Beginning in mid-December, the holiday season in the U.S. really starts to run on all cylinders. Whether you’re celebrating Hanukkah (beginning December 16), Winter Solstice (December 21), Festivus (December 23 – see Wikipedia if you’re unfamiliar with this holiday that entered popular culture in 1997), Christmas (December 25), Kwanzaa (beginning December 26), some combination of the above, or none of the above, you’ve likely seen your calendar start to fill up and your wallet start to empty out. In addition, the New Year is now less than 2 weeks away. As you do your holiday shopping and begin to think about your year-end tax situation, here are a few changes to keep in mind.
1. Is it all about that base? Despite what you might have heard if you spent much time listening to pop music this year, in 2014 it really wasn’t “all about that base” as far as local sales and use taxes are concerned. Shoppers in two North Carolina counties will see a slight increase in sales tax rates this year. On April 1, 2014, the local sales and use tax rate increased from 2% to 2.25% in Harnett County – taking the combined State and local general rate in that county from 6.75% to 7%. Davidson County had the same increases go into effect October 1, 2014. In each case, the increase came about as the result of an earlier voter referendum authorizing the increase. Referenda also passed in Anson and Ashe Counties in 2014, allowing the boards of county commissioners in those counties to raise local rates in the future. In ten other counties, local referenda on an increase in the local sales and use tax rate failed in 2013 and 2014. In Bertie and Bladen Counties, these referenda failed twice – first in May 2014 then again in November 2014.
2. Christmas lights and chestnuts roasting on an open fire. The Department of Revenue is likely to be taking a bigger haul this year when you string up the Christmas lights or turn on your gas logs. As part of tax reform in 2013, the General Assembly applied the combined general rate of sales tax, currently 7%, to the gross receipts derived from sales of electricity and piped natural gas, while simultaneously repealing franchise and excise taxes that were in place. These changes became effective July 1, 2014. Previously, sales of electricity to residential customers were subject to a sales tax at the rate of 3% and electric power companies were subject to a franchise tax at the rate of 3.22% of gross receipts. Previously, sales of piped natural gas were exempt from the sales tax, but subject to an excise tax based on the therm volume of gas received. The General Assembly directed the Utilities Commission to adjust rates for electricity and piped natural gas based on the fact that consumers, rather than the provider, would now directly bear the burden on these taxes. When one factors in the repeals of the franchise tax on electric power companies and the piped natural gas excise tax, the mandatory rate adjustments, and the application of the sales tax to these sales, consumers can expect to pay a little more overall for electricity and piped natural gas than they would have without these changes.
3. Would you like to buy the extended warranty? As any Black Friday shopper can tell you, some of the biggest draws during the holiday season involve major electronics. If you’ve bought any electronic equipment recently, you may remember the salesperson asking if you wanted to buy the extended warranty. Those extended warranties will cost you a little bit more this year, as the General Assembly applied the sales and use tax to sales of service contracts, effective January 1, 2014 (subject to some adjustments made during the 2014 Regular Session).
4. The Sugar Plum Fairy, Tiny Tim, the Belk Bowl, and the Oscar contenders. For some folks, it’s just not Christmas without a performance of The Nutcracker or A Christmas Carol. For others, the “holiday season” could just as easily be renamed “college football bowl season.” Finally, for some the end of the year means a slew of movies being released before the end of the year to ensure that they are eligible for awards season. Whether you’re planning on heading to the ballet, the Belk Bowl, or the movies this holiday season, State and local tax coffers are likely to benefit. As another part of the 2013 tax reform efforts, the General Assembly applied the State and local sales and use tax (ranging from 6.75% to 7.5% depending on the county) to admissions. Previously, admissions were exempt from the sales tax, but subject to a privilege tax equal to 3% of gross receipts for many live events and 1% of gross receipts for motion picture shows. These changes went into effect January 1, 2014 (subject to some adjustments made during the 2014 Regular Session).
5. Be sure to fill your tank on New Year’s Eve. No, I’m not suggesting you get tanked on New Year’s Eve – I’m talking about your gas tank here. On January 1, 2015, the motor fuels excise tax rate is set to increase 1¢ per gallon up to 37.5¢ per gallon. The increase is the result of a statutory formula that looks at the average wholesale price of motor fuels for the previous six-month period. (In this case, the increase really is all about that base.) As always, be safe – if you ARE partaking in some holiday cheer just wait until the New Year to gas up the car.
6. Bring on the savings! For taxable years beginning on or after January 1, 2015, the personal and corporate income tax rates will drop. The corporate income tax rate will decrease from 6% to 5%. The personal income tax rate will decrease from 5.8% to 5.75%. Before you run up your credit card, however, you may want to put that number in perspective. For a taxpayer with $100,000 of taxable income, the personal income tax rate decrease results in a State income tax savings of $50.
7. Should old acquaintance be forgot and never brought to mind? North Carolina’s tax credits for historic rehabilitation are currently set to expire for taxable years beginning on or after January 1, 2015. But don’t count these credits out just yet – a number of parties, including the Governor, are pushing for an extension of these credits in some form.
8. Say goodbye to Hollywood? Another State tax credit set to expire January 1, 2015, is the credit for qualifying expenses of a production company. Currently, TV and film producers can receive a refundable tax credit equal to up to 25% of the amount they spend in the State for qualifying expenses (generally goods and services purchased in this State). As of January 1, 2015, this credit is set to expire and be replaced with a discretionary grant program.
MVA Public Affairs wishes you a safe and happy holiday! We’ll be back in the New Year, but blog posts will be less frequent as the 2015 Regular Session of the North Carolina General Assembly gets underway on January 14, 2015.
