LEGISLATIVE REPORT July 3, 2013

Transcription

1 LEGISLATIVE REPORT July 3, 2013 Let's Make a Deal (Or, Not) INTRODUCTION The effect of ongoing negotiations between the House and Senate on the issue of tax reform, and the inability of the chambers to reach an agreement, has steadily increased over the past few weeks. As we've reported, action on a variety of bills has been stalled as each chamber has tried to exert pressure on the other, and official negotiations on a consensus budget bill for the upcoming fiscal biennium (beginning July 1) have yet to begin. This tension reached a new height at the end of last week, with Sen. Rules Chairman Tom Apodaca announcing on Thursday that all House bills scheduled for consideration that day would be pulled and held until the compromise tax reform package is finalized. House Speaker Thom Tillis later announced that the House would hold only 'skeleton' sessions this week, and no House committees would meet, effectively delaying all action on Senate bills for a full week. Notably, this is the same week that the Speaker had earlier predicted would be the last of the session. Also last week, a Continuing Resolution (CR) was quickly passed and signed by the Governor, which will continue the current budget (at 95% of current funding level) until July 30. Earlier in the session many observers confidently predicted the Republican majorities would not allow things to get to such a point that a CR would be needed, both because one has not been necessary since the new majorities took power in 2011, and because many of those members now in leadership were so loudly critical of the previous Democratic majority when they passed CRs in years past. That a CR was in fact needed, and that it was written for 30 days (as opposed to the 7 or 15-day CRs common in the past) served as an indication of how real the impasse between the chambers truly is. Last week a "compromise" tax reform plan attributed to Governor McCrory and his Budget Director Art Pope was circulated at the legislature, though (likely for the sake of negotiations) Pope initially refused to admit the plan came from the Governor's office. McCrory, who has publicly taken sides with the House's plan over the Senate's, expressed his frustration with the impasse, prompting Senate President Pro Tem to reiterate (at least publicly) a hard stance in favor of the Senate's positions. Notably, while the House plan would cost roughly $350 million over the biennium and the Senate plan would cost $770 million, the 'McCrory' plan would raise over $300 million in additional revenue, and does not include many of the controversial provisions favored by the Senate that are at the heart of the conflict. TOWING AND RECOVERY PROFESSIONALS OF NC THIS LEGISLATIVE REPORT IS A PUBLICATION OF KOCHANEK LAW GROUP AND IS A MEMBER BENEFIT OF TRPNC. ANY USE OR REPRODUCTION OF THIS REPORT IS LIMITED TO TRPNC AND ITS MEMBERS. FOR MORE INFORMATION: Colleen Kochanek TRPNC Legislative Counsel P.O. Box Raleigh, NC colleen@kochaneklawgroup.com

2 Word around the legislative building last week was that the two sides had nearly reached a deal before it fell apart at the end of last week. Prospects seemed dim for any resolution with the House gone this week; however, the Senate Finance Committee scheduled a hearing for Monday July 1 to take up the tax reform bill and hopes were again high that a resolution was on the way. The reform plan apparently was not worked out between the House and Senate and the bill is the Senate's attempt to resolve the issues and many of the provisions follow the House version. The Senate debated and finalized their tax reform proposal this week (summary included below) with votes on Tuesday and Wednesday. If the tax reform deal is finalized, the budget and action on remaining bills would likely be completed over the course of the next two or three weeks. Those working to get remaining bills passed (and those intent on stopping or weakening them) will have a very short window, as the Senate has already begun talking about shutting down committees, possibly as early as next week. Major issues that remain, aside from tax reform and the budget, include an omnibus gun law bill and a rumored omnibus voting law bill, which the leadership will move now that the Supreme Court's recent decision to strike down Section 4 of the federal Voting Rights Act has been made. The bill is expected to include provisions requiring an ID to vote and to limit early voting, among other provisions, and will likely be among the most contentious issues of the session. Whether other remaining bills can find their way through the process and to the Governor's desk remains to be seen. A common sense of impatience and frustration has permeated Jones St. as the projected end of session has been repeatedly extended, and the one thing most legislators can agree on is a desire to finish what needs to be finished and go home, saving the rest for the short session next May. If a compromise on tax reform has indeed been reached, they may well get their wish very soon. BILL UPDATES HOUSE BILL 14, Revenue Law Technical, Clarifying, and Administrative Changes. A variety of amendments regarding the State s tax laws were made to this bill in the House Finance Committee. These amendments include: adding prepared food to the items that are exempt from sales tax when certain conditions are met; amending the provisions regarding adjustments to federal taxable income in determining State net income by deleting the current provisions regarding special accelerated depreciation deduction, and instead, enacting a new section (Adjustments when State decouples from federal accelerated depreciation and expensing); amending the list of items that a taxpayer may deduct when calculating North Carolina taxable income; providing that, for taxable year 2013, a taxpayer who elects to itemize deductions under G.S (a2) may deduct the amount that would have been allowed as a charitable deduction under section 170 of the Code had the taxpayer not elected to take the income exclusion, and this deduction would be subject to the overall limitation on itemized deductions; and providing for contingent events and overpayment of taxes. The bill as amended was approved by the House Finance Committee and will next be considered by the full House. HOUSE BILL 26, Strengthen Laws/Vehicle Theft, was amended in the Senate Judiciary II Committee to allow a secondary metals recycler or salvage yard to purchase a motor vehicle 10 model years old or older without a certificate of title when certain requirements are satisfied, 2

