Early last week, leaders in the North Carolina House and Senate joined Governor McCrory in Raleigh to announce an agreement on legislation they termed “historic and meaningful Tax Reform” that will spur economic development and ensure enough money is available to provide for public services. Republicans said implementing the plan would move the state’s overall business tax climate from 44th in the U.S to 17th, as determined by the Washington, D.C.-based Tax Foundation.
Here are the details of the approved plan:
Personal Income Tax:
- Reduces and simplifies the 3-tiered state personal income tax from the current maximum rate of 7.75% and minimum rate of 6% to 5.8% in 2014 and 5.75% in 2015.
- Increases the standard deduction for all taxpayers, applied to the:
- First $15,000 of income for those married filing jointly;
- First $12,000 of income for heads of household;
- First $7,500 of income for single filers;
- Retains the state child tax credit and increases it for families making less than $40,000;
- Offers a $20,000 combined maximum deduction for mortgage interest and property taxes;
- Makes charitable contributions fully deductible;
- Protects all Social Security income from state taxes.
Corporate Income Tax:
- Reduces the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015 a 29% rate reduction.
- If the state meets revenue targets (i.e. if tax revenue grows due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.
- Makes no changes to franchise tax laws – that issue and others will be studied during the interim between sessions;
- Extend the state sales tax to certain service contracts and tickets to certain attractions (movies, live shows, etc.) beginning Jan. 1;
- Caps the state gas tax;
- Eliminates North Carolina’s death tax;
- Caps sales tax refund for Nonprofits at $45 million per year
With Tax Reform done and a deal on the budget wrapped over this past weekend, the General Assembly is heading into what is almost certainly its final week. REBIC and our partner associations are continuing to press for the passage of key regulatory reform legislation, and will keep you appraised of any progress as the session nears its conclusion.
You can download the Tax Reform legislation HERE.
Here’s a summary of the plan’s fiscal impact.
Here’s a summary on the impact on taxpayers at various income levels.