Forgive the mispronunciation. I'd like to thank our sergeant-at-arms, Mr. Seals, Mr. Lee, Mr. Clampett and Mr. Brandon. Thank you for what you endure. Members of the committee, I'd like to welcome a new member to our committee, Representative Greg Meyer. Greg, we're glad to have you. Members, for informational purposes we will vote on this bill at 9:45, and if there's no objection at the time when the amendments come forward for action we will do a hand count, that remains to be seen if we stay to that. Members at this point, do you have the Carney amendment? The amendments are being passed out. [SPEAKER CHANGE] Thank you, Mr. Chairman. I guess you called on me. [SPEAKER CHANGE] Yes, ma'am. Representative Carney. [SPEAKER CHANGE] Thank you, Mr. Chairman. [SPEAKER CHANGE] Excuse me, Representative Carney. [SPEAKER CHANGE] I'm wondering if we could get some context for the amendment. [SPEAKER CHANGE] Representative Carney will explain our amendment. [SPEAKER CHANGE] On page 51 of the bill, line 19. I'm getting my bill open. On page 51 of the bill, line 19 through 56 and then line 3 by deleting those lines. This is a bill that was added to the omnibus bill in revenue laws meeting on Tuesday, and I tried then to get this bill separated out to stand alone. That's the vapor tax bill portion of the omnibus bill, and I just feel that this bill needs to stand alone. I think we have bipartisan support to move that on Tuesday, and I'm asking that we could just pull this out from the omnibus bill and have it discussed as a stand alone bill after Madam Chairman presents the omnibus bill. [SPEAKER CHANGE] Yes ma'am. Representative Howard. [SPEAKER CHANGE] Thank you, Mr. Chairman. I hope each of you have a copy of the bill and also a copy of the explanation of each part of the bill and with the chair's permission I'm just going to ask, in essence of time, ask our staff to go through each section. Mr. Chairman, if that's permitted. [SPEAKER CHANGE] Absolutely. [SPEAKER CHANGE] I think Jonathan has part one. [SPEAKER CHANGE] Yes, part 1 of the bill changes the calculation of a loss for corporate tax purposes. Currently in North Carolina we calculate a net economic loss, and our loss calculation means once the taxpayer calculates it, it has to further reduce that loss by non-taxed income, so it's different and more complicated that the federal net operating loss calculation. This change would transition our calculation to one that very closely resembles the federal calculation, simplifies the calculation. It's been requested by the Department of Revenue and the business community. If you look at the fiscal memo, there is a reduction in revenues that's really temporary, but if you look at the fiscal memo for the fiscal year 1516 over a 3 year period starting in 1516, there's a estimated 5 million dollar reduction in revenues. That's primarily just timing issues because if a loss was reduced or if a loss is greater under this provision, then it doesn't mean the taxpayer's going to lose the benefit of that loss because they have a 15 year carry forward. It does mean that it may be deferred a little longer. So the bottom line is you would have a 5 million dollar reduction over a 3 year period that would likely reverse itself out after that. [SPEAKER CHANGE] Members of the committee are there any questions with respect to part 1? If not, we'll move to part two. Jonathan, I believe that's you again. [SPEAKER CHANGE] Madam, Mr. Chairman. I'm sorry, back on part one person looking. Yes, I'm sorry. We already have a 15 year, right, this is just adjustments to the 15 year. [SPEAKER CHANGE] Representative Lukey, this is not an adjustment to the 15 year.
And this is just an adjustment to how it’s calculated is all it is. It closely conforms our calculation to the federal calculation, and it results in a little bit of timing difference on when a tax payer might be able to utilize the loss. They would still have the 15 year period to use it. [SPEAKER CHANGES] Thank you. Proceed. [SPEAKER CHANES] Okay. Part two. The primary change in part two is to correct a drafting error that occurred in the previous section regarding the 179 expense deduction that businesses take. The error was with the investment limitation. It erroneously set that limitation at 125 thousand dollars and it should have been 200, and this corrects that error to show the investment limitation at 200 thousand dollars. Another… the other change I’ll note in part two deals with the tax reform last year – just another correction, or another clarification. If you remember, that bill for our itemized deductions eliminated itemized deductions to the charitable contributions and the mortgage interest area, and so this clarifies that if you’re taking the standard deduction, you wouldn’t be able to take mortgage interest as a deduction, or charitable contributions. Any questions regarding section two? At this time, section three. Cindy Ebert. [SPEAKER CHANGES] Thank you, Mister Chairman. Sections three, four, five and six all relate back to the tax reform bill that was enacted last session, clearing up some of the issues that were encountered as we administered the new tax provisions, and we worked with the Department of Revenue and interested parties and are continuing to work with them as we work through these provisions. Part three was about the Agricultural Exemption Certificate. As you recall, right now the Exemption Certificate, you may get a Farming Exemption Certificate without any income requirement. What you did last session was to put in an income requirement of ten thousand dollars gross income. This is not profit but income that must come from farming operations in order to qualify for that sales tax exemption. The substance of change in part three is instead of it being an annual income threshold, it is a three-year average of ten thousand, and that is to help farmers through their volatile seasons. [SPEAKER CHANGES] Representative Holly. [SPEAKER CHANGES] Thank you, Mister Chairman. I have a question on this section. The way I’m reading this, it looks like that the small business or the person who’s making under ten thousand dollars a year from the farming operation – it could be a startup or whatever – they’re actually paying taxes, where the people who make over that are not. Am I reading this correctly? [SPEAKER CHANGES] Representative Holly, you’re correct that a person would have to have at least ten thousand dollars in gross sales, but that could come also… it’s whatever’s on the schedule F, so that would include gross sales as well as payments that are received in your farm programs from the Government, but you would have to have at least ten thousand dollars gross income to qualify for this farming exemption. [SPEAKER CHANGES] Follow-up? [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] I think that what we’re trying to do right now is we should be actually helping the small farming and the small businesses. I’m in a food desert area and it’s the small farmers who we could probably