The N.C. General Assembly has introduced a massive tax reform that would affect income, sales, and estate tax throughout the entire state. The goal of this tax reform is to reduce tax rates on investment and produce a net tax cut. This tax reform is similar to one introduced by the N.C. Senate last week.
Provisions of this reform include:
- Broadening the base of NC’s income and sales tax, while reducing their marginal rates
- Converting the state’s income tax into Flat Tax
- Reducing marginal tax rates on corporate income and franchises
- Eliminating NC’s inheritance tax
In regards to reducing the marginal rate of sales tax, the reform is set to reduce combined sales tax from 6.75 percent to 6.65 percent. The reform also plans to apply this sales tax to a wider range of services than it is currently applied to. The Senate reform plans to expand the use of sales tax as well but to a much broader range of services than the House plan.
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The House’s proposed reduction of corporate income tax is to make it 6.75 percent from the current 6.9 percent. The Senate’s is much steeper, which plans to bring corporate income tax down to 6 percent in three years. The Senate wants to keep North Carolina profit tax in par with the other states in the region. Both Virginia and Georgia currently charge 6 percent corporate income tax, Tennessee is at 6.5 percent, and South Carolina is the lowest at 5 percent. With the House’s proposed reform, although reducing current rates, would still keep North Carolina as having the highest corporate income tax in the region.
In all, the Senate plan is most likely to register as a $1 billion cut from the revenue baseline over a period of three years. The House plan would register as nearly half that over a period of 1-2 years and exceed the Senate cut amount in 4-5 years.
With tax reform proposed in both the N.C. House and Senate, the two governing bodies will now work to combine the two plans. They anticipate a deadline of June 30th for putting the new budget in place.
Author: Sean Foley, Legal Trainee, Bridgehouse Law Charlotte
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