Tax Reform Continues in North Carolina House Budget Proposal

Income tax relief for families, franchise tax relief for businesses

Budget modernizes sales tax in response to Wayfair ruling on online sales

Extends historic tax credits and implements market based sourcing

Raleigh, N.C. – Another increase in North Carolina’s zero-tax bracket for working families is proposed in the state House of Representatives’ budget released Monday, maintaining the Republican-led legislature’s commitment to more than tripling the standard deduction since 2014 to help low-income earners keep more money in their paychecks.

The latest tax reform proposal by the North Carolina House of Representatives also provides substantial franchise tax relief for businesses.

The plan modernizes the state’s sales and use tax to conform with the U.S. Supreme Court’s ruling on online sales taxes in South Dakota v. Wayfair, Inc. and provide long-term revenue stability.

Triangle Biz Journal: Study: North Carolina is Best State for Starting a Business

The tax reforms are contained in the 2019 Appropriations Act moving through the state House this week.  The Republican-led state General Assembly has passed historic tax reforms throughout the decade, including a constitutional amendment to lower the maximum income tax rate on working families from 10% to 7% in 2018.

Census: North Carolina a Top-5 State for Wage Growth

The state’s personal income tax rate has reduced from a top rate of 7.75% to a flat rate of 5.25% under Republican leadership.  Following its historic tax reforms North Carolina passed 30 states in the Tax Foundation’s economic competitiveness rankings over just 3 years.

Carolina Journal: N.C. Retains AAA Bond Rating With Tax Cap Amendment on Ballot

More than 1.5 million working families in North Carolina owe no income tax on their earnings now that the state’s standard deduction has tripled.  Under the House budget, working families would owe no income tax up to $20,750 of their earnings by 2020.

The state has consistently collected revenue surpluses and enjoyed rapid economic growth under Republican-led tax reforms, being named the Best State for Business by Forbes Magazine two years in a row.

Wilmington Biz Journal: NC Ports Report Annual Record in Container Moves

In 2011, the state’s sales tax rate also decreased from 5.75% to 4.75% under Republican leadership, saving North Carolinians billions of dollars this decade and reducing its dependence on potentially volatile income tax collections.

The state General Assembly has also lowered North Carolina’s corporate tax rate from 6% to 2.5% since 2013 and now levies the lowest rate in the country among states that have a corporate tax.

WRAL: High Tech Job Openings Surge Across N.C. to Over 31,000

The state’s commitment to a pro-growth tax model is producing economic results for families and businesses.

North Carolina won the Prosperity Cup produced by Site Selection Magazine three years in a row, indicating its strong status as an attractive location for large businesses and job investments.

The House budgets’ 2019 proposal to increase the zero-tax bracket by $750 for married families filing jointly is estimated to provide more than $125 million in tax relief for families by 2022.

Franchise tax changes in the budget proposal will provide more than $570 million in savings for businesses operating in North Carolina over that time.  The plan eliminates a 55% appraised value base and reduces the franchise tax rate to $1.30/$1,000 for 2019 and $1.00/$1000 effective for 2020.

A shift to market based sourcing would further encourage businesses to locate in North Carolina.  At least 30 states have adopted market-based sourcing.

Moody’s: North Carolina 1 of 16 States Prepared for a Recession

Sales and use tax changes in the House budget are expected to increase collections $363 million by 2022 to ensure long-term revenue stability in case of economic recession and continue to move towards a pro-growth consumption tax model.

The shift to marketplace facilitators is an extension of the Wayfair case, which eliminated the long-standing physical presence test to require a retailer to collect sales taxes for the state.  The change would help state and local governments stabilize tax collections as well.

“We’re making sure everyone who purchases items in a North Carolina county, whether brick or mortar or online, properly pays a sales tax,” said Rep. John Szoka (R-Cumberland), a House Finance Committee co-chair.   

“That is good policy.  It levels the playing field between brick and mortar establishments and those online.  We all know online sales keep increasing, this is a recognition of that and updates our tax policy to reflect reality as it exists today.”

The marketplace facilitator provision is not a new tax because the taxes are already owed on those items.  The budget shifts the collection responsibility for online sales taxes from the customer to the facilitator.

The tax reforms further extend sunsets for historic rehabilitation tax credits, motorsports sales tax exemptions, and a sales tax exemption for aviation gasoline and jet fuel sold to an interstate air business.

The legislation provides tax and regulatory relief to out-of-state businesses that perform disaster-related work during a disaster response at the request of a public utility or communications provider.