North Carolina Governor to Sign New Tax Reform Law

July 23, 2013

Lowered Rates and Sales Tax Changes Welcome; More Work Needed

Washington, D.C., July 23, 2013—Last week, North Carolina legislators passed major tax reform legislation, and Governor Pat McCrory is scheduled to sign the legislation at a ceremony this afternoon. The plan, the subject of spirited debate in the state’s General Assembly, lowers individual and corporate income taxes, abolishes the estate tax, and modestly broadens the sales tax base.  

The improvements in the state’s tax code will benefit individual taxpayers as well as business owners, and will make North Carolina a more attractive place for new investment. The simplification of gross receipts taxes and elimination of preferential rates for particular industries will also be a bonus for the state’s economy.

“Charging multiple tax rates on different industries and transactions is non-neutral and adds unnecessary complexity to the tax code,” said Tax Foundation economist Elizabeth Malm. “The expansion of the sales tax base to services is unfortunately far less comprehensive than we originally hoped, but the plan still represents a step forward. We hope that future reform efforts will continue this work.”

The legislation will reduce the income tax from 7.75 percent to 5.75 percent while eliminating carve-outs. It also provides a $7,500 standard deduction, an increase from the state’s existing $3,000 deduction, drops the corporate rate to 5 percent, modestly broadens the sales tax to include some service contracts, and eliminates the state’s estate tax.

“It was a privilege working with lawmakers and policy advocates in North Carolina as they decided how the state’s tax system should best be reformed,” said Tax Foundation Vice President for Legal and State Projects Joseph Henchman. “The Tax Foundation’s earliest work, stretching back to the late 1930s, involved helping taxpayers at the local and state levels who were working on ways to improve the tax systems where they lived. Several decades later, that work continues.”

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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