North Carolina Senators Propose Corporate Tax Relief

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Posted by Patrick M. Gleason on Friday, March 20th, 2015, 3:37 PM PERMALINK

North Carolina has received a lot of attention in recent years for the historic tax reform package approved there in 2013. This week, North Carolina senators introduced a proposal to build upon those reforms and make the state even more economically competitive.

On Wednesday, legislation was filed in the North Carolina senate that would cut the state corporate tax, which is currently 5%, to 4% in 2016, and 3% in 2017. The 2013 tax reform act brings the corporate rate down to 3%, but only if certain revenue targets are met. The bill filed this week, Senate Bill 338, would make sure that the corporate tax will go to 3% no matter what. This corporate tax reduction will increase the job-creating capacity of North Carolina employers and benefit the broader populace. The fact is that corporations don’t pay taxes, people do. Aside from the fact that the corporate tax is one of the most economically damaging forms of taxation, the burden of corporate taxes is borne by ordinary people in the form of reduced wages and shrunken 401Ks. This corporate tax cut would total $500 million per year once fully phased in. 

The senate plan would also change the formula under which the state corporate tax is calculated. The current formula is based on in-state payroll, property, and sales. The plan announced by Senate President Pro Tem Phil Berger this week moves the state corporate tax to a formula based only on in-state sales, commonly referred to as “single sales factor.” This is a good move from an economic standpoint, as the current formula penalizes companies that hire more workers or expand in-state operations. Moving to a single sales factor reduces this disincentive on in-state investment and payroll growth. It is for this very reason that lawmakers in neighboring Tennessee have introduced legislation year to move to a single sales factor corporate tax system.

Every state bordering North Carolina has a lower state and local tax burden. Legislators in South Carolina and Tennessee are moving to make their tax codes even more competitive by cutting income taxes this year. As such, it’s wise for North Carolina lawmakers to use the 2015 session allow individuals, families, and employers to keep more of their hard-earned income. The plan introduced in the North Carolina senate this week would do just that. 

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