News: CJ Exclusives

McCrory Signs Tax Bill Covering E-Cigs, Local Business Taxes

Measure clarifies several portions of 2013 tax reform law

RALEIGH – Gov. Pat McCrory on Thursday signed into law House Bill 1050, legislation making a hodgepodge of changes in revenue laws that would, among other things, levy a tax on electronic cigarettes and eventually do away with privilege licenses charge by local governments.

The bill also would tweak the tax overhaul law that was approved by the General Assembly last year.

The Senate gave initial approval to the bill Wednesday and made its final vote just after noon Thursday. The House concurred an hour later, and McCrory signed the bill at 4:05 p.m.

Most of the Senate discussion on the e-cigarette tax had to do with the taxation method. None of the senators argued against the tax, and there was no effort on the floor to strip the provision from the bill.

Sen. Ben Clark, D-Hoke, offered an amendment to change the method for calculating the excise tax. His proposal would have based the tax on the amount of nicotine in the e-cigarette rather than have a 5 cent per milliliter tax.

“We’re trying to draw a relationship between the nicotine content, the e-liquid and the excise tax imposed therein,” Clark said.

Sen. Bill Rabon, R-Brunswick, said the e-cigarette tax would be a “hot item” in years to come, and opposed Clark’s amendment.

The Clark amendment failed by a 37-12 vote.

The excise tax will be assessed in addition to the 6.75 percent state and local sales tax in most areas of the state.

The e-cigarette tax is supported by R.J. Reynolds, but is opposed by some smaller companies.

The tax would become effective July 1, 2015. Fiscal analysts estimate that once the tax is fully implemented, it will bring in between $5 million and $5.3 million a year to the state’s coffers.

The bill also contained a provision doing away with local privilege license taxes assessed by cities and towns. That change would take effect July 1, 2015. Until then, privilege licenses would remain in effect, except cities no longer would be able to tax businesses not located within their corporate limits.

More than 300 North Carolina municipalities assess some sort of privilege license tax, bringing in $62.2 million annually.

In a statement, McCrory said, “There’s no debate that the privilege tax has been applied inconsistently, creating confusion and expense for our businesses. Therefore, I support needed reform.”

He added that the associations representing mayors and city councils had legitimate concerns about the forgone revenue. But he said had received assurances from the finance chairs in the House and Senate that they would work with local governments over the next year to “find a resolution that reforms the local tax option and addresses lost revenue, prior to the sunset date.”

H.B. 1050 also clarified the rules covering the occupancy taxes charges by localities for renting sleeping accommodations. Homes or rooms in homes that are rented for fewer than 15 days a year and are not listed through a real estate broker or rental service aren’t subject to occupancy taxes. The change was made to assist homeowners who rent their residences during golf tournaments at Pinehurst, which will host the men’s and women’s U.S. Open championships in June.

The bill also makes other tax code changes, such as exempting new farmers from sales taxes used in their agribusiness, defining that prepaid meal plans, such as those used on college campuses, are subject to sales taxes, and clarifying taxes on contractors installing items bought from retailers.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.