Senate budget plans on shift from business taxes to internet sales tax, insurance companies

The Senate budget proposal released Tuesday sweetens personal income and business tax cuts a bit beyond legislation that cleared the chamber earlier this month.

The reason: To completely offset anticipated new internet sales tax collections and taxes tied Medicaid and keep the budget from having an overall tax increase.

When it's all said and done, tax changes contemplated in the budget would save North Carolina taxpayers about $2 million a year, largely because of a shift from the state's business franchise tax to more robust internet sales tax collections and an expanded gross premiums tax for the companies planning to handle the state's new managed care Medicaid contracts.

The give and take of all the proposed tax changes should be "almost a wash," Senate President Pro Tem Phil Berger said Tuesday.

The gross premiums tax is expected to bring in an additional $12 million in the first year of the two-year budget and $187 million in the second year as the Medicaid contracts are implemented. This is an existing tax that insurance companies managing the state's new multibillion-dollar Medicaid contracts will pay as they take on responsibility for more Medicaid customers.

Increased internet sales tax collections are expected to bring in an extra $94.6 million in the first year and about $132 million in the second year as rules are enforced requiring more sellers on more platforms to collect the tax and send the money to the state.

North Carolinians who buy from these sellers now are supposed to tally up the sales tax they should have paid and include it in their annual income tax return, but many do not.

Both the House and the Senate have already signed off on cutting the franchise tax, which is a tax on a business' value, from $1.50 of every $1,000 of a company's net worth down to $1 per $1,000 over the next two years.

They also agreed to increase the standard deduction, the amount on which no income tax is owed, from $20,000 to $20,750 for married couples in 2021.

But the Senate budget plans on a little more, dropping the franchise tax to 96 cents for every $1,000 in net worth and boosting the standard deduction to $21,000.

These tweaks have been made in the past week or so.