Competing Tax Reform Plans Begin to Take Shape at General Assembly

AccountingTwo topics took center stage at the General Assembly last week: the budget and tax reform.

House Appropriations Subcommittees met every day this week to discuss the budget passed by the Senate last week.  The subcommittees are expected to continue meeting next week and the full House Appropriations Committee (and likely the full House) is expected to vote the week of June 10.

After weeks of speculation, both the House and Senate Finance Committees met Thursday morning to present three different tax reform plans.  The House plan, HB 998 (Tax Simplification & Reduction Act), sets a flat individual income tax rate of 5.9% and reduces the corporate income tax from 6.9% to 5.4% over five years. Filers who itemize could claim their Mortgage Interest Deduction and charitable contributions up to a cap of $25,000 (for joint filers), but NOT their local property taxes. The plan would also expand the state sales tax to the installation or servicing of tangible material goods, like car repairs, computer warranties, or furniture delivery, but reduce the rate from 6.75% to 6.65% in 2014.

The Senate Republican plan, SB 677 (NC Fair Tax Act), sponsored by Matthews Senator Bob Rucho, sets the individual income tax rate at 5.5% in 2014 and reduces it to 4.5% in 2016. It reduces the corporate income tax from 6.9% to 6% over 3 years.  It also dramatically expands the state sales tax to more than 100 new services, including accounting and legal services, health care, groceries and medicine.

A bipartisan tax reform plan discussed by the Senate Finance Committee earlier in the session was modified and presented to the Senate Finance Committee also. That bill, SB 394 (Lower Tax Rates for a Stronger NC Economy), reduces the sales tax rate from 6.75% to 6.5% beginning in 2014, sets the individual income tax rate at a flat 5.95%, and reduces the corporate income tax from 6.9% to 5.95%. REBIC is still evaluating the two Senate plans, and will have more comprehensive summaries of each later this week.

Gov. Pat McCrory released a statement last Thursday afternoon saying HB 998 and SB 394 are “closest to my position.” He said he agrees with the goal of reducing personal and corporate income taxes, but that he couldn’t support a plan that “turns too many North Carolinians into first-time tax collectors. For instance, we do not want to require a young adult mowing lawns over the summer to collect taxes for his or her services.” The Governor also stated that he is opposed to taxing food and medicine.

For a helpful comparison of the 3 plans, check out the WRAL website HERE.

Source: North Carolina Home Builders Association

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