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Back You are here: Home News Local and State News State Governor, Senate, House Reach Deal on Tax Reform

Governor, Senate, House Reach Deal on Tax Reform

RALEIGH, N.C. : July 15th, 2013 - Governor Pat McCrory, Senate President Pro Tempore Phil Berger (R-Rockingham) and House Speaker Thom Tillis (R-Mecklenburg) announced late this afternoon they have reached a historic agreement on tax reform.  
North Carolina has the fifth-highest unemployment rate in the country and needs tax reform to compete with neighboring states for job creation.
“All of us were elected to change the status quo here in Raleigh and address problems head on,” said Governor Pat McCrory. “One of the biggest challenges we faced coming into office was working to help create jobs in the existing environment. This tax reform plan is a major step in restoring confidence in the economy so that employers start hiring again, and it will help us continue to attract new employers.  Just as important, this tax reform will allow North Carolinians to put more money in their pocketbooks so that they can spend and invest in North Carolina.”
 The tax reform agreement provides fiscally-responsible tax relief to all North Carolinians. It will lower income tax rates for all taxpayers to 5.8% in 2014, allowing North Carolina families to keep more of their hard-earned dollars. The corporate tax will be reduced to 6.0% in 2014 to make North Carolina more attractive to job-creators.
 “Reforming a state’s tax code is no easy task in the face of a barrage of special interests fighting to preserve the special treatment they receive at the expense of all taxpayers,” said Senator Phil Berger. “We’ve seen several other states – Kansas, Louisiana and Nebraska – give it their best shot but miss the mark. I’m proud of what we’re achieving here in North Carolina – we are truly a positive model for the rest of the nation.”
The tax reform proposal is fiscally responsible and provides reasonable revenue growth every year to meet the state’s budget needs.  Since tax reform is expected to grow the state’s economy and bolster the tax base, further rate reductions could be triggered by revenue growth in 2016 and 2017.  However, if for whatever reasons the tax revenue does not grow, the further reductions will not be triggered, ensuring that state revenue is preserved for public services.
“This plan will provide tax relief for working families throughout North Carolina and will enable businesses to create jobs for our citizens,” said Speaker Thom Tillis.  “Our state will become more competitive because of this tax reform legislation, and North Carolinians will have more dollars in their pockets.  I congratulate everyone who had a role in this historic agreement, especially Representatives David Lewis and Julia Howard, who led this effort in the House.”
“This plan reducing both personal and corporate income taxes combined with the General Assembly’s successful efforts last session to repeal the temporary sales tax accomplishes broad based tax relief that is unmatched in North Carolina’s history,” said Governor McCrory. “No other state has accomplished this level of tax reform this year and I would like to commend Speaker Tillis and Senator Berger for their hard work and congratulate them on reaching this agreement.”
Tax Reform Proposal Highlights
Personal Income Tax:
• Reduces and simplifies the 3-tiered state personal income tax from the current maximum rate of 7.75% and minimum rate of 6% to 5.8% in 2014 and 5.75% in 2015.  
• Increases the standard deduction for all taxpayers, applied to the:
- First $15,000 of income for those married filing jointly
- First $12,000 of income for heads of household
- First $7,500 of income for single filers;
• Retains the state child tax credit and increases it for families making less than $40,000;
• Offers a $20,000 combined maximum deduction for mortgage interest and property taxes;
• Makes charitable contributions fully deductible;
• Protects all Social Security income from state taxes.
Corporate Income Tax:
• Reduces the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015 a 29% rate reduction.
• If the state meets revenue targets (i.e. if tax revenue grows due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.
Other Highlights:
• Caps the state gas tax;
• Eliminates North Carolina’s death tax;
• Preserves the sales tax refund for nonprofits.
In June the North Carolina League of Municipalities said the House version of the reform bill was more protective of municipal revenues. Now in the Senate, the League opposed changes primarily due to the elimination of the food tax, privilege license tax, and sales tax refund for cities.
On July 15th the League issued a statement saying, "A release announcing highlights of the plan does not make clear how additional revenues for local governments would be generated. Nevertheless, Sen. Berger said of the plan, “It benefits local governments by allowing them to come out ahead. In fact, the projections are that the local governments will actually have increased revenue as a result of this plan. I would like to say that that should allow local governments to consider property tax reductions if they have additional revenue.”
According to the League, "Among the details of the plan that are known is that it includes a cap on the state gas tax, which could impact the future availability of Powell Bill funds. The plan would set a flat personal income tax rate of 5.8 percent in 2014 and 5.75 percent in 2015, and it would reduce the corporate income tax to 6 percent in 2014 and 5 percent in 2015. If certain revenue targets are met, the corporate income tax would be further reduced in 2016 and 2017."
Powell Bill funds are given to Town's for repair of roads based on the miles of roadway within their limits.
According to the League, "Given the agreement reached between the two chambers of the General Assembly, legislation implementing this plan should be approved quickly this week. The agreement also means that legislators have a revenue target on which to base their budget, meaning a State budget could also soon be on the horizon. If so this would allow the General Assembly to adjourn for the year before the end of the month."