House to vote on e-cig taxes, other changes

Posted May 15, 2014

N.C. Revenue Building

— 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.


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  • Fanny Chmelar May 20, 2014
    user avatar

    Good to know that the republicans want to add a tax. On a product that has been shown to be one of the most effective ways to quit smoking.


  • rduwxboy May 16, 2014

    Tax those cigarettes. It's nothing but a fad for drug addicts.

  • M1962 May 16, 2014

    The taxes on e-liquid will not do anything except result in users going to other vendors, DIY, or maybe underground eventually. The local B&M's will suffer and sales taxes from e-cig products will fall resulting in less than expected revenues from this industry.

    A few years ago the Tobacco companies were laughing at us. Now that the horse is out of the barn, they are trying to play catch up. The only reason they support the tax is because their ship is sinking and they need more smokers.
    Why would I pay the state a "SIN" tax of $25.00 on 500ml of e-liquid when I can make it for between $5 and $10 depending on recipe from readily available ingredients. The lawmakers clearly show that they know absolutely nothing about this industry that they are trying to impose a tax.
    I for one am prepared, however I hate the fact that future users may be discouraged due to rising costs from the government.

    When a government becomes dependent on a SIN TAX, they become perpetrators of that sin.

  • woodrowboyd5 May 16, 2014

    No news here same o same o.
    Regaurdless of who is in power its we the taxpayers that carry the load.
    Goverment nevers has more money than they can spend.
    Just vote your party and pay but like it more when its your guy you voted in spending it.

  • rhythm section May 16, 2014

    The State is telling municipalities how to tax business? When the Feds do this to the States, they cry foul!

  • JoeF May 16, 2014

    McCrory, Pope and their lawmakers gave huge tax breaks to richest residents, but gave regular folks the shaft on cuts to UNC system, senior's pensions, movie and sporting tickets, manufactured homes. Now, McCrory-Pope think e-cigarette tariffs will fill the budget hole. Yikes!
    What are the other details of the package and why the rush without discussion or testimony from citizens?
    Is this open government? No. Time to give them the bum's rush!!

  • heard-it-all-before May 16, 2014

    View quoted thread

    i poke fun at every post that is still convinced it's the left or right's fault. clueless to the fact that both work for the same employer and both are crooks with the same agenda. they laugh at your childish bickering, as do i

  • PanthersFan45 May 16, 2014

    State government can't help thmeselves. Like any billion dollar industry, they want a peiece of the profits because they are cash-strapped. Internet sales tax are now being collected from Amazon, E-Cigs are next ........ its all about wanting money. I agree about the post that pokes fun about the republicans and this particular tax. They seem to like the taxes that hit the average person.

  • mmancuso May 16, 2014

    Tax on Ecigs? Where's the special tax on nicotine lozenges, gum, and patches? What's the logic behind taxing vapor liquid that does not contain nicotine?Because it's used for pleasure? How about taxing chewing gum??? This is all outrageous!

  • Atheistinafoxhole May 16, 2014

    View quoted thread

    Yep, but the GOP tries to disguise its disingenuous attempts to shift the tax burden away from businesses and onto citizens with phrases like "expanding the base". The state of Kansas recently had their bond rating cut due to lowered revenue and slower economic recovery than their neighboring states - after massive tax cuts by the legislature that was supposed to "attract business."

    Look at states with no state income taxes, they have much higher property taxes and/or sales taxes. Despite their best efforts, the GOP cannot hide the facts - and the facts are not in dispute (although they have a well known liberal bias [sarcasm]).