S394 Presentation to NC Senate Finance Committee 4/3/2013

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S394 Presentation to NC Senate Finance Committee 4/3/2013

  1. 1. SENATE BILL 394Lower Tax Rates for a Stronger NC Economy
  2. 2. Bipartisan Plan for Economic Growth• Lower every major tax rate• Make tax rates more competitive with neighboring states• Make tax system simpler, fairer• Eliminate clutter of rates, exemptions• Provide stable revenue stream• Disentangle State revenue from local revenue• Keep changes revenue-neutral
  3. 3. SO WHAT’S WRONG WITH THE REVENUESYSTEM WE HAVE NOW? MAINE SUNDAY TELEGRAM SUNDAY, JULY 26, 2009
  4. 4. North Carolina Tax Structure (1970 – 2013)100.0% 90.0% 32.7% 80.0% 45.8% 52.8% 56.4% 53.0% 55.6% 70.0% 58.8% 60.0% 12.2% Personal Income 50.0% 9.8% Corporate 7.4% 5.5% 40.0% 31.0% 3.7% 5.0% 5.7% Sales 30.0% 25.9% Other 25.1% 31.9% 27.3% 27.9% 28.8% 20.0% 24.1% 10.0% 18.5% 14.7% 10.2% 10.7% 9.6% 9.9% 0.0% 1970-71 1980-81 1990-91 2000-01 2008-09 2010-11 2012-13 (projected)
  5. 5. 5Growth & Stability40% 31.9% 25.8%20% 0% Corporate Income Tax Non-withholding PIT-20% Sales Tax -30.1% -27.0% Withholding PIT-40% 1997-98 2000-01 2003-04 2006-07 20% of General Fund revenue comes from two volatile sources: CIT & non-withholding portion of the PIT
  6. 6. Sales Tax Base Is Shrinking asPercentage of Total Economy 54 52 50 Percent 48 46 44 42 40 38 79 84 89 94 99 04
  7. 7. The Sales Tax Base 70% 5.0% 4.5% 60% 56.1% 52.7% 4.0% 50% 46.2% 3.5% 3.0% 40% 36.8% 2.5% 30% 2.0% 20% 1.5% 1.0% 10% 0.5% 0% 0.0% 1970s 1980s 1990s 2000s Due to shifts in consumption and an eroded base, the State rate has increased from 3% to 4.75%. Despite the rate increase, sales tax as a share of GF revenue has declined.
  8. 8. Taxation of Services, by State180160140120 NC100 80 60 40 20 0 NH IN MN NJ MI HI NM MA NV ME NY MS NE TX IA ND ID NC MD TN OH MO RI WI IL MT AZ UT AK VA CA KY OK GA LA PA KS DE WY WV WA OR AR SD CO AL FL VT CT SC Source: Federation of Tax Administrators, 2007 Survey
  9. 9. Tax Rates Tax Current Rate SB 394 Rate DecreaseIndividual Income 6, 7, & 7.75% 6% 23%Corporate Income 6.90% 6% 13%Franchise $1.50/1000 $1.25/1000 16.70%State Sales 4.75% 4.50% 5%
  10. 10. Rates Compared to Other States Tax Current SB 394 GA SC TN VAIndividual 6, 7, & 6 1 to 6 3 to 7 No general 2 to 5.75Income 7.75Corporate 6.9 6 6 5 6.5 6Income $10 toFranchise 1.50/1000 1.25/1000 1.00/1000 2.50/1000 No general 5000State Sales 4.75 4.5 4 6 7 4
  11. 11. Individual Income Tax Highlights• Establishes flat 6% rate• Replaces standard deduction and exemptions with zero bracket amount• Eliminates all credits except: • Child credit – increased to $200 or $450 • Charitable contribution credit, capped at $600• Replaces other credits and deductions with personal expense credit available to everyone• Eliminates most deductions• Taxes Social Security income only if taxed by federal government
  12. 12. Business Tax Highlights• Lowers corporate tax rate to 6% - same as individual rate• Increases sales factor weighting from 2x to 6x – first step in transition to single factor sales• Includes all limited liability entities in business privilege tax – replacement for franchise tax• Repeals local privilege license taxes• Repeals $1%, $80 excise tax on manufacturers and a few other businesses and enacts sales tax exemption for the capital equipment that was subject to that tax• Allows Article 3J and most tax credits to sunset• Eliminates annual report fees
  13. 13. Sales Tax Changes: Expand Base• Repeal vending and various other exemptions• Include tangible personal property services • Service contracts • Alteration, repair, maintenance, cleaning, and installation• Include entertainment and recreation • Live entertainment, movies formerly taxed under privilege license tax • Charges for museums, cultural sites, exhibits, shows, similar attractions • Charges to play or participate in a game, sport, or fitness activity• Include storage • Short-term self-rental space, short-term clothing, boat, aircraft storage• Include real property care and maintenance services • Extermination and pest control services • Landscaping services other than for new construction, utility easement • Cleaning• Include security services • Guard and armored car services, alarm system monitoring • Locksmith services, telematic motor vehicle services
  14. 14. Local Revenue Impacts Increases Decreases• Distribution of State • Local privilege license tax business privilege tax • Distributions of State tax:• Expand sales tax base: • Franchise tax on electricity • Electricity and piped gas • Piped gas excise tax • Tangible personal property • Beer and wine excise tax services • Corporate income tax • Entertainment, recreation • Modular home sales tax • Real property care and • Medicaid hold-harmless maintenance services • Eliminate exemptions • 1% Sales Tax on Food

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