NC Tax Reform Senate Discussions Underway

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The North Carolina Tax Reform Bill is being discussed in the Senate today (6/18/13).  CLICK HERE to get up-to-date information on the status of the bill.

There are four primary plans in play.  Two from the Senate and two from the House.  Bills from each part of legislature include:

  • Senate:  SB 363, SB 677, SB 394
  • House:  HB 642, HB 961, HB 985, HB 998

While all other bills have yet to move past their respective chambers, House Bill 998, “Tax Simplification and Reduction Act”, passed the house receiving a 75-37 final vote on June 10, 2013.  The bill is now moving through the Senate, having passed its 2nd reading 30-17.  The Senate is scheduled to discuss the bill today, Tuesday June 18, 2013.  Upon passage of the bill in the Senate, the bill is returned to the House for their vote and approval on Senate changes.

House Bill 998 (Fourth Edition) – According to the language in the bill, its main purpose is, “To simplify the North Carolina tax structure and to reduce individual and business tax rates”.

 

Highlights of the current version of the bill include:

PERSONAL INCOME TAX

Effective for 2014 unless otherwise indicated:

  • Eliminates the $50,000 business income deduction, effective for the 2013 tax year
  • Establishes a $15,000 zero bracket for married filing jointly taxpayers ($12,000 for head of household and $7,500 for single and married filing separately)
  • Establishes a flat 5.40% tax rate on Federal Adjusted Gross Income
  • Lowers rate to a flat 5.25% tax rate beginning January 1st 2015
  • Eliminates the NC standard and itemized deductions
  • Eliminates the personal exemption
  • Eliminates deduction for severance wages
  • Eliminates deduction for benefits received under Title II of the Social Security Act
  • Eliminates deduction for other retirement benefits
  • Eliminates deduction for contributions to the Parental Savings Trust Fund of the State Education Assistance Authority
  • Eliminates deduction for educator expenses
  • Repeals tax credit for child care and certain employment‑related expenses
  • Repeals tax credit for certain real property donations
  • Repeals tax credit for the disabled
  • Repeals tax credit for non-itemizer charitable contributions
  • Repeals tax credit for partial refund for tax paid on certain federal retirement benefits
  • Repeals tax credit for education expenses

 

CORPORATE INCOME TAX

  • Corporate income tax rate reduced from 6.9% to 6% in 2014, to 4% in 2015, to 2% in 2016, and eliminates the tax in 2017.
  • Repeals tax credit for certain real property donations

 

FRANCHISE – Under the proposed bill the franchise tax will be eliminated and replaced with the new privilege tax.

Effective for taxes and fees due in 2015:

  • Eliminates annual report fees for all business types
  • Eliminates franchise tax on S-corps, LLCs and other limited liability protected entities

 

PRIVLIEGE TAX (new tax): For the privilege of doing business for the income year in which the tax is due.

S-corps, LLCs and similar types of unincorporated entities with limited liability protection:

  • The privilege tax is due on the 15th day of the 4th month after the close of the income year.
  • Tax is $400 for tax due in 2015, $600 for tax due in 2016, $750 for tax due in 2017 and after.

C-Corps:

  • Reduces the franchise tax rate on C corporations from $1.50/1,000 to $1.20/1,000 for tax due in 2015, to $.90/1,000 for tax due in 2016, and to $.60/1,000 for tax due in 2017.
  • It increases the minimum franchise tax on C corporations from $35 to $500 for tax due in 2015, to $1,000 for tax due in 2016, and to $2,000 for tax due in 2017.
  • It eliminates the franchise tax on C corporations for tax otherwise due in 2018.
  • It imposes privilege tax on C corporations effective for tax due in 2018.
  • The privilege tax amount for C corporations is $5,000.

 

Summary schedule of corporate taxes paid in from 2014 to 2018:

TAX PAID IN:

2014

2015

2016

2017

2018

LLCs

$200

$400

$600

$750

$750

S-Corps

$1.50/1000

400

$600

$750

$750

C-Corp Franchise Rate

$1.50/1000

$1.20/1000

$0.90/1000

$0.60/1000

0

C-Corp Minimum Fee (2018 priv. tax)

$35

$500

$1,000

$2,000

$5,000

 

SALES AND USE TAX

  • Electricity subjected to the combined general sales tax rate, 7%; July 1, 2014
  • Piped natural gas taxed at the combined general sales tax rate, 7%; July 1, 2014
  • Preserves the municipal distribution of franchise taxes and piped natural gas taxes; July 1, 2014
  • Sales tax exemptions within G.S. 105-164.13 repealed on October 1, 2013:
    • Nutritional supplements sold by chiropractors (13c),
    • Newspapers (28), and
    • Vending machines (30) and (50).
  • Sales tax exemptions within G.S. 105-164.13 repealed on July 1, 2014:
    • Meals sold to students in dining halls operated by educational institutions (27)
    • Bread sold at a bakery thrift store (27a)
    • Back-to-school sales tax holiday (-164.13C)
    • Energy star sales tax holiday (-164.13D)
  • Entertainment – Changes as of October 1, 2013:
    • Repeals the 3% gross receipts tax on live entertainment, October 1, 2013
    • Repeals the 1% gross receipts tax on movies, October 1, 2013
    • Imposes a sales tax on admission charges to live entertainment, movies and attractions
  • Exempts the following events from sales tax as of October 1, 2013:
    • Events held at elementary and secondary schools,
    • Agricultural fairs,
    • Nonprofit fund-raising events and Youth (under 20) athletic contests sponsored by a nonprofit.
  • Sales tax refunds – Eligibility as of July 1, 2014:
    • Repeal sales tax refund for local governments
    • Caps the sales tax refund for nonprofit entities as follows:
      • 2014 – State = $7.5m; Local = $2.25m
      • 2015 – State = $5.0 m; Local = $1.5m
      • 2016 – State = $5.0 m; Local = $1.5m
      • 2017 and thereafter – State = $100k; Local = $30k July 1, 2014
      • Changes the refund time period from 3 years to 1 year.
  • Repeals the local sales tax on food, 2% repeal November 1, 2014,
  • Authorizes counties to levy a sales tax on food at the full local rate ranging from 2% to 2.75%.
  • Eliminates the wholesaler’s discount on cigarettes and other tobacco products effective July 1, 2014.

ESTATE TAX – effectively eliminates the tax as of January 1, 2013.

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