Senate bill lowers taxes, redefines job luring programs

Posted June 10, 2015
Updated June 11, 2015

— The state Senate has rolled out a new economic development and tax reform bill that would give the governor a new lure for large manufacturers.

Members of the Senate Commerce Committee reviewed the bill late Wednesday afternoon but took no action. Instead, versions of the bill, as well as summaries explaining its provisions, were given to members.

"Make no mistake, a proposal such as this takes a great deal of compromise," Senate President Pro Tem Phil Berger said, taking the unusual step of introducing the bill to the committee personally.

The measure is likely to move in the coming week as senators also push forward with their version of the state budget.

Gov. Pat McCrory has been pushing for an economic development package since December, repeatedly saying he has been hamstrung in job recruitment efforts by a lack of funding and policy direction. Both South Carolina and Georgia have recently landed automakers as Tar Heel State job recruiters said they just didn't have the resources to compete.

This bill pumps up McCrory's job incentives authority and makes several tax changes designed to lure manufacturers.

Technically, the measure is a rewrite of the House Bill 117, an economic development measure that cleared the House in March. Any final bill is likely to be a compromise between the two chambers since the Senate bill is a departure on several fronts.

Personal income taxes

The bill would lower North Carolina's personal income tax rate from 5.75 percent to 5.5 percent in 2016.

It would also expand a taxpayer's "standard deduction," what some lawmakers call the "zero bracket." This is the portion of an individual's income on which they pay no tax.

Under current law, for example, a married couple who file their income taxes jointly has a standard deduction of $15,000, earnings on which they pay no income tax. That zero bracket would move to $17,500 in 2016, $17,750 in 2017, $18,000 in 2018, $18,250 in 2019 and $18,500 in 2020.

The bill also allows for more deductions, including the medical expense tax deduction that caused many seniors to see higher tax bills this year.

"Our goal is to allow working families and small businesses to enjoy the money that they earn," Sen. Bob Rucho, R-Mecklenburg, told the committee.

As explained by Rucho and a summary issued with the bill, taxpayers would be able to itemize up to $20,000 for any purpose they claimed for federal tax purposes. That would add back expenses for medical and dental expenses, investment interest expenses, job expenses and theft losses currently excluded by the state tax code.

Corporate income taxes

Corporate taxes were already set to drop from 5 percent this year to 4 percent in 2016 and 3 percent in 2017 if the state meets certain revenue projections. North Carolina is on track to meet those projections, and the Senate tax bill sets those rates in law rather than relying on triggers.

The bill also makes other changes affecting businesses, including:

  • Repeals a $30 tax on each $1 million in assets held by banks.
  • Eliminates a number of "antiquated" corporate tax deductions, including one for air cleaning devices.
  • Moves the state to "single sales factor" taxing for businesses. This is important to manufacturers. Currently, the state taxes companies based on sales, real estate holdings and payroll.

Sales tax shift

The bill would both expand the number of items that are subject to sales tax as well as how that tax money is distributed.

Effective Oct. 1, the bill would:

  • eliminate the sales tax exemption for installation services
  • expand the sales tax base to include repair and maintenance services
  • expand sales tax to include pet care services and veterinary services.
  • expand the sale tax base to include advertising services

The bill also curbs the sales tax refunds that can be obtained by large nonprofits. From 2015 to 2020, the amount of tax-exempt purchases would drop from $666 million to $14.8 million. That means the amount of a sales tax refund that a nonprofit could obtain would drop from $45 million today to $1 million in 2020.

"We're talking about very big businesses," said Sen. Andy Wells, R-Catawba.

By and large, it would mostly be hospitals that would see their sales tax refunds drop, Wells said.

The measure also changes how sales taxes are distributed in the state. Under current law, 75 percent of the sales tax goes to the county and city where the purchase is made, while 25 percent is distributed across the state based on population. Over the next four years, that formula would change so that, effective July 1, 2019, 20 percent would go to the county where a purchase is made, while 80 percent of sales taxes collected across North Carolina would be distributed based on population.

This measure has been pushed by Sen. Harry Brown, R-Onslow, as a way to help smaller counties with smaller property tax bases. The current law, he points out, favors large counties such as Wake County that have large shopping areas.

However, Brown insisted this was less a rural-urban issue than some have made it out to be.

A book that accompanied the tax bill shows there are roughly 10 counties across the state that would lose money under the plan, including Wake County. However, 97 counties, including Wake, would be able to raise their sales taxes by way of a referendum, which would more than offset any losses under the bill.

