Fitzsimon File

House and Senate negotiators are still trying to reach a final agreement on a budget and tax package, now more than two weeks into the new fiscal year.

It's no secret that taxes are the problem.  The two sides have agreed to raise just under a billion dollars in new revenue but are still arguing about how to raise it.

Both plans are complex, with lots of provisions, but basically the Senate wants to broaden the base of the sales and income taxes and lower both rates. 

The House wants to raise income taxes on people who make more than $200,000 a year, raise the state sales tax, slightly expand the sales tax base, and close several corporate tax loopholes.

Reportedly it is one of those corporate loopholes that has emerged as one of the biggest stumbling blocks to an agreement.  The House wants to end the practice of allowing multistate corporations to shift profits to subsidiaries in other states to avoid paying state corporate income taxes.

Combined reporting is the name of the provision that almost half the states have already adopted. It treats multistate companies and its subsidiaries as one corporation for tax purposes, making it much more difficult for the company to avoid state taxes, the state taxes that companies who only do business in North Carolina already pay.

The House wants the final budget to include combined reporting not only to raise money to help address the budget shortfall, but to make the tax system fairer to North Carolina businesses.  Senate leaders, who apparently have dug in their heels in their refusal to agree, are very familiar with the proposal.

Many of them have supported it in the past, including two years ago when they served on the State and Local Fiscal Modernization Commission.  Senate Majority Leader Tony Rand and Senate Finance Chair David Hoyle were co-chairs of the commission that recommended that the General Assembly adopt combined reporting and lower the corporate income tax rate.

The Senate plan lowers the tax rate, but ignores combined reporting, making it hard not to assume that Senate leaders are now paying more attention to the North Carolina Chamber than the work of a deliberative tax commission and the results of national studies.

The Chamber and other multistate corporate interests argue that combined reporting will hurt businesses already operating in North Carolina and make it harder for the state to convince new multistate companies to locate a facility here.

The evidence proves otherwise. A report earlier this year from the Center on Budget and Policy Priorities found that most large North Carolina companies already have facilities in states with combined reporting laws.  Many of the companies have plants in several combined reporting states.

Eighteen of the largest 75 manufacturers in North Carolina have their headquarters in combined reporting states.  That's a pretty clear message that combined reporting is not costing other states jobs and that it won't cost North Carolina jobs either.

The Center's study also re-emphasizes that small, often family own businesses in North Carolina will benefit from the tax change by making it harder for huge, multistate companies to undercut them on pricing. 

Hoyle and his Senate colleagues always claim to be looking for the interests of small businesses. Making large companies pay the same taxes would be a good start.

 Email This Post  Print This Post

This entry was posted on Wednesday, July 15th, 2009 at 3:55 pm and is filed under Fitzsimon File. You can follow any responses to this entry through the RSS 2.0 feed.