Historic Tax Credit program to be extended by proposed HB 399
A trio of business-specific tax breaks would be extended for four more years under a tax package that has support from key lawmakers in both the state House and Senate.
Senate Bill 622 would raise the standard deduction for personal income taxpayers by 3.75 percent starting in 2021, and it would reduce franchise taxes on businesses while requiring online “marketplace facilitators,” such as eBay, to collect sales taxes.
For a married couple filing jointly, the standard deduction would increase from $20,000 to $20,750 starting in 2021, with similar changes for other types of personal income taxpayers. That’s the amount on which someone who doesn’t itemize their tax returns will owe no income taxes. When fully implemented, the change would reduce state revenue by about $88 million per year.
That’s less than the amount of revenue involved in the proposed franchise tax cut for businesses, which would save businesses more than $230 million annually starting next year. The franchise tax is based on a corporation’s overall tax base in North Carolina.
A lobbyist for the company LabCorp said North Carolina’s franchise tax is the most complicated of the states where it does business.
“If we’re open to business, we ought to get rid of this thing,” said bill sponsor Sen. Jerry Tillman, R-Randolph.
Democrats said they support raising the standard deduction but worry the tax cuts for businesses could prove too costly.
“We need to preserve our budget integrity and our ability to provide services, and $759 million (over several years) is a big hit,” said Sen. Floyd McKissick, D-Durham.
SB 622 and its House companion would also extend three tax exemptions for specific types of businesses, currently set to expire next year. The biggest of the three is a provision that exempts airlines from paying jet fuel taxes, a break that saves the airline industry up to $11 million per year.
“It’s not expensive in the grand scheme of things,” said Sen. Bill Rabon, R-Brunswick. “Our airports are burgeoning, and we are getting nonstop flights across the country.”
The primary beneficiary of the tax break is American Airlines, which has a hub in Charlotte.
Also in the Charlotte area, the bill would extend sales tax exemptions for NASCAR, which save the industry about $3 million per year.
“NASCAR is one of the biggest concerns that we’ve got,” Tillman said. “Many of those teams are struggling now to make it. We think we need to do what we can for those folks.”
A third extension in the bill is for the historic preservation tax credit, a financial incentive to renovate and restore old buildings. That would cost the state $4.5 million in fiscal year 2020-2021, according to a legislative analysis.
The inclusion in SB 622 is notable because the Senate initially opposed an extension of the credit several years ago. But the bill doesn’t go as far as some House Republicans wanted: A four-year extension of the existing credit falls short of the 10-year extension and beefed-up credit in House Bill 399, which passed the House Commerce Committee earlier this month.
Another tax break in the bill is new, giving an extra boost to companies receiving state jobs incentive grants. SB 622 would create an income tax deduction for the amount a business receives from the Job Maintenance and Capital Development Fund (JMAC), the Jobs Development Investment Grant Program (JDIG) or the One North Carolina Fund. An analysis of the bill pegs the value of the deduction at less than $1 million per year.
“If the state gives you a grant on an economic incentive, there’s no need for you to pay state taxes on that grant,” Tillman said.
The bill could get a vote in the Senate Finance Committee after the Senate’s spring break next week. The House version, House Bill 676, is sponsored by that chamber’s Finance Committee co-chairs. It hasn’t yet had a hearing, but it’s possible that it could be rolled into the House budget due to be released later this month.