3 including a written statement signed by the seller or the seller's agent certifying that the motor vehicle is at least 10 model years old. The bill as amended was approved by the Senate Judiciary II Committee and will next be considered by the Senate Rules Committee. HOUSE BILL 94, Amend Environmental Laws 2013, was amended in the Senate Environment/Agriculture/Natural Resources Committee to direct the Department of Environment and Natural Resources to study whether all of the counties covered under the emissions testing and maintenance program are needed to meet and maintain the current and proposed federal ozone standards in North Carolina. The Department would report its interim findings to the Environmental Review Commission on or before April 1, 2015, and submit its final report, including any findings and legislative recommendations, to the Environmental Review Commission on or before April 1, The bill also was amended on the Senate floor to provide that the rules governing the disclosure of information pertaining to hydraulic fracturing fluid chemicals and constituents must provide that the Mining and Energy Commission and the DENR may review, but not possess or take ownership of, data and information related to chemicals and constituents used in hydraulic fracturing fluids that is designated as a trade secret. The Commission would be required to develop rules that require public disclosure of such information that is designated as a trade secret through an online chemical registry such as FracFOCUS of the applicable chemical families or other similar description of those chemicals and constituents. The bill was further amended to direct the Commission for Public Health to amend and clarify, no later than January 1, 2014, its rules adopted for the implementation of the prohibition on smoking in restaurants and bars. The rules would have to ensure the consistent interpretation and enforcement of the prohibition on smoking in restaurants and bars and specifically clarify the definition of enclosed areas. The Commission would report to the Joint Legislative Oversight Committee on Health and Human Services on its progress in amending and clarifying the rules by November 1, The bill as amended was approved by the Senate, and will next be sent back to the House to consider the changes made by the Senate. HOUSE BILL 336, Continuing Budget Authority, began the session as UNC School of Arts/Student Fees, but was gutted by the House Rules Committee and turned into a Continuing Resolution (CR). The House Speaker announced late last week that a CR would be needed, as the two chambers could not come to terms on a tax reform package and budget plan in time for the start of the new fiscal year on July 1. The CR extends the current budget by 30 days (to July 30), at 95% of current funding (as an incentive to reach agreement soon, according to its sponsors). CRs were not uncommon in previous sessions, however, this is the first CR needed by the Republican majorities since they took control of the legislature in Because the need for it so clearly illustrated the impasse faced on major issues, it was particularly newsworthy. The bill as amended was approved by the House and Senate and signed into law by the Governor on June 26 th. HOUSE BILL 626, Notify Law Enforcement of Towed Vehicles. This bill that was modified at the request of the Towing and Recovery Professionals of North Carolina (as summarized in the previous report) was approved without amendment by the full Senate by unanimous vote and returned to the House for concurrence. The House voted unanimously to approve the Senate s changes, and the bill was sent to the Governor to be signed into law. 3

