North Carolina Tax Reform Options: A Guide to Fair, Simple, Pro-Growth Reform

In fall 2012, the Carolina Business Coalition commissioned us to prepare a review of the North Carolina tax system and recommend possible improvements. We undertook this project as a national organization familiar with tax developments in many states, with the view that tax systems should adhere to sound economic principles, and in the spirit of providing useful information and observations for North Carolina policymakers, journalists, and citizens as they evaluate their state’s tax system.

Browse through the full report using the table of contents below, or view the whole publication as a single page here. You can also download a PDF using the link above.

North Carolina Tax Reform Options: A Guide to Fair, Simple, Pro-Growth Reform by

TABLE OF CONTENTS

EXECUTIVE SUMMARY
PRINCIPLES OF GOOD TAX POLICY
GUIDELINES FOR SUCCESSFUL TAX REFORM
NORTH CAROLINA’S  EVOLVING ECONOMY
Income
Gross State Product
Unemployment
Manufacturing
Services
Interstate Migration
NORTH CAROLINA’S EXISTING TAX SYSTEM
SOURCES OF REVENUE
STATE-LOCAL TAX BURDEN
STATE BUSINESS TAX CLIMATE
CORPORATE INCOME TAX
High Rate, Narrow Base
Net Economic Loss & Carryforward
Apportionment Formulas, Combined Reporting, & Throwback Rules
Economic Development Incentives
FRANCHISE TAX
INDIVIDUAL INCOME TAX
SALES TAX
Sales Tax Applies to Business Inputs, Distorting Market
Identical State & Local Sales Tax Base
Sales Tax Does Not Apply to Services, at Expense of Goods Industry
PROPERTY TAXES
TRANSPORTATION TAXES & FEES
TAX ADMINISTRATION
DEBT, LIABILITIES, & CREDIT RATING
KEY PREVIOUS NORTH CAROLINA  TAX REFORM EFFORTS AND PROPOSALS
1921: Revenue Act of 1921
1933: Emergency Revenue Act of 1933
1951: The Sales Tax: Its History, Growth, Development, Problems, and Possibilities
1989: Tax Fairness Study Commission
1991: Economic Future Study Commission
2001: Efficiency & Loophole-Closing Commission
2002: Governor’s Commission to Modernize State Finances
2005: N.C. Budget & Tax Center – A 21st Century Revenue Plan
2006: State & Local Fiscal Modernization
2005-2009: Institute for Emerging Issues – Financing the Future
2009: John Locke Foundation – Tax Reform in North Carolina
2009: 21st Century Tax Rate Reduction & Modernization Plan (Senate)
2012: Civitas Institute – More Jobs, Bigger Paychecks
TAX REFORM OPTIONS
Option A
Option B
Option C
Option D
OTHER TAX REFORM SUGGESTIONS
Franchise Tax Repeal
Net Operating Loss Carryback & Carryforward Reform
Reduce Sales Tax Pyramiding
Intangibles Tax Repeal
Real Estate Transfer Tax
Estate & Inheritance Tax Repeal
Tangible Personal Property Tax Repeal
Reducing Total Tax Burden
FALSE TAX REFORM
Gross Receipts Taxes
The Failing Texas Margin Tax Experiment
Industry-Specific Tax Incentives
APPENDIX A: REVENUE ESTIMATES
APPENDIX B: SALES TAX BROADENING OPTIONS
APPENDIX C: INCOME TAX LIABILITY ESTIMATES
APPENDIX D: SALES TAX LIABILITY ESTIMATES
ACKNOWLEDGEMENTS