Planned tax cut would save NC businesses $250M

Republicans target North Carolina's franchise tax in latest tax cut bill.

Posted Updated
State budget
Travis Fain
, WRAL statehouse reporter
RALEIGH, N.C. — A major tax cut working its way through the legislature would save businesses about $250 million a year.

Senate Bill 622 would also cut personal income taxes by increasing the state's standard deduction, a tactic the Republican-controlled legislature has used several years running to lower taxes.

The measure also includes language meant to help the state collect more than $100 million a year in internet sales taxes, as well as tax break extensions for NASCAR and airlines, both of which enjoy sales tax exemptions that would be extended until 2024 under the bill.

Gov. Roy Cooper has come out against the bill, opening another front in what was already expected to be a big fight over the state budget between the Democratic governor and GOP legislative leaders.

All told, the state would take in about $200 million less a year if the legislation passes, with most of the impact coming from step-downs in the state's franchise tax, long a target for businesses hoping for reform. A lobbyist for LabCorp, which is based in Burlington, told legislators Wednesday that the company files taxes in more than 500 jurisdictions, and "North Carolina is the most complicated" because of its franchise tax.

Bill sponsors said they'd like to take that tax down to zero, but they're starting by cutting it by about a third over two years.

Democrats in committee Wednesday said they liked some parts of the bill, particularly the standard deduction increase, which would mean a tax cut for most people. But the focus on business cuts, and the impact they'll have on the budget, set Democrats against the bill.

"We are making it impossible to meet the needs, the real needs that we have been setting to the side since I have been in the General Assembly," said Sen. Terry Van Duyn, D-Buncombe.

The state budget has increased in recent years, but not by as much as Cooper and other Democrats would like. Republicans say the tax cuts they've stair-stepped into state code the last few years are a major reason the state's economy is so strong.

"We are in a robust economy nationwide, so I'm not sure we can reduce all of this to tax cuts," Van Duyn responded.

Sen. Jerry Tillman, R-Randolph, and others argued a trickle-down theory, saying tax cuts would bring in new businesses and create jobs.

"I've never gotten a job from a poor man or woman," said Tillman, a bill sponsor. "Have you?"

The bill would:

  • Increase standard deductions. For married couples, it would go from $20,000 to $20,750 for 2021.
  • Reduce the franchise tax from $1.50 per $1,000 of worth to $1.30 for most businesses in 2019, then down to $1 per $1,000 in 2020.
  • Enact "market based sourcing," which is a way of calculating taxes for multi-state corporations. The change would charge North Carolina-based companies less and companies based out of state more, according to a bill explanation filed with the Senate Finance Committee.
  • Enact "marketplace facilitator" legislation designed to make it easier for the state to collect sales taxes from third-party sellers who sell through online marketplaces like Amazon.
  • Extend the sales tax exemption on jet fuel until 2024.
  • Extend NASCAR's sales tax exemption until 2024.
  • Extend the state's historic rehabilitation tax credit until 2024.

Tillman said the bill may not be a finished product. He and other Senate sponsors have said they have an agreement on the basics with their counterparts in the House, but the details may change.

The measure was in the Senate Finance Committee Wednesday for discussion only. With the Senate on spring break next week, it may be some time before the bill moves forward.

Lobbyists for several businesses, as well as the North Carolina Retail Merchants Association and the North Carolina Chamber, spoke in favor of the bill. Tillman promised an economic boom from the legislation and said the state will generate more tax revenue as a result, despite a legislative analysis showing revenue decreases for five years.

"We'll bring in more revenue with tax cuts," Tillman said. "That's just an old conservative money principle that we believe in."


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