Highlights from the recently proposed Tax Reform Plan

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Monday evening, Governor McCrory and Republicans in the House and Senate released a tax reform plan under the Proposed Conference Committee Substitute to House Bill 998.  Tuesday in both House and Senate chambers the Proposed Committee Substitute passed second reading along party lines.  Tuesday morning the matter was brought to a vote in the House with less than 30 minutes of debate, while the debate in the Senate’s afternoon session was lengthier.  Democrats in both chambers criticized the plan as a disproportionate tax cut for the wealthy which will result in cuts to essential government services.  Republicans responded that the plan will put money back into the pockets of all individual tax payers, not just the wealthy, and businesses which will generate jobs and economic opportunities for all North Carolinians.

Below please find some highlights from the proposed tax plan.

Personal Income Tax

  • Eliminates the three-tiered state personal income tax and reduces taxes 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
  • Retains deductions for mortgage and property tax up to $20,000
  • Allows full tax deductions of charitable contributions 
  • Exempts Social Security from taxable income
  • Eliminates deductions on retirement income

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
  • After 2015, if state revenue grows and meets its goals it will trigger a tax cut to 4% in 2016 and 3% in 2017

Other Highlights

  • Caps the state gas tax through June 30, 2015
  • Eliminates North Carolina’s estate tax
  • Exempts essential goods and services, such as food and drugs, from being taxed
  • Eliminates sales tax holidays for back-to-school and Energy Star products beginning in 2014
  • Expands taxable services to entertainment admission tickets and certain service contracts, while exempting out elementary or secondary school events, agriculture fairs, nonprofit entertainment events lasting no more than seven days, and youth athletic contest events sponsored by a nonprofit entity
  • Caps nonprofit state sales tax refunds at $45 million in any one year

Topics:  Corporate Taxes, Income Taxes, Proposed Legislation, Tax Cuts, Tax Reform

Published In: General Business Updates, Elections & Politics Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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