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Bill would drop N.C. corporate income tax from highest to lowest in Southeast

Bill would drop N.C. corporate income tax from highest to lowest in Southeast

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A group of four North Carolina House Republicans, including Forsyth Rep. Debra Conrad, have introduced a bill that would make the state’s corporate income tax the lowest in the Southeast for most companies.

Conrad is one of four primary sponsors of House Bill 642. Rep. Donny Lambeth, R-Forsyth, and Rep. Sarah Stevens, R-Surry, are among eight Republican co-sponsors.

The bill would reduce the state’s corporate income tax rate from 6.9 percent to 4.9 percent, dropping the rate from the highest to the lowest in the Southeast. The law, if passed, would be made retroactive to Jan. 1.

According to The Tax Foundation’s website, the corporate income tax rate for Florida is 5.5 percent, Georgia is at 6 percent, Kentucky is tiered between 5 percent and 6 percent, South Carolina is at 5 percent. Tennessee is at 6.5 percent and Virginia is at 6 percent.

“To make our state more competitive for economic development, we need to bring our tax rates in line with our neighboring states,” Conrad said in a statement. “This bill does just that.”

The corporate tax rate has been at 6.9 percent since 1999.

Reducing the rate has been an objective of Gov. Pat McCrory, but by how much is not clear.

There are some Republican legislators pushing to eventually eliminate the corporate income tax as part of an overall overhaul of the state’s tax code.

Their arguments for reducing the corporate income tax are similar to those of Conrad in that they believe it would encourage more companies to relocate or expand their businesses in North Carolina.

“Our state will be recognized as being more business-friendly, and our citizens will reap the benefits,” Conrad said.

However, it is unclear how Conrad and other legislators expect the state to make up for the lost tax revenue if the bill is passed. Conrad could not be reached immediately for further comment on the bill.

“I do not think this bill was coordinated with the governor’s office,” said John Hood, president of the John Locke Foundation, a conservative think tank. “No one knows the details of the governor’s tax-reform proposal, but it is likely to include a reduction in the corporate income tax, so the two initiatives would move in the same direction.”

Hood said he favors reducing the corporate income tax rate to “as close to zero as possible.”

“The tax only generates about 5 percent of the state’s General Fund revenue, but creates far more than 5 percent of the headaches and economic losses associated with tax compliance in the state,” Hood said.

“If there were no offsetting eliminations of tax credits or preferences, a reduction of the corporate income tax from the current 6.9 percent to 4.9 percent would have a static revenue impact of about $320 million, and likely less than that if the dynamic effect of increased corporate investment in the state is considered,” Hood said.

In January, McCrory’s top budget officer, Art Pope, cited potential problems with an idea floated at the legislature to potentially eliminate North Carolina personal and corporate income taxes and apply the sales tax to many more services. The individual income tax rate for the highest wage earners is 7.75 percent.

Pope told reporters he was worried a preliminary tax pitch from Senate Republicans could be regressive and essentially double-tax older adults who paid income taxes and saved for retirement.

But he also pointed out that McCrory ran in 2012 on a tax reform platform with an initial goal of reducing income tax rates to those of neighboring states such as Virginia and South Carolina.

The question of how hot or cool North Carolina's business climate is has been judged through the eye of the beholder for years. The state has been touted by several economic and site-selection groups as having one of the top, if not the top, business climates in the country.

Other groups have ranked North Carolina lower because of its regulatory and tax burdens.

“The fact remains we have the fourth worst unemployment rate in the country when we should have the fourth best, if not better,” McCrory has said at recent economic events in the Triad.

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