NC Senate Proposes Reducing Corporate Income Tax

On March 18, North Carolina lawmakers introduced an economic development plan that aims to make the state more competitive through reducing corporate income tax rates and enacting other reforms.

In addition to reducing corporate income tax rates, the proposal would simplify the method used to calculate their tax liability and provide incentives for manufacturers to invest in the Tar Heel State.

Push for economic policy overhaul

The Senate is considering this legislation after the administration of Gov. Pat McCrory (R-Georgia) floated a proposal that was mostly approved by the House earlier this month, according to The Associated Press.

Sen. Phil Berger, (R-Rockingham) leader of this legislative body, sponsored the Senate’s version of the plan. Berger, along with other senators in his party, failed to provide the governor’s proposal with a warm reception, the media outlet reported. The governor’s version focuses almost entirely on specific economic incentive programs, and senate republicans are somewhat doubtful of these initiatives.

Berger offered his own version of the economic development program, asserting his rendition “answers the governor’s call for economic development funds while improving the tax climate for all North Carolina businesses,” according to the news source.

Senate economic development proposal

The bill Berger introduced contains several major components:

1) Corporate income tax cut: The bill would the cut the Tar Heel State’s corporate income tax to 4 percent at the start of 2016 and then to 3 percent during the beginning of 2017. North Carolina’s rate has fallen to 5 percent from 6.9 percent since 2013, but the proposed reduction would provide it with the lowest corporate income tax rate in the Southeast.

2) Simplifying corporate taxes: The proposal would tax companies based on the goods and services they sell in North Carolina. If businesses don’t make these transactions in the Tar Heel State, they would not generate liability. Currently, many states that are close by, including Virginia, South Carolina and Georgia, leverage a similar method.

If North Carolina can transition to using a single sales factor, it can help provide enhanced incentives for companies looking to manufacture goods in the state and sell the bulk of these items elsewhere, according to The Associated Press. Such a development could help bolster investment in the Tar Heel State, motivating companies to purchase property and hire workers.

3) Enhance The Job Development Investment Grant: The recently introduced bill aims to upgrade an existing program providing grants to companies based on the amount of withholding taxes they pay for their employees.

By doing so, the legislation intends to make it easier for North Carolina to draw major manufacturing projects that commit to hiring at least 2,500 workers in the state and investing at least $1 billion.

While JDIG currently provides a large portion of these funds to a handful of counties, the proposal would ensure that other jurisdictions receive the majority of these resources going forward, according to The News & Observer.

In 2014, nearly 90 percent of the JDIG funds allocated for all of North Carolina went to Durham, Wake and Mecklenburg, which have a median annual income nearing $57,000.

The economic stimulus package would come along with restrictions to ensure that funds would last longer and be dispensed in a responsible manner. While the JDIG disburses these funds on an annual basis, the proposal would distribute these grants every quarter.

In addition, the legislation would ensure that most of the grant money associated with the program would go to the state’s remaining 97 counties, which have a median income of slightly more than $40,000.

Berger touted the benefits of the bill he introduced in the Senate, emphasizing its ability to streamline economic policy and produce job growth.

“This balanced plan will not only help North Carolina attract new jobs, but will also provide a real boost to the job-creators already making a valuable investment in our state’s economy – instead of simply asking them to pay for new businesses to move here,” he said in a statement. “By equipping Gov. McCrory with stronger tools to recruit major manufacturers, helping level the playing field for allocating economic development funds and providing much-needed tax relief, we will empower the entire state to grow and prosper.”

On top this proposal, Sen. Rick Gunn (R-Alamance) introduced an additional bill that would empower the General Assembly by allocating another $5 million to the JDIG for the rest of 2015. With these resources, the assembly could work toward revising economic development programs that will affect the state in its entirety.

Lawmakers reply to Senate proposal

McRory quickly criticized the proposal, asserting that it would deprive the state of too much tax revenue, according to The News & Observer. In addition, he claimed the Senate version of the economic development plan was “in strong disagreement” with the ideas put forth by his administration.

He continues to warn that if North Carolina doesn’t provide its main incentives fund with more financial resources soon, companies will consider doing business in other states, the media outlet reported.

Amid these concerns, the matter of how many companies should fall under the single sales factor policy has generated a wide range of views, according to the news source. The House version of the bill would only let companies investing more than $1 billion in the Tar Heel State – most likely manufacturers – benefit from this particular tax treatment.

While lawmakers refused to provide exact figures on how much it would cost to implement Berger’s single sales factor tax, Commerce Secretary John Skvarla told members of the media March 17 that the state could not afford to adopt this particular policy, WRAL.com reported.

However, the Senate leader provided an opposing view, according to the news source.

“I would say we could not afford not to do it,” Berger stated, emphasizing that many other states in the Southeast are harnessing the policy to incentivize companies, the media outlet reported.

Considering the sharp differences of opinion, it is safe to say that lawmakers may be in for some intense discussions as to how they should best address economic challenges in the Tar Heel State.