the legislature adjourned after passing some significant and sometimes
controversial legislation that will dramatically change the landscape of North
Carolina. From tax reform passed earlier
this week, to the voter I.D. and Charlotte Airport takeover legislation
accomplished late last night and into
the early morning, lobbyists, interest group and concerned citizens struggled
to keep up and respond to the vast
changes being proposed. With adjournment,
now comes the difficult task of assessing what it means for us as individuals
as well as for your business and your profession.
it will take weeks to analyze the impacts of the budget passed earlier this week, and the numerous pieces of legislation enacted (HB
74, passed last night, was 68 pages long), the debates over North Carolina’s
tax climate are over, at least for now, and a summary is provided in this
Signs Tax Reform Legislation
Conference Committee version of HB 998
was signed by Governor McCrory on Tuesday and the full text can be found here. The bill is less comprehensive than the
versions initially proposed and does not include taxing professional services
i.e., engineering services.
is a high-level summary of the current tax law:
tax brackets are eliminated and a flat tax instituted.
is reduced to 5.8% for 2014 and to 5.75% for 2015. Previous rates were indexed and ranged from
6.0% to 7.75%.
exemptions are replaced with increased standard deductions.
adjustments to income are streamlined and simplified.
related to disabilities, donations, federal retirement benefits, child
care/employment/education and certain agribusiness are eliminated.
winnings are taxed
study is recommended to analyze possible changes to low-income housing credit.
rate is dropped to 6% for 2014 and 5% for 2015 from the current 6.5%.
2016-17 budget targets are met, the rate would fall further but a study will
analyze target formula implementation.
of credits is left as is though many credits will sunset if not renewed –
except R&D credit extended through 2015.
state’s economic development incentives, found in Article 3J (jobs and
investment credits) are scheduled to sunset at the end of this year.
study is recommended to analyze “net economic loss” deductions.
and Use Tax:
is no comprehensive sales tax base expansion; however, a study is recommended
to analyze possible future taxation of more services.
service agreements for the repair and maintenance of goods would become taxable
– some provisions are not clear.
events admission sales would become taxable at full sales tax rate instead of
lower privilege tax rates.
Department of Revenue tax dispute settlement authority to deal with liabilities
related to implementation of new service agreement and admissions sales taxes.
and piped natural gas would become taxable at full sales tax rates, instead of
lower power/fuel tax rates; a study is recommended to analyze distribution of
the new electricity and gas taxes
and modular homes would become taxable at full rates.
exemptions are changed.
supplements, bakery bread, and newspaper sales tax exemptions are repealed.
meals exemption is repealed but largely reinstated through amendment to school
meals exemption (would now cover charter and regional school meals).
and use tax holidays are eliminated.
nonprofit/hospital drug refunds are capped at $45 MM.
refund incentives for passenger air carriers and motorsports are extended
study is recommended to analyze possible changes to the current 1%/$80 per
article preferential tax rate for certain industries.
repealed retroactively to January 1, 2013
at 37.5 cents per gallon (for the period of October 1, 2013 to June 30,
2015). A study is recommended to analyze
possible changes to preferential carrier fuel rates.
change but a study is recommended to analyze possible future changes to the
calculation and remaining viability of this tax.
recommended to analyze possible other changes.
summary was prepared by Womble Carlyle)
only time will tell if this tax reform plan has the desired effect of creating
jobs and making NC more competitive with its neighboring states.
complete analysis of the budget and other significant legislation affecting
the Engineering Industry will be
provided in the next few weeks.