Raleigh, N.C. — A package of tax changes is headed for the House floor next week after chamber leaders rushed it through committee Thursday.
The legislation was recommended by the Joint Revenue Laws Study Committee. Despite being nearly 50 pages long and loaded with complex legal changes that will affect local and state revenue, it was heard and voted on in the House Finance Committee in just 75 minutes, with no public comment or testimony. It was the first bill to emerge from committee this session.
One controversial change in the omnibus bill puts a $100 cap on the privilege license tax that many city and county governments impose on businesses.
Committee Chairwoman Julia Howard said the taxes have been an issue for 12 years. She said that, every year, merchants come before the panel to complain about unfair treatment.
The tax is implemented in different ways by different local governments. Some base the tax on square footage, others on numbers of employees and some, including Raleigh, according to a business' gross revenue, no matter how narrow the actual profit might be. Howard, R-Davie, called that the "most egregious" method.
"Someone hired by a city can come into your business and demand to see your tax returns and your books," she said. "It’s something that is definitely hurting economic development inside the cities."
Legislative staff say the change would cost local governments between $40 million and $45 million in lost revenue per year.
Rep. Susi Hamilton, D-New Hanover, said privilege taxes in Wilmington bring in $2.9 million a year – a significant chunk of the city's $19 million annual budget. With the $100 cap, that revenue would fall to about $300,000 a year.
"If we cut this down that dramatically, property taxes in my city will have to go up dramatically in an effort to cover this loss" to pay for existing services, Hamilton said. "That will hurt economic development like you’ve never seen."
Howard said committee leaders have been trying to work with cities.
"We have made every effort possible and to soften the blow – if that’s the word you want to use – without a lot of cooperation," she said. "We’ve worked on it 12 years now, and if you want to keep kicking the can down the road, we can do that. That’s the easiest thing to do.
She added, however, "We’re going to get it out of committee this morning. I think we need to do something."
The package also includes a new excise tax on the liquid used in electronic cigarettes, or vapor devices.
Rep. Becky Carney, D-Mecklenburg, tried to have that section pulled out to become a separate bill.
"I believe it needs fuller, more in-depth discussion," Carney said, noting that the proposed 5-cent tax per milliliter would be far less than the tax on traditional cigarettes.
"The revenue hit going forward could be extremely impacting," she said.
Carney also said the proposal "changes the definition from a tobacco product to a vapor – a non-tobacco product. We don’t know if it is or if it isn’t."
The motion, also attempted in Revenue Laws, failed on a tie vote. Hamilton, who was outside the room when the vote was taken, asked for a re-vote but was denied.
One key section was removed from the bill with bipartisan support: a proposal to change the "corporate apportionment formula" that governs how the state calculates the tax liability of multi-state corporations. The change would amount to a tax break worth more than $25 million a year to those corporations.
Rep. Edgar Starnes, R-Caldwell, ran an amendment to remove it from the package.
"We did tax reform last year," he said, noting that revenues this year and next are expected to be short of projections. "It is not prudent to take revenue off the table at this point."
Starnes was seconded by Carney. "This is a big hit in revenues for next year at a time we're trying to find money for teachers, for other things. I'm not sure this is the time to move forward with it," she said.
Starnes' amendment to remove the proposal from the omnibus bill passed easily, prompting Sen. Bob Rucho, R-Mecklenburg, who had championed the proposal's inclusion, to angrily leave the committee room.