Raleigh, N.C. — Corporations doing business in North Carolina would see their income taxes decrease in the coming decade under a tax reform bill reviewed by the Senate Finance Committee Tuesday.
The measure is unlikely to move forward on its own. Rather, Tuesday's discussion was part of an "education process" that the committee has pursued on tax reform over the past month. In a series of briefings, the committee has examined different aspects of what a potential tax reform plan might look like.
Senators are still two weeks away from unveiling a master tax reform bill, Sen. Bob Rucho, R-Mecklenburg, told the committee.
The measure reviewed Tuesday, Senate Bill 677, would begin the phase out of corporate income tax in 2014 in favor of a new franchise tax. As described by Rucho and a bill summary produced by legislative staff, it would reduce North Carolina's corporate income tax rate to 6 percent by 2015.
The intent, Rucho said, is that reductions would continue on into the future until the corporate income tax disappeared entirely.
The bill would also change how franchise taxes work. Right now, companies pay based on a formula calculated from sales, property owned and payroll.
"What property and payroll are are investments in North Carolina," Rucho said.
The state, he said, should not tax those investments. Like the income tax, the franchise tax portion of the bill is phased in over the next three years. At the end of that time, the franchise tax would look only at a company's sales.
In exchange for lower and simpler corporate income and franchise taxes, companies would lose many of the exemptions and loopholes that apply just to their industries. The state loses some $9 billion to such exemptions every year, Rucho said.
Sen. Tommy Tucker, R-Union, asked about what would happen when corporations lost their exemption for donations to charity.
Rucho said that companies could still donate but that those donations would no longer be subsidized by taxpayers.
"Taxes should not impact business decisions," Rucho said.
Cedric Johnson, a policy analyst with the liberal-leaning N.C. Budget and Tax Center, said Rucho's approach would not help the state's economy.
"Cutting corporate taxes is unlikely to create economic growth," Johnson said. Businesses, he said, care more about things such as a well-trained workforce rather than state taxes.