The movement to overhaul North Carolina's 1930's era tax structure gained critical support Tuesday, when a committee of business leaders said it backed lowering income taxes, but requiring that personal services be taxed.
The bipartisan committee called for lowering the highest marginal rates on corporate and personal income taxes, saying it would make the Tar Heel state more competitive in recruiting new businesses, Rob Christensen reports.
But it also proposed broadening the sales tax to include services that are now exempt — from lawn services to lawyers.
"We want it to be pro business," said John McNairy, president of Tidewater Transit Co. Inc. and co-chairman of the committee said a news conference at a downtown hotel.
The recommendations of the 20-member committee comes at a time when the state legislature is giving a serious look at changing the tax system and facing a $2 biillion plus shortfall this year and a $3 billion shortfall next year.
More after the jump.
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The committee was co-chaired by McNairy, former Charlotte Mayor Richard Vinroot, and Jack Cecil, president of Biltmore Farms Inc.
The report, 14 months in the making, was done under the auspices of the Institute for Emerging Issues, a Raleigh-based think tank, headed by former Gov. Jim Hunt.
"We in North Carolina have an outdated tax system," Hunt said. "It is highly volatile."
The support of the business leaders could provide political cover for the legislature to revamp the tax structure. McNairy said the proposal had the support of the N.C. Chamber.
Hunt said the tax structure was designed for an era when North Carolina’s economy was manufacturing based — mainly textiles, furniture and cigarettes. But since then, the state has been moving away from manufacturing and more toward services.
The former governor said it was not fair that a person of modest means paid a sales tax to purchase a lawn mower, but a wealthier person paid no tax when he or she paid for a lawn service.
Vinroot, a three-time GOP gubernatorial candidate, said the proposals were designed to be revenue neutral.
He said the proposal was designed to make the state more economically competitive, to make the tax system simpler by eliminating many exemptions, and to modernize the system.
The committee did not recommend specific tax rates, leaving the details to lawmakers.
But the committee recommended:
* Corporate and personal income tax rates should be reduced to levels making North Carolina competitive with surrounding states.
* The sales tax rate should be lowered, and the tax base should extend to many services previously exempted. (But the committee recommended exempting medical services and prescription drugs.
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