Lawmakers return to NC capital to talk sales tax (AP) (Presentations Attached)

RALEIGH, N.C. — North Carolina lawmakers returned Tuesday to resume conversations on overhauling the state’s tax system as soon as next spring after House and Senate Democrats couldn’t agree on a plan before the Legislature adjourned in August.

A joint House-Senate finance committee held the first of at least four scheduled meetings that could ultimately lead to approval of a rewrite that’s been batted around in Raleigh since the 1950s.

“Today, we begin the process which is really unprecedented,” said Rep. Paul Luebke, D-Durham, co-chairman of the House Finance Committee. “It’s unclear where we’ll end up at the end of the process,” he added, but meeting is “a sign of our commitment to address the issue.”

At least three state panels have considered these broader tax issues since 2000, which generally have centered on lowering tax rates in exchange for broadening the number of items and services subject to taxation.

The changes are designed to tap into transactions in an economy that have shifted toward services and technology and away from traditional manufacturing.

Bringing several dozen lawmakers together to listen to tax experts is a step forward in building the political will to approve the changes, a committee leader said.

“It’s a useful exercise for everybody to go through,” said Sen. Dan Clodfelter, D-Mecklenburg, one of the Senate’s key proponents of an overhaul.

Senate Democrats negotiated aggressively this year to lower the 6.75 percent overall sales tax rate most consumers pay and top individual income tax rate of 7.75 percent. Their plan also would have subjected building repairs, warranties and other services to the sales tax.

But Luebke and other House Democrats didn’t feel comfortable with the changes as revenues plummeted nearly 11 percent last fiscal year during the recession.

Instead, the two chambers and Democratic Gov. Beverly Perdue agreed to raise an additional $1 billion this year to narrow a budget gap largely by raising temporarily the overall sales tax rate to 7.75 percent and placing an income tax surcharge on the highest wage earners.

Raising rates is a common response by North Carolina and others states during a recession, said Bill Fox, director of the University of Tennessee Center for Economic Research, who spoke to the committee.

“Keep your bases really broad and your rates really low and you’ll have the best policy,” Fox told lawmakers. “It’s high tax rates that cause most of the mischief in taxation and change our behavior.”

Senate Democrats would prefer to approve changes when the General Assembly reconvenes in May with a new plan, but it could get pushed back until 2011, after the November 2010 legislative elections.

“I don’t know what the timeline will be but I think it’s imperative that we start working toward an ultimate tax reform process in North Carolina,” Perdue told reporters after a Council of State meeting. Perdue would be asked to sign any changes into law.

Republicans, the minority party in both chambers, sound suspicious about supporting an overhaul three months after they opposed a new state budget that raised taxes.

“Tax reform cannot be just another public relations strategy to justify a tax hike,” said Senate Republican Leader Phil Berger, R-Rockingham.
By GARY D. ROBERTSON (AP) – 3 days ago

Handouts

NC Sales Tax Refunds

Overview of NC Sales Tax

US States and the Sales Tax