Republican Tax Package Gets Initial North Carolina Senate OK

This year’s favored tax package for Republicans at the North Carolina General Assembly has received preliminary Senate approval.

The proposal, which advanced in a near party-line 26-19 vote on Thursday, is almost identical to tax provisions contained in the House’s state budget proposal approved two weeks ago. It contains more tax breaks for corporations and individuals, but would also likely collect more sales taxes from North Carolina residents shopping at online shopping sites based out of state.

The entire package, the latest in tax reforms sought this decade by the GOP-controlled legislature, would ultimately result in state tax collections falling by more than $200 million annually compared to what is forecast under current tax laws, according to a memo by legislative staff.

Democrats jumped on this loss of revenues in floor debate. GOP senators argue reductions ultimately will raise collections overall through tax policies that encourage capital investment and job creation. They cite annual robust revenue growth since their tax overhauls began in 2013.

“It will be extremely positive,” said Sen. Paul Newton of Cabarrus County, one of the bill’s chief sponsors, adding that when other tax cuts occurred, “the revenues have outstripped projections in the state.”

A final Senate vote is expected next week. Democratic opposition, however, increases the likelihood that Gov. Roy Cooper would veto legislation containing this package. Since Republicans now lack veto-proof majorities, the odds the full package would be enacted in its current forms are long.

For businesses, the rate on the franchise tax most corporations pay would decrease by one-third over two years, and one method used to calculate the tax based on the company’s property it owns would be eliminated. This and another shift calculating corporate income tax in the bill are designed to favor North Carolina-based companies and discourage them from moving elsewhere, bill supporters said.

On the individual income tax, the standard deduction would increase slightly in 2021 for all filers. For example, the first $20,750 of income of a couple filing jointly would be tax free, compared to $20,000 today. Companies like Amazon and eBay would be told to collect sales taxes from consumers who buy products they offer through third-party retailers.

Tax breaks for airlines on jet fuel, motorsports teams and rehabilitation of historic buildings also would be extended to 2024.

Democratic senators said they could support some elements but not the full package, focusing largely on the franchise tax.

They repeated complaints that corporate taxes keep falling — the corporate income tax rate of 2.5% is the lowest among states with such a tax — while education and health care needs continue to be unmet. And Sen. Floyd McKissick, a Durham County Democrat, said he’s never heard of a company deciding on whether to locate in North Carolina based on the franchise tax.

“The only thing that we are doing at this point right now is decreasing revenues for the state of North Carolina,” McKissick said.

One Democrat, Sen. Paul Lowe voted for the bill, citing a late provision that would eliminate what bill sponsors call some double taxation under the franchise tax. Sen. Ralph Hise, a Mitchell County Republican and bill sponsor, said the change would benefit tobacco giant Reynolds American by about $4 million annually. Reynolds American is based in Winston-Salem, where Lowe lives.

Republican Tax Package Gets Initial North Carolina Senate OK

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