have been working hard to paint Tillis as an advocate for legislation that favors the wealthy over ordinary North Carolinians, and this "yachts and jets" claims fits right in with that message.
A recent Senate Majority PAC ad, for example, criticizes Tillis for how the GOP-led General Assembly dealt with education funding and then adds, "Meanwhile, Tillis gives tax breaks for yacht and private jet owners."The most colorful ad playing on the claim this summer is also by is also by Senate Majority PAC. It features a teacher leading a troop of schoolchildren to a marina, where they ask to use a boat since the school's classrooms are too crowded. In the Democratic Senatorial Campaign Committee's latest ad, an obviously well-heeled young woman carrying a large red purse and trailed by two security goons boards a private plane as the anchor says that Tillis has been "giving tax breaks to yacht and jet owners."
While it's certainly attention-grabbing, this ocean-going tale has a few leaks.
BACKGROUND: North Carolina has capped the sales tax paid on airplanes since 1957 and on boats since 1967, according to the state Department of Revenue's most recent "Tax Expenditure Report." Currently, both boats and aircraft are taxed at 3 percent of their purchase price, up to a cap of $1,500. For the buyer of a $1 million vessel, that means a break of $28,500 of the $30,000 they would have paid if there were not cap.In 2013, the General Assembly authored a tax reform package aimed at lowering rates residents pay on income and other taxes while eliminating tax breaks for many items. For example, the tax on a ticket for a movie or minor league baseball game used to be capped, but it is not any longer. Lawmakers also did things such as eliminate sales tax holidays.
The 2013 tax reform bill neither raised nor lowered the cap on the sales tax charged for boats and planes. But the case made by those using the yachts and jets claims is that, by failing to get rid of the loophole in the 2013 tax reform bill, the General Assembly generally, and Tillis in particular, is responsible for keeping it.
WHY NO CHANGE: "It was just one of those pieces we didn't get to," Rep. Julia Howard, R-Davie, said of the boats and planes sales tax exemption. "Nobody said don't look at this or don't look at that."
Howard was one of the lead authors of tax reform legislation in the House and called the 2013 bill "a big lift" that couldn't get to everything.
Going into 2013, legislative leaders knew that a promised broad-based tax reform would be difficult to deliver because any number of constituencies would try to defend existing tax loopholes against closing.
Of the plans put forward, the most far-reaching may have been Sen. Bob Rucho's effort to drop the top state income tax rate to 4.5 percent by relying heavily on sales tax. At one point during the reform effort, Rucho, R-Mecklenburg, publicly broke with members of his own chamber because they backed off the push toward a consumption-based model that relied heavily on sales taxes.
Interviewed this week, Rucho said there are a number of loopholes that the 2013 legislation didn't close, but both he and Howard said another tax reform package would be put together in 2015."That will be in our next phase as we continue to lower the personal income tax rate," Rucho said of the plane and boat exemption.
Despite being critical of House leaders and the governor during the 2013 tax reform effort, Rucho declined to pin the yacht and jet exemption on Tillis.
"To say that Tillis did that is totally wrong," he said.
MORE CONTEXT: The tax cap for boats and planes is similar to the tax break given to those buying cars and pickup trucks in the state.
A 1989 law exempts personal automobiles for the state sales tax rate of 4.5 percent and instead imposes a "Highway Use Tax" of 3 percent for most vehicles. That exemption will cost the state an estimated $517.4 million during the fiscal year that started July 1.
By comparison, the boats and plans exemption will cost the state $16.2 million over the same time period, according to the Department of Revenue.
The difference, of course, is that far more residents are buying new and used cars to get to work and take their children to school every day than million-dollar boats or multimillion-dollar Cessna Citation jets.
MAKING THEIR CASES: "As Speaker of the House, Thom Tillis had the ability to overhaul the tax system in any way he saw fit, and he could have put everything on the table," said Ty Matsdorf of Senate Majority PAC. "He could have demanded a deal that closed loopholes to pay for things like more teachers. Instead, he continued to give yacht and jet owners a break. Just because these tax breaks had been in place before doesn't mean that they had to be continued under Tillis. Tills had the ability, and chance, to end them."
Tillis' campaign, of course, has a different take.
"This is yet another completely meritless and incredibly hypocritical attack against Thom from Kay Hagan’s liberal special interest allies," said Tillis spokesman Daniel Keylin, who points out that Hagan served as a high-ranking lawmaker while the tax break was in place.
"They conveniently neglect to mention that, as chief budget writer, Hagan retained the cap at the same time she was busy raising taxes on middle-class North Carolina families," Keylin continued.
THE CALL: Where this claim falls on WRAL's fact-checking scale depends whether you take the view that failing to act against a loophole counts as endorsing that particular action, or whether the suggestion that Tillis "GAVE" a tax break misleads voters who might not know the particulars behind this tax. In order to make this call, your fact-checker put this question to six other seasoned journalists on the WRAL News team.
Two members of our panel took the view that, if the legislature was in the business of reforming the entire tax code, it's not misleading to suggest there was an opportunity to take up the yachts and jets loophole. This viewpoint empathizes with the notion that those buying planes and boats are purchasing something beyond basic transportation and might well be able to chip in more toward education, which is the case made in the commercials.
But stronger sentiments were put forward that Democrats are trying to say Tillis, or at least the legislature that he led, did something that he did not do. This view holds that one cannot give a tax break that somebody already has had for more than 20 years. In other words, if this conversation were happening outside of a political context, it would clearly be wrong to say that Tillis or the General Assembly "gave" the tax break in 2013. Also lacking is any evidence that Tillis personally advocated one way or the other on this particular tax break.
Due to the leaky logic behind the yachts and jets claim, we give it a red light.