4 HOUSE BILL 937, Amend Various Firearms Laws. This legislation that was modified substantially in the Senate to repeal the pistol permit program and expand places where concealed carry holders may carry their guns including educational property was referred to the House Rules Committee for consideration. HOUSE BILL 998, Tax Simplification and Reduction Act, was heard in the Senate Finance committee on July 1st. A re-write of the bill was presented by Senate President Pro Tem Phil Berger, which moves toward the House position in several areas of contention (which does not guarantee that the House will agree to agree to the changes, in fact there are many indications they will not). A chart was prepared by fiscal research staff (attached) which compares the House version of the tax reform bill; the version originally approved by the Senate; and the new Senate proposal. Regarding the most contentious issues: The new version does not eliminate the deduction on mortgage interest and property tax, as the previous Senate version does, but includes a $15,000 cap (compared to $25,000 in the House version). The new version does include a cap on the sales tax rebate that can be taken by nonprofits, including large nonprofits like hospitals and universities; however, the cap is raised to $2.85 million dollars, as opposed $100,000 in the previous Senate version. The House version does not amend the current sales tax rebate for nonprofits. As in the previous Senate version, the new version would eliminate the Corporate Income Tax (CIT), though this would happen over 5 years rather than 4. Under both of the Senate plans, the CIT would be replaced with a series of business franchise taxes. The House version would step down the CIT to 5.4% over 4 years. The new version reduces Personal Income Tax (PIT) to a flat 5.75% rate, as compared to a step down to 5.4% in 2014 and 5.25% in 2015 in the previous Senate version. The House version would reduce the PIT to a flat 5.9% rate from the current three-tier system based on income level. A chart containing a full comparison of the three most recent version of H998 is attached. Please note that the most recent Senate proposal is assumed to be the version that will be closest to the final bill. The bill as amended was approved by the Senate Finance Committee and the full Senate and has been sent to the House for concurrence. If the House votes not to concur with the Senate changes, a Conference Committee will be assigned to work out a compromise version, called a Conference Report, which will then be heard in both chambers for an upor-down vote. SENATE BILL 18, Amend Locksmith License Act/Raise Fee Ceiling. This bill was amended at the request of the Towing and Recovery Professionals of North Carolina to remove the provision that would have only allowed our members to open locked vehicles for members of a motor club. The amendment returns the language to the current law which provides an exception for those who are unlocking a vehicle in their ordinary course of business as long as they do not advertise themselves as locksmiths. This provision would have been very costly for Towers and we will continue to monitor the bill to keep this provision from being added back into the bill. The amendments to the bill would: remove the proposed change to the current exemption from the requirements of the Locksmith Licensing Act (Act) a towing service, or its employees, when providing services in the normal course of its business (previous version would have changed this 4

5 to when providing lockout service for a motor club or when necessary to move or tow a vehicle ); remove the proposed changes to the definition of property in the list of those exempted from the Act (see below); remove the proposed change to the exemption from the requirements of the Act those members of a law enforcement agency, fire department, or other government agency who, when acting within the scope of their employment, open locked doors to vehicles, homes, or businesses (proposed change was to allow such an exemption only in a lifethreatening emergency or during the investigation of a crime); clarify that an institutional locksmith is a person who is employed by or working for a school, college, university, hospital, company, institution, or government facility and who provides locksmith services as part of the person's employment. Those engaged as an institutional locksmith in the state for at least two consecutive years before October 1, 2013, and who pay the required licensure fee would be licensed without having to take the licensing exam. Those that do not apply by October 1, 2014, would be required to complete all Board requirements for licensure; prohibit a person who is not either licensed or specifically exempted from the Locksmith Licensing Act from possessing any locksmith tools. The penalty for violating this provision would be increased from a Class 3 misdemeanor to a Class 1 misdemeanor for a first offense, and a Class I felony for subsequent offenses. The list of those exempted is below: o An employee of a licensed locksmith when acting under the control and supervision of the licensed locksmith. o A person working as an apprentice pursuant to G.S. 74F-7.1. o A person or business required to be licensed or registered by the North Carolina Alarm Systems Licensing Board pursuant to Chapter 74D of the General Statutes, when acting within the scope and course of the alarm systems license or registration. o An employee of a towing service or an automotive repair business providing services in the normal course of its business, a repossessor, a taxi cab service, a motor vehicle dealer as defined in G.S (11), or a motor club as defined in G.S when opening automotive locks in the normal course of their duties, so long as the employee does not represent himself or herself as a locksmith. o A property owner, or the owner's employee, when providing locksmith services on the property owner's property, so long as the owner or employee does not represent himself or herself as a locksmith. For purposes of this section, "property" means, but is not limited to, a hotel, motel, apartment, condominium, commercial rental property, and residential rental property. o A merchant, or retail or hardware store, when it lawfully duplicates keys or installs, services, repairs, rebuilds, reprograms, rekeys, or maintains locks in the normal course of its business, so long as the merchant or store does not represent itself as a locksmith. o A member of a law enforcement agency, fire department, or other government agency who, when acting within the scope and course of the member's employment with the agency or department, opens locked doors to vehicles, homes, or businesses. o A salesperson while demonstrating the use of locksmith tools to persons licensed under this Chapter. 5

