North Carolina Tax Reform

Recently the North Carolina House and Senate passed a version of H.B. 998 which reforms the state income tax code. There are some revenue raisers in the bill – an elimination of the sale tax holiday and sales tax increase on electricity, service contracts, and movies, with the following income tax rate reductions.

Personal Income Tax:

• Reduces and simplifies the 3-tiered state personal income tax 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 households
  • First $7,500 of income for single filers;
• Retains the state child tax credit and increases it for families making less than $40,000;
• Offers a $20,000 combined maximum deduction for mortgage interest and property taxes;
• Makes charitable contributions fully deductible;
• Protects all Social Security income from state taxes.

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.
• If the state meets revenue targets (i.e. if tax revenue grows due to a growing economy), the corporate income tax will drop to 4% in 2016 and 3% in 2017.

Other Highlights:

• Caps the state gas tax;
• Eliminates North Carolina's death tax;
• Preserves the sales tax refund for nonprofits.

A more detailed comparison can be found at http://charlottechamber.com/clientuploads/publicpolicy/PDFs/TaxReformComparison.pdf