Senate Bill 557, which was approved by the legislature and is sitting on Gov. Cooper’s desk, is a bit of a mixed bag. Following are the two primary components of the bill:
- Standard deduction is increased, effective in 2020, from $21,000 to $21,500 for married filers and $10,000 to $10,750 for single filers. This move increased the amount of income exempted from state income tax. This means not only a modest tax break for all filers, but increases the number of people who owe no state income tax at all. The tax break is of course a positive, however, removing more people from the tax rolls narrows the tax base and works against a primary tenet of tax reform which is to broaden the base and lower rates. And politically, with more people exempt from paying state income taxes, there would be less resistance to potential future tax rate hikes.
- Requires marketplace facilitators to collect and remit sales taxes under certain circumstances. Marketplace facilitators include people who sell items using a larger platform, like Amazon or Air BnB. Some argue that taxing online sales helps level the playing field with brick and mortar stores, while others observe that expanding the sales tax base to these online facilitators should enable legislators to lower the overall sales tax rate – which this bill does not do.
According to a fiscal note attached to the bill, in the first full year of implementation, the increased standard deduction would save taxpayers $180 million, while the increased burden on online retailers would generate about $150 million in more state revenue and $65 million from the added sales tax burden.
Cooper’s office has not yet indicated if Cooper intends to sign, veto or allow the bill to become law without his signature.