6 o A general contractor licensed under Article 1 of Chapter 87 of the General Statutes when acting within the scope and course of the general contractor license, or an agent or subcontractor of a licensed general contractor when acting within the ordinary course of business. o A person or business when lawfully installing or maintaining a safety lock device on a wastewater system when the safety lock device is required by permit or requested by the owner of the wastewater system, provided the person or business does not represent itself as a locksmith. For purposes of this subdivision, "wastewater system" has the same meaning as in G.S. 130A-334. o Any person or firm that sells gun safes or locking devices for firearms when acting within the scope and course of the sale of gun safes or locking devices for firearms. o A person while performing a locksmith service in an emergency situation without receiving any compensation for this service and who does not advertise those services. The bill as amended was approved by the Senate Finance Committee and the full Senate, and will next be considered in the House Finance Committee. SENATE BILL 174, Disapprove Industrial Commission Rules, was amended in the House Regulatory Reform Committee to: delete the following Worker's Compensation Rules from the list of rules to be disapproved: 04 NCAC 10A.0604 (Appointment of Guardian Ad Litem), 04 NCAC 10A.0609 (Motions Practice in Contested Cases), 04 NCAC 10A.0616 (Dismissals), 04 NCAC 10C.0101 (Applicability of the Rules), and 04 NCAC 10G.0101 (Order for Mediated Settlement Conference); delete the provision that would have required a matter to be scheduled for a formal hearing on a preemptive basis if the employer or insurer contests the employee's request for reinstatement; allow a party to file an expedited, emergency, or other medical motion with the Office of the Chief Deputy Commissioner, and provide the nonmoving party the right to contest the motion; prohibit a party from issuing a subpoena duces tecum less than 30 days prior to the hearing date except with prior approval of the Commission; and direct the Industrial Commission to study the financial and economic impact and operational burdens on all parties of mandating that costs and fees be submitted electronically and report its findings and recommendations to the 2014 Regular Session of the 2013 General Assembly. The bill as amended was approved by the House Regulatory Reform Committee and the full House. The bill will next be sent back to the Senate to consider the changes made by the House. SENATE BILL 407, Electronic Vehicle Lien/Title, was amended in the Senate Finance Committee to: allow the DMV to either contract with a qualified vendor or vendors to develop and implement this statewide electronic lien system, or develop and make available to qualified service providers information services that will enable secure access to the data and internal application components necessary to create an electronic lien system; provide minimum standards for a vendor-implemented and a DMV-implemented system; authorize a qualified vendor to charge participating lienholders a per-transaction fee for each lien notification that is consistent with market pricing of up to $3.50; 6

