The Senate Finance Committee unanimously passed Senate Bill 622, the Tax Reduction Act of 2019, on Tuesday, May 14, and sent it to the Senate Rules Committee.
Sen. Bill Rabon, R-Brunswick, Rules Committee chairman, told Carolina Journal the bill would be brought up for a committee vote on Wednesday, and sent to the floor Thursday.
“We’ve been working on this package for a long time,” said Finance Committee Chairman Jerry Tillman, R-Randolph. “This is a historic package in that we’re cutting close to $1 billion in taxes.”
Tillman credited GOP tax reforms with stimulating the economy and producing unexpected budget surpluses. Republicans have a goal of eventually eliminating franchise taxes and corporate income taxes, he said.
Personal income tax filers would get a break under the bill because it raises the standard deduction. That is the portion of income the government does not tax. The deduction would rise from $20,000 to $20,750 for married couples filing jointly; from $15,000 to $15,563 for head of household; and from $10,000 to $10,375 for single filers, and married people filing separately.
Tillman said the franchise tax has been a staple of the state tax code for many years. But it’s roundly disliked because entrepreneurs must pay a tax for the privilege of operating a business in the state.
S.B. 622 cuts the franchise tax over two years. Now it’s $1.50 for every $1,000 of a company’s worth. Under the bill, the rate would drop to $1.30 per $1,000 for 2019 returns, and $1.00 per $1,000 for 2020 returns. The minimum $200 assessment and $150,000 cap on the tax are unchanged.
Two sections of S.B. 622 would enable North Carolina to collect more taxes from companies in other states.
The bill enacts a market-based sourcing of sales model for corporate income tax beginning in the 2020 tax year. The new policy allows the state to collect taxes on services purchased from out-of-state companies if the benefit of the purchase is used in North Carolina. Under the existing system, companies with multistate sales don’t share tax revenue with North Carolina if most of their business is done in another state.
Sen. Paul Newton, R-Cabarrus, said shifting the tax burden to out-of-state companies is an incentive to build businesses in North Carolina. But the National Taxpayers Union has argued some aspects of market-based sourcing make the law more complex.
The bill also affects out-of-state online “facilitators” such as Etsy, eBay, and Amazon Marketplace. These portals provide a platform for third-party sellers to market goods and services. Now the seller is liable for paying the sales tax. S.B. 622 shifts the tax collection burden to the marketplace facilitator.
Newton compared the tax change in the electronic marketplace to brick-and-mortar consignment stores. Third parties provide items to thrift shops, and the thrift shops pay the sales tax.
The bill extends the sunset date for existing sales tax exemptions to Jan. 1, 2024, for the state’s historic rehabilitation tax credit, jet fuel purchases for qualifying airlines, and racing fuel for the motorsports industry.