A proposed rewrite of North Carolina's tax system could eliminate state income taxes but expand sales taxes. STATUS: Senate leaders unveiled the outlines of a tax reform proposal on May 7. There is still no formal bill, but top leaders say they wish to cut sales, income and corporate income taxes.
Gov. Pat McCrory and top legislative leaders have said that tax reform will be among the highest priorities for the legislative session. There is broad agreement that North Carolina's tax system, largely unchanged since the 1930s, no longer meets the need of a growing state where textile mills and tobacco farms are no longer the leading employers.
McCrory, a Republican, and Republican leaders who control the General Assembly have laid out reducing and/or eliminating the state's personal and corporate income taxes as a goal of their reform effort. To make up for that loss of income, the state would likely have to raise the sales tax and apply sales tax to more things such as services that are currently not taxed and grocery items, which are currently not subject to state sales tax.
Bills and status:
However, the House Finance Committee has looked at a bill that would repeal the state's estate tax, a measure that Gov. Pat McCrory included in his proposed budget. In the Senate, lawmakers have also discussed a measure rewriting the state's business franchise tax law. And while a Democratic senator has filed a tax reform proposal, the GOP has yet to file a sweeping tax reform measure.
Other tax legislation includes:
House Bill 101: Repeal Estate Tax. This would repeal the state version of what many Republicans call "the death tax."
Update (5/7/13): Senate leaders unveiled the outlines of a tax reform proposal on May 7. There is still no formal bill, but top leaders say they wish to cut sales, income and corporate income taxes.
Senate leaders say their bill would expand sales taxes to many services as well as prescription drugs. Income taxes rates would drop, but some families would end up paying more in taxes.
GOP leaders say their tax plan will reduces sales, income and corporate taxes by curbing government spending.
A piece of the state Senate's tax reform package unveiled Wednesday would eliminate local and state privilege taxes in favor of a franchise tax system. Cities would not be able to charge the new tax.
Despite the reservations of his budget director, Gov. Pat McCrory said Thursday that he still wants to look at the possibility of eliminating North Carolina's income tax.
Art Pope, who was named last month as Gov. Pat McCrory's budget chief, said Wednesday that a push by Senate Republicans to eliminate North Carolina's income tax is misguided.
Republican legislative leaders are crafting a package of changes to North Carolina's tax code that they say will stimulate economic growth, including slapping a 6 percent sales tax on groceries.
The rough outlines of the Republican plan are clear enough: lower and eliminate corporate and individual income taxes. Replace that revenue through a flatter, simpler tax for businesses and broaden the sales tax base by taxing more items.
Advocates of tax reform says the state needs to get rid of tax breaks for special interests. But many "loopholes" in the state's tax code are breaks used by average citizens, nonprofits and small businesses.
Repeal Estate Tax