7 prohibit a service provider from using information concerning vehicle titles for marketing or business solicitation purposes; and require, beginning July 1, 2015, all individuals and lienholders who are normally engaged in the business or practice of financing motor vehicles, and who conduct at least five transactions annually, to use the electronic lien system to record information concerning the perfection and release of a security interest in a vehicle. The bill as amended was approved by the Senate Finance Committee and the full Senate. The bill will next be considered by the House Finance Committee. SENATE BILL 709, DOT Study 75 MPH Speed/Develop Pilot Proposal. The provisions of this bill were completely replaced in the House Transportation Committee to direct the Department of Transportation to study and evaluate the pilot implementation of a maximum speed limit of 75 miles per hour on up to four controlled access highways within the State. DOT would report its findings and recommendations to the Joint Legislative Transportation Oversight Committee on or before January 31, The bill as amended was approved by the House Transportation Committee, but failed to pass the second reading on the House floor and pursuant to House Rules may not be considered again this session. SENATE BILL 717, MV Safety Inspector/MV Licensing Law Changes, was amended in the House Transportation Committee to: clarify that, for a first or second Type I violation within three years by a safety selfinspector or a safety inspection station, the DMV must suspend the license of the business for 180 days; allow the DMV to stay a term of suspension for a first occurrence of a Type I violation for a station if the station agrees to follow the reasonable terms and conditions of the stay as determined by the DMV. In determining whether to suspend a first occurrence violation for a station, the DMV could consider the supervision provided by the station over the individual(s) who committed the violation, action that has been taken to remedy future violations, or prior knowledge of the station as to the acts committed by the individual(s) who committed the violation, or a combination of these factors. The monetary penalty could not be stayed or reduced; require the DMV, in the case of two or more violations committed in separate safety inspections, considered at one time, to consider each violation as a separate occurrence and impose a separate penalty for each violation as a first, second, or third or subsequent violation as found in the applicable penalty schedule; amend the list of acts that are considered as Type I, II, or III safety violations; The bill as amended was approved by the House Transportation Committee and the full House. The Senate agreed to the changes made by the House and the bill will next be sent to the Governor for his signature. LEGISLATION ENACTED SENATE BILL 8, Increase Fine for Vehicle Removal, which increases the fine for the removal of unauthorized vehicles from private lots from $100 to not less than $150, was signed into law by the Governor on June 26, Effective: December 1, 2013, and applies to offenses committed on or after that date. SENATE BILL 461, CDL Changes, was signed into law by the Governor on June 26, This legislation requires the Division of Motor Vehicles to allow third-party commercial drivers 7

8 license skills testing any day of the week, and extends the validity of a temporary driving certificate issued to an applicant for a commercial drivers license to 60 days. Effective: July 1, SENATE BILL 489, Consumer Finance Act Amendments, which modifies the maximum interest rate allowed and make various amendments to the North Carolina Consumer Finance Act, was signed into law by the Governor on June 19, Effective: July 1, SENATE BILL 583, Metal Theft Statute Amendments, which makes various amendments to the statutes that regulate secondary metals recyclers to amend the definition of card cash system and define copper, was signed into law by the Governor on June 19, Effective: June 19, Colleen Kochanek TRPNC Legislative Counsel P.O. Box Raleigh, NC colleen@kochaneklawgroup.com i i THIS LEGISLATIVE REPORT IS A PUBLICATION OF KOCHANEK LAW GROUP AND IS A MEMBER BENEFIT OF TRPNC. ANY USE OR REPRODUCTION OF THIS REPORT IS LIMITED TO TRPNC AND ITS MEMBERS. 8

9 House Bill 998, Proposed Senate Committee Substitute, H998-CSRBx-41 July 1, 2013 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 INDIVIDUAL INCOME TAX CHANGE Rates Flat rate of 5.9%, 2014 Flat rate of 5.4%, 2014 Flat Rate of 5.75%, 2014 Reduces rate to 5.25%, 2015 Zero Tax Bracket N/A $15,000 (MFJ); $12,000 (H/H); $7,500 (MFS N/A & Single) Standard deduction $12,000 (MFJ) $15,000 (MFJ) $12,000 (H/H) Itemized deductions Unlimited charitable contributions Mtg. interest + property taxes paid on real estate (not to exceed $25,000) $7,500 (MFS & Single) Unlimited charitable contributions $15,000 cap on Mtg. interest + property taxes on real estate Personal exemption Social security No change Included to the extent included in federal Current law; no change AGI $4,000 retirement No change income exemption Deduction for severance wages $50k business, 2013, 2014, 2014 deduction Child credit AGI =/< $100K = $250 No change Current law; no change AGI > $100K = $100 Credit for nonitemizers charitable deductions Credits scheduled to sunset 2014 Long term care insurance premium, No change No change No change 1

