$850 million tax break passes NC House, but Senate expected to sit on it

The state House passed tax breaks Thursday with a near-unanimous vote, despite controversy that broke out in recent days that cost a key House committee chairwoman her leadership position.

But don't expect action in the state Senate on the bill "in the next week or two," Senate President Pro Tem Phil Berger said.

"We’ve made no firm decision as to how we’re going to address that issue," Berger, R-Rockingham, said. "We still are having conversations with members about what folks want to do."

That leaves things in limbo on two key issues: Whether people who received unemployment benefits last year will owe state taxes on the first $10,200 of that income, and whether businesses that took forgivable Paycheck Protection Program loans from the federal government can deduct from their taxes expenses covered by those loans.

The federal government allows that break on federal taxes, but the General Assembly has to vote for the state to do the same.

The first issue would save taxpayers who took unemployment benefits last year an estimated $250 million. The second would save businesses about $600 million over the next two years.

Howard was the only House member to vote against the measure Thursday. As she left the Legislative Building, she said she didn't want to discuss the issue further.

Moore, R-Cleveland, whose law firm obtained a PPP loan, said Thursday that he's already filed his taxes for last year and that he won't amend that filing, meaning he won't receive the tax break.

That may ultimately be the case for other small businesses as well. For those that had smaller loans forgiven – Moore's law firm got about $25,000 – it may not be worth the trouble to file for a tax break that amounts to a few hundred dollars, the speaker said.

The issue is a bipartisan one: Both Republicans and Democrats own or have interests in businesses that took PPP loans. State ethics rules say they can still vote on the issue, though a few have recused themselves, because this is a broadly available tax break affecting businesses across the state.

It's also common in other states. Supporters said 47 other states have conformed with the federal policy and approved the tax break.

There is some resistance to the change, though, in the Senate, and it's not clear when the issue will be resolved. Moore said lawmakers have been contacted by "hundreds" of accountants and businesses seeking clarity.

Ordinarily, the filing deadline on income taxes is April 15, but it was moved this year – for both state and federal taxes – to May 17 due to the pandemic.

"I do think it needs to be resolved, sooner rather than later, one way or another," Moore said.

As for the unemployment tax benefit, the state Division of Employment Security has said it sent out 950,000 1099-G notices to people who got unemployment benefits in 2020 and that about 530,000 of them – nearly 60 percent – chose not to have state taxes withheld as they got weekly payments.