Yesterday the House Finance Committee approved an omnibus tax bill that largely makes technical and administrative changes to the tax law, but also includes several tax rate changes.
Changes of note include:
- Eliminating the current local privilege license tax and replace it with a broad-based, evenly applied $100 rate per business. The current privilege tax has been described as “archaic, arbitrary and inconsistent.” This tax change is projected to save employers between $11 million and $24 million. This reduction in tax revenue, almost completely felt by city governments, will likely be offset by the revenue the municipalities will receive from the expanded sales tax base enacted via last year’s tax reform bill and taxes applicable to online purchases through Amazon.
- Replacement of the corporate economic net loss deduction with a State net loss deduction more in line with federal operating cost deduction. This change is estimated to save $5 million per year.
- Exempt 50% of the sale price of modular and manufactured homes from the sales tax. Last year’s tax reform, as part of the effort to broaden the tax base, extended the standard state sales tax rate to these homes. Previously, they had been taxed at a lower rate. This is expected to save about $6 million per year, but works against the commonly-accepted norm of broadening the tax base and lowering rates.
- A new excise tax of 5 cents per milliliter for the liquid vapor refills for e-cigarettes. Currently, the liquid is just subject to the standard sales tax rate. Importantly, this bill would create a classification of product for “vapor products” that would be separate from other tobacco products. This new tax is projected to cost about $2 million per year initially.
The most significant aspect of this bill, however, is what was left out. The tax bill approved earlier this week by the Revenue Laws Study Committee also included a change to the formula that corporations must use to calculate their corporate tax bill. The change would assign greater weight to the company’s in-state sales in the apportionment formula (the other factors are property and payroll). This change would lesson the burden companies face for hiring NC workers and investing in property, while resulting in an overall tax cut totaling $23 million in its first full year.
Members of the House Finance Committee decided to drop this part of the tax bill because they felt the state couldn’t do without that additional revenue at this time.
It is expected the Senate will re-insert this provision back into the bill.
As it currently stands, the bill overall would result in a net tax cut. The House is expected to vote on the bill next week.