10 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 earned income tax credit, adoption expenses Credits with no sunset Child care, disabled, 529 Plan, gleaned crop, handicapped dwelling units, conservation tillage equipment, real property donations, poultry composting facility Rate % % % % Thereafter 5.4% Credit -- real property donation Credit low-income housing CIT credits without a sunset, that parallel PIT credits Credit S&L supervisory fees Credit manufacturing cigarettes for exportation No change CORPORATE INCOME TAX CHANGES % % % 2017 CIT % % % % 2018 No change Limit to Tier 1 and 2 Remove sunset Rename it No change Limit to tier 1 and 2 Rename it "Work Force Housing Credit" Phase it down 25% a year until it is eliminated in 2018 No change, 2014, same as PIT No change, 2017 when CIT eliminated, 2018 when CIT eliminated No change, sunsets 2018, 2017 when CIT eliminated, 2018 when CIT eliminated Credit recycling No change, 2017 when CIT eliminated, 2018 when CIT eliminated 2

11 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 facilities Article 3C Credit Intermodal No change, sunsets 2038, 2017 when CIT eliminated, 2018 when CIT eliminated RR Facilities Business Privilege Tax (New) Taxpayers N/A All limited liability entities except C corporations, 2015 All business entities with limited liability All limited liability entities, 2018 Rate N/A $ $ $ C corporations = $5,000; all others = $750 Income Year C Corps All others (LLC, Sub S) 2015 $ and 2017 $ and thereafter $3,500 $500 Rate $1.50 per $1000 Minimum tax = $35 Maximum tax for holding company = $75,000 $1.35 per $1000 No change to minimum tax of $35 No change to maximum tax on holding company FRANCHISE TAX CHANGES $1.20 per $1,000 with minimum tax of $ $0.90 per $1,000 with minimum tax of $1, $0.60 per $1,000 with minimum tax of $2, eliminated & replaced with business privilege tax $1.25 per $1,000 with minimum tax of $ $1.00 per $1,000 with minimum tax of $2, $0.75 per $1,000 with minimum tax of $3, eliminated & replaced with business privilege tax No change to maximum tax on holding company; tax eliminated in 2018 GR tax on electricity, include it in the sales tax base, include it in the sales tax base, include it in the sales tax base Taxpayers No change Exclude S corporations, 2015 Exclude S corporations, Income Year 2015 Annual report filing No change, 2015, 2015 fee 3

12 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 PRIVILEGE TAX CHANGES Local authority in No change, 2018 Current law; no change. 153A and 160A Amusements, movies, include in the sales tax base, include in sales tax base and include in the sales tax base, effective Various State taxes No change, 2018 Current law; no change SALES TAX CHANGES State Rate = 4.75% No change No change No change Local Rate = 2% No change No change No change Optional ¼ cent Tax rate: manufactured home 2%, $300 maximum Tax rate: modular homes 2.5% Tax rate: Electricity 3% 2.83% - dry cleaners Exempt mfgs, farmers, datacenters Add service contracts Add alteration, repair, maintenance, cleaning, installation Add - Amusements from privilege GR tax No change State general rate; not in local base State general rate; not in local base No change State general rate; not in local base State general rate; not in local base State tax only Combined general rate Retain current exemptions for farmers, eligible internet datacenter, and manufacturing Yes Yes Exempt if to an item exempt from tax Yes State tax only Combined general rate Retain current exemptions for farmers, eligible internet datacenter, and manufacturing State tax only Combined general rate Retain current exemptions for farmers, eligible internet datacenter, and manufacturing No Yes, Exempt if item for which service contract provided is exempt (except motor vehicles) No No Yes Yes 4

