Two more bills filed yesterday help to inform us where tax reform may be headed in North Carolina. The Wilmington Star-News has a summary:
The legislation filed Tuesday would restructure the personal income tax rate from a progressive rate to a flat rate of 5.25 percent, stepping down the rate to 4 percent beginning Jan. 1, 2016. The first $10,000 of a couple’s income would be exempt. The bill also would create a study commission to look at complete elimination of the personal income tax.
The bill dealing with corporate income similarly reduces the rate, from 6.9 percent to 6 percent over time.
The bills do not speak to broadening the sales tax base though Rabon mentioned this as a likely scenario as discussions continue.
Rabon emphasized that the measures are “placeholders” for a comprehensive bill to “grow the economy and create jobs.”
“These will be discussed openly and modified to produce the best possible tax package for North Carolina,” he said.
These two bills are in addition to previous bills filed addressing the state death tax and privilege and franchise taxes. Below is a summary of the major provisions of the most relevant pieces of legislation regarding tax reform thus far:
- SB 114 – this bill would repeal the state’s death tax, effective 2013 tax year
- SB 363 – this bill would eliminate state and local privilege taxes, while also altering and expanding the franchise tax (the franchise tax’s apportionment formula would be simplified, the rate lowered, and the tax would be applied to all businesses with limited liability, in addition to corporations). A fiscal note with this bill estimated the net impact of this bill would be an overall tax cut of nearly $80 million to start, growing to about $90 million in a few years
- SB 669 – (referenced above) – this bill reduces the personal income tax rate in a phase-down period of three years, by 2016 the tax rate would be zero up to $12,500 for married couples and $6,250 for individuals, and a flat 4% rate for incomes above that level. There is no changes to how taxable income is defined in this bill (i.e. standard deductions, credits, etc.) This bill also includes a mandate ordering the Revenue Laws Study Committee study the elimination of the individual income tax (but no time table provided for the study).
- SB 677 (also referenced above) – this bill would phase down the corporate income tax to 6% (from the current 6.9%) by 2015. It would also repeal several targeted tax credits (loopholes) of the corporate tax, such as credits for construction of cogenerating power plants, conservation tillage equipment and certain telephone subscriber line charges.
There has thus far been no legislation addressing the sales tax, but there is little secret that legislators are seriously considering expanding the sales tax to services in order to make up for potential lost revenue from other tax cuts.
We fully expect all of these proposals to be folded into a much more comprehensive tax reform bill later this session, so stay tuned.
Of course, you can learn more about tax reform and why NC should eliminate its income taxes (and sign a petition to support income tax elimination) by visiting http://noincometaxnc.org/