For example, Wake County would collect $5 million less under the bill for the year beginning July 1, 2019. However, the county would have the option of raising a half-cent in sales taxes that could raise an additional $78 million.

"Those particular revenues would stay within those particular counties," Brown said of the extra half-cent provision.

JDIG incentive program

The bill would recharge and expand the state's Job Development Incentive Grant program, North Carolina's leading job recruitment tool. It retains the current $15 million per year cap but creates an exception for a high-yield project.

A high-yield project is one that would invest $750 million in private funds and hire 2,000 eligible workers. Such a project would be able to receive 100 percent of its withholding taxes as a grant over the next 20 years, a longer and more generous boon than is available to any company under current law. It also doubles the amount of JDIG money available in a single calendar year from $15 million to $30 million in the case of a high-yield project.

The JDIG provisions in the bill also include incentives to drive investment to rural areas. For example, a project locating in a "Tier 1" area, one of the state's most economically distressed, would have to pay 100 percent of the county's prevailing wage. However, in what are now called a "Major Market Community," big counties that include Wake, Durham and Mecklenburg, a company would have to pay 120 percent of the prevailing average wage.

Projects in urban counties would also have to hire more workers in order to qualify for the grant.

A similar tweak is made to the One North Carolina Fund, which matches investments made by local governments. More state dollars will go to economically distressed areas while the state would put only $1 for every $2 invested locally in a major market such as Wake County.


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  • Edward Anderson Jun 11, 2015
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    So, they're lowering taxes again? Wow. Does that mean I will have to pay an additional $200.00 next year, like I did this year (with no raise in income)? These "lower taxes" are costing me a LOT OF MONEY!

  • Christopher Curley Jun 11, 2015
    user avatar

    View quoted thread

    Teachers pay did increase - from a feeble 47th in the nation to a feeble 42nd. And, those raises came at the expense of classroom spending per pupil which fell to the 4th worst in the nation.

    Meanwhile, many teachers moved to a year-to-year contact. Now, teacher attrition is hovering at about 14% year over year.

    While all of us did see a tax decrease in the state tax rates, we also saw the elimination of tax credits that benefited our poorest neighbors more than our wealthiest neighbors. The result: some of the poorest of us paid state income taxes for the first time this year.

    We raise less in taxes, which seems to be the priority for many. But this necessarily results in less benefit distributed to public services like education. All the while, we see an effective tax rate increases to the poor and falls for the wealthy.

    Crow about it if you feel this is a success story.

  • Roy Hinkley Jun 11, 2015
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    "lowers taxes" seems like a misnomer to me. It appears a more accurate description would be "broadens tax base", which generally benefits the higher earners.

  • Tammy Rush Jun 11, 2015
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    "Just two and a half years ago with Democrats responsible"

    The GOP have had control of the general assembly since January 2011, almost four and a half years ago.

  • Eric Hammond Jun 10, 2015
    user avatar

    Just two and a half years ago with Democrats responsible, we had a 2.5 billion dollar deficit ending in June of 2012.
    ain't it funny - you point out a state defecit that was 100% caused by an economic meltdown comparable to the great depression thanks to GOP policies on the national level, then subsequently point out how "wonderful" they have done, while the national economy is recovering under leadership you completely ignore - simple fact is this remember who wrecked the economy and remember who rebuilt it! or is your memory too short due to learning and retention issues, or thanks to some psychological issue (eg. pathological lying, delusional denial, projection etc.)

    All I see is more and more shifting of the tax burden to the middle class homeowner - face it, the GOP's greatest desire is to insure that nobody who makes less than 100k/yr EVER owns a home! The GOP wants YOU, economically enslaved to THEM!

  • Jeff Pridgen Jun 10, 2015
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    View quoted thread


  • Tom Boswell Jun 10, 2015
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    Amazing what the Republicans have done in just a short time. Just two and a half years ago with Democrats responsible, we had a 2.5 billion dollar deficit ending in June of 2012. At the time it was the countries fifth largest. Our employment rate was 9.5% and ranked us a laughing stock 47th. Our overall tax burden rated us the 7th highest in the country according to the Tax Foundations web site. Our teachers were paid at a rate of the 46th highest. We owed the federal Government 2.5 billion in unemployment benefits. Today, we have paid off the 2.5 billion, our tax burden has fallen to 34th highest, our unemployment has dropped to 5.5% which ranks us 27th. The drop of 4% since McCrory took office represents the largest drop in the country. Teachers just received one of their largest raises in history. We have a 400 million dollar surplus and more tax cuts coming.