13 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 Add Attractions for which admission charged Amusement exemptions Add PNG Exemption nutritional supplements Exemption newspapers Exemption penny vending machines Exemption 50% of sales from vending machines Exemption free distribution periodicals Sales tax holiday for school Sales tax holiday for Energy Star Yes Yes Yes (add State attractions) State tax only Combined general rate July 1, 2013 No change No change No change State tax only Combined general rate State tax only Combined general rate Phase out exemption over 4 years, beginning No change Phased elimination Repeal exemption; allow refund; phased elimination of refund (See below) No change July 1, 2013 Current law; no change November 2014 Give counties the authority to impose a local sales tax on food at the county's local sales tax rate, January 2015 Exemption Food No change local sales tax on food, 5

14 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 Exemptions farm related Fuel and electricity, fertilizer, etc., farm machinery, containers, substances used on animals or plants, baby chicks Various exemptions/refunds Farm facilities and bulk barns, commercial logging, wood chippers, telephone companies, radio or television companies, cable service providers, commercial fishing, commercial laundries, diesel fuel sold to railroad, fuel sold to passenger air carrier Tax refunds existing sunset of 2014 Passenger air carrier, motorsports, analytical services, industrial Tax refunds nonprofits No change Annual gross income requirement of $10,000 Annual gross income requirement of $10,000; effective No change Phased elimination Remove packaging, remains exempt % refund of State and local sales tax paid % % % No change No change Current law; no change except as follows: Passenger air carrier moved to phased elimination of refund ( A(1)) Motorsports extended 6 months, until ( A(4) & (5)) No change Capped Move UNC Healthcare to State agencies $7.5M State, $2.25M local exemption $5M State, $1.5M local Cap remaining refunds: $1M State, $300,000 local $10.5 million (State and local) $100,000 State, $30,000 local $7 million (State and local) $5 (State and local) $2.85 (State and local) 6

15 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 Tax refunds local governments Excise tax on PNG Excise tax on motor fuel CIT earmark for Public School Building Capital Fund (No funds applied since 2008) GR tax on electricity distributed to cities No change,, January 1, 2016 EXCISE TAX CHANGES, include in the sales tax base, include in the sales tax base and include in the sales tax base N/A N/A Cap for one year at current rate, beginning September 1, 2013 until LOCAL GOVERNMENT DISTRIBUTIONS Formula to preserve local distribution Re-calculate formula every 5 years, beginning 2020 Formula to preserve local distribution Formula to preserve local distribution Recalculate every five years, beginning 2020 Excise tax on PNG Formula to preserve local distribution Formula to preserve local distribution Formula to preserve local distribution distributed to cities Earmarking 20% of No change sales tax from modular homes ESTATE TAX Tax Levy, HB EARMARKING Real estate conveyance tax No change earmarks, State proceeds credited to General Fund earmarks, State proceeds credited to General Fund Scrap tire disposal tax No change earmarks, proceeds credited to General Fund earmarks, State proceeds credited to General Fund TOBACCO DISCOUNTS 2% discount to taxpayers of cigarettes and OTP No change, July 2014, July

16 HB 998, 3rd Edition (House) HB 998, 4th Edition (Senate) New Senate PCS to H998 H998-CSRBx-40 REVENUE LAWS STUDY Revenue Law Study N/A N/A The 1$%/$80 privilege tax that applies to mill machinery and on other machinery and equipment purchased by certain industries and companies. The feasibility of a preferential tax rate on diesel fuel sold to railroads, fuel sold to passenger air carriers, and fuel sold to motorsports. The authority of cities and counties to impose a privilege tax on businesses and the various State privilege license taxes. The impact of the elimination of the State and local sales and use tax refund on nonprofit entities and their ability to fulfill their stated mission. The benefits of allowing corporations to deduct NOLs instead of NELs. The simplification of the franchise tax base calculation. The feasibility of expanding the sales tax base to additional services. 8

17 Total GF Revenues Forecast ($ billions) TOTAL PLAN FY13-14 FY14-15 FY15-16 FY16-17 FY House Plan Difference from Forecast (4.7) (353.4) (383.2) (461.1) (570.9) ($ millions) 1 Senate Plan 4th Edition Difference from Forecast (173.8) (523.2) (1,108.1) (1,414.8) (1,382.1) ($ millions) Senate Plan PCS to H Difference from Forecast ($ millions) (168.5) (480.3) (757.1) (911.5) (962.9) 1 This item includes the estate tax repeal in HB