RALEIGH – Personal income taxes will be cut for North Carolinians under the budget plan unveiled today by legislative leaders during a press conference at the Legislative Building. The plan, part of the conference report for the budget that will be voted on by the Senate and the House, also includes an extension of the tax credit for historic properties, incentives for the film industry, and the restoration of a popular deduction for medical expenses.
House Speaker Tim Moore (R-Kings Mountain) said that the conference report represents “nearly… $400 million in tax relief that the citizens of this state will get through this budget.”
Under the plan, more individual and family income would be exempt from income tax entirely – rising from the current $15,000 to $15,500 for married couples who file jointly in 2016. The income tax rate also would fall from 5.75 to 5.499, but not until 2017.
Corporations would also see a rate cut if revenue targets continue to be met. That is not a change, but the conference report would remove the trigger date for the rate reduction to 3 percent, meaning the rates would drop to 3 percent for corporations whenever the revenue target of $20.975 billion is reached, regardless of when that happens. The rate will drop to 4 percent based on a revenue target that was hit this summer.
The Senate’s controversial sales tax redistribution plan is not included in the conference report, but those counties that would have benefited from the change will see that money anyway under a complex plan that would expand the sales tax base, taxing the installation, repair and maintenance of items currently subject to sales tax – including homeowners’ properties.
Legislative leaders also said Monday that the conference report would restore the popular tax deduction for medical expenses for the 2015 tax year. The move follows an outcry that ensued when the deduction was eliminated as part of streamlining the tax code in 2013.
And as previously reported by Jones+Blount, the renewable energy tax credit will be allowed to sunset at the end of 2015. Allowing the tax credit to expire in full would mean a $183.5 million boon to state coffers in fiscal years 2017-2020, according to General Assembly fiscal research staff.
Single sales factor apportionment
The conference report also includes a move to single sales factor apportionment over three years, a change that supporters say will attract jobs. Following a national trend, the state’s change means that corporations will be taxed solely on sales, not capital investments or labor.
“We’ve been working for two years on trying to get single sales factor,” said Sen. Bob Rucho (R-Matthews). “That will make North Carolina very attractive when we go out and try to compete for businesses that will come to our state.”
Film Industry Incentives
As expected, the budget includes $30 million for the film grant program, an economic development program that has been widely discussed over the past few years in Raleigh. The $30 million is a compromise between the governor and the Senate on one hand, and the House on the other. Both McCrory’s and the Senate’s proposals maintained the incentive program at last year’s $10 million level, while the House budget proposal increased it to $40 million.
Historic Tax Credits
These popular credits would be extended until 2020 under the conference report, although the credit for properties that are not revenue generating is less generous than the previous version, which expired Jan. 1. The credits have been widely used in rural and small town North Carolina to rehabilitate central business districts with the hope of revitalizing Main Street. McCrory and his Cultural Resources Secretary Susan Kluttz have stumped hard for the return of the credit that they say has a small impact on the budget but a large impact on small towns.
Full conference report yet to be released
The conference report, which has not been released in full yet, will be voted on the Senate as early as tonight, and will face votes in the House later in the week. It must be passed by both houses and signed by the governor by midnight Friday to avoid having to pass another continuing resolution to find government operations. As a conference report, it cannot be amended by either chamber.