s394 presentation to nc senate finance committee 4/3/2013
TRANSCRIPT
SENATE BILL 394
Lower Tax Rates for a Stronger NC Economy
Bipartisan Plan for Economic Growth
• Lower every major tax rate
• Make tax rates more competitive with neighboring
states
• Make tax system simpler, fairer
• Eliminate clutter of rates, exemptions
• Provide stable revenue stream
• Disentangle State revenue from local revenue
• Keep changes revenue-neutral
SO WHAT’S WRONG WITH THE REVENUE
SYSTEM WE HAVE NOW?
MAINE SUNDAY TELEGRAM
SUNDAY, JULY 26, 2009
North Carolina Tax Structure (1970 – 2013)
24.1% 18.5% 14.7%
10.2% 10.7% 9.6% 9.9%
31.0%
25.9% 25.1%
27.3% 27.9% 31.9% 28.8%
12.2%
9.8%
7.4% 3.7% 5.0%
5.5% 5.7%
32.7%
45.8% 52.8%
58.8% 56.4% 53.0% 55.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1970-71 1980-81 1990-91 2000-01 2008-09 2010-11 2012-13(projected)
Personal Income
Corporate
Sales
Other
Growth & Stability
25.8%
-30.1%
31.9%
-27.0%
-40%
-20%
0%
20%
40%
1997-98 2000-01 2003-04 2006-07
Corporate Income Tax
Non-withholding PIT
Sales Tax
Withholding PIT
5
20% of General Fund revenue comes from two volatile sources: CIT &
non-withholding portion of the PIT
Sales Tax Base Is Shrinking as Percentage of Total Economy
38
40
42
44
46
48
50
52
54
79 84 89 94 99 04
Pe
rce
nt
The Sales Tax Base
56.1%52.7%
46.2%
36.8%
0%
10%
20%
30%
40%
50%
60%
70%
1970s 1980s 1990s 2000s
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Due to shifts in consumption and an eroded base,
the State rate has increased from 3% to 4.75%.
Despite the rate increase, sales tax as a share of
GF revenue has declined.
Taxation of Services, by State
0
20
40
60
80
100
120
140
160
180
OR
AK
NH
CO IL
MA
MT
NV
VA
CA IN
ME MI
MO
ND
KY ID RI
NC
OK
VT
SC
GA
AL
MD
AZ
LA
PA
NY
UT
WY
FL
MN
TN
OH
AR
MS
KS NJ
WI
NE
CT
TX IA
WV
DE
SD
NM
WA HI
NC
Source: Federation of Tax Administrators, 2007 Survey
Tax Rates
Tax Current Rate SB 394 Rate Decrease
Individual Income 6, 7, & 7.75% 6% 23%
Corporate Income 6.90% 6% 13%
Franchise $1.50/1000 $1.25/1000 16.70%
State Sales 4.75% 4.50% 5%
Rates Compared to Other States
Tax Current SB 394 GA SC TN VA
Individual Income
6, 7, & 7.75
6 1 to 6 3 to 7 No general 2 to 5.75
Corporate Income
6.9 6 6 5 6.5 6
Franchise 1.50/1000 1.25/1000 $10 to 5000
1.00/1000 2.50/1000 No general
State Sales 4.75 4.5 4 6 7 4
Individual Income Tax Highlights
• Establishes flat 6% rate
• Replaces standard deduction and exemptions with zero
bracket amount
• Eliminates all credits except:
• Child credit – increased to $200 or $450
• Charitable contribution credit, capped at $600
• Replaces other credits and deductions with personal
expense credit available to everyone
• Eliminates most deductions
• Taxes Social Security income only if taxed by federal
government
Business Tax Highlights
• Lowers corporate tax rate to 6% - same as individual rate
• Increases sales factor weighting from 2x to 6x – first step
in transition to single factor sales
• Includes all limited liability entities in business privilege
tax – replacement for franchise tax
• Repeals local privilege license taxes
• Repeals $1%, $80 excise tax on manufacturers and a few
other businesses and enacts sales tax exemption for the
capital equipment that was subject to that tax
• Allows Article 3J and most tax credits to sunset
• Eliminates annual report fees
Sales Tax Changes: Expand Base • Repeal vending and various other exemptions
• Include tangible personal property services
• Service contracts
• Alteration, repair, maintenance, cleaning, and installation
• Include entertainment and recreation
• Live entertainment, movies formerly taxed under privilege license tax
• Charges for museums, cultural sites, exhibits, shows, similar attractions
• Charges to play or participate in a game, sport, or fitness activity
• Include storage
• Short-term self-rental space, short-term clothing, boat, aircraft storage
• Include real property care and maintenance services
• Extermination and pest control services
• Landscaping services other than for new construction, utility easement
• Cleaning
• Include security services
• Guard and armored car services, alarm system monitoring
• Locksmith services, telematic motor vehicle services
Local Revenue Impacts Increases
• Distribution of State
business privilege tax
• Expand sales tax base:
• Electricity and piped gas
• Tangible personal property
services
• Entertainment, recreation
• Real property care and
maintenance services
• Eliminate exemptions
Decreases
• Local privilege license tax
• Distributions of State tax:
• Franchise tax on electricity
• Piped gas excise tax
• Beer and wine excise tax
• Corporate income tax
• Modular home sales tax
• Medicaid hold-harmless
• 1% Sales Tax on Food