assist a little bit more. Can I… I’d like to make an amendment. [SPEAKER CHANGES] Representative Holly, please repeat that. [SPEKAER CHANGES] I was saying that this is an area where I feel that we really need to be helping small businesses and small farmers, and I’d like to make an amendment to this bill at this time if I can come up and talk to the people and get something worked out. [SPEAKER CHANGES] Well if you’d like to come up and see if you can get one together, Representative Holly, that would be fine, and if we can get to it, we will; if not, you might have to present it on the floor. [SPEAKER CHANGES] Okay, thank you. [SPEAKER CHANGES] Representative Samuelson. [SPEAKER CHANGES] Thank you, Mister Chairman. I might be able to address what I recall part of the issue was on that exemption. I’m not a farmer, but what I remember the conversation being was there were situations where there were people who were claiming a farm exemption that really weren’t farming, that they were taking advantage of the exemption when they really weren’t farmers, and the concern from the farming community was “We want to keep the exemption. We don’t want to lose it but we really want it only applied to actual farming operations,” and that at the time this brought up there was sort of a consensus that at that level, that was someone who was actually trying to farm, and by changing it to the three-year average, we’re acknowledging that people might have crop adjustments, or as you say, that a startup may take a few years to get where they’re actually doing…
Speaker:that level of farming, my brother happens to be a farmer at colorado and that would made logical sense what understating about his farming operations ?? Speaker changes:to speak on that section of you Speaker changes:proceed Speaker changes:i have claimed the farming exemptions so i can take advantage of the tax break so i have little bit of experience with it you mess me up with what's your doing my concern representative holly was asking was the start up farmer if you are raising cattle you are probably not gonna any sales for first year which means you have a big investment getting started you have to buy lot of equipments and did things setup but you are not gonna have any sales so my question would be does three years average with that farmer in the first year going take the detections for three years and then determine whether not he is ten thousand dollar income average Speaker changes:there is not a prevention in there for new farmers so you have to make the income threshold before you began to take to see exemptions Speaker changes:So the first year that farmers three year average but whatever it was for that one year and in fact Speaker changes:Great the bill that has red you has income from farming from previous years of ten thousand dollars or over average of last three Speaker changes:thank you very much i encourage representative holly to do something Speaker changes:thank you section 4 is avert Speaker changes:is this all the prepaid mill plans last session on the exemption for food sold on university ?? was refilled,what we learn was that the mills are not sold on a transactional basis but the person gets a mill card like a mill swipe so the substantive change in this provision is the imposition of the tax is now imposed on the grocery seats to rob from a prepaid mill plan Speaker changes:questions from the committee representative ?? Speaker changes:Mr chairman so what we are taxing now is tax at the front and the mill plan is paid for,yes mam, thank you Speaker changes:thank you Ms.avert,section 5 Speaker changes:the next one is on mission charges to entertainment events this sells takes place to expand and to include those we have worked and continuing into work with the interested parties and department of the revenue on how the tax collected remitted and refunded but the substance of change in this provision has to do with the exemptions there is lot of confusions about work events were taxable were not taxable sub committee was formed at the November and revenue last meeting that sub committee reported and the result most the exemptions were eliminated now they are soul for the events held at elementary and secondary schools this held by non profit if these three conditions are met if there is no paid staff all of the money from the event goes to non profit purposes and there is no payment for the people in the event so that is the substantive change in this ?? Speaker changes:questions from the committee ms avert section 6 Speaker changes:on service contracts this is once again where the sales tax basis was expanded to service contracts we are working an have worked on the department of revenue and interested parties on the collection,refinance and refund service but the substantive change in this part is the definition of the service contracts under the statue when the seller the person who sells the contract offer to provide the service and we realise itin most instances today the person who's obligated to provide the service under this contract not necessarily the seller ,so the change of definition is the subject to change in this group part Speaker changes:thank you any questions from the committee,if not we are going into section 7 ?? Speaker changes:this section deals with the situation when you have a retailer also who engages and performance contracts such as ?? or home??.This has been an ongoing problems for number of years because it done clear as to were the line is between when a retail
When the retailer installs that item, which is taxable to the customer as a retail sale, when that actually is more of a performance contract, which generally speaking is not subject to retail sales tax but rather the contractor pays tax on his materials and rolls that cost into the contract price. So what this part does is it puts some clarity in the law where there was none and it says that to the extent a retailer contractor installs tangible personal property into real property and it becomes part of the real property, that retailer contract is considered the consumer of the item and would pay the tax on that item and it also makes provisions for how to handle a subcontractor situation. Oftentimes a home improvement store like a Lowes will subcontract that job out so the subcontractor would pay the tax on the materials that they use and that is the gist of this part. [SPEAKER CHANGES] Questions from the committee? If not, section 8. Ms. Griffin. [SPEAKER CHANGES] So this has four different changes in it. The first, section 8.1 has to do with both the sales tax and occupancy tax on accommodations. This section also becomes effective June 1st. This has to do with, currently in the law there is an exemption that the sales tax and the occupancy tax does not apply if you rent a private residence for fewer than fifteen days in a calendar year. Back in the eighties, the department interpreted this provision to mean unless that private residence was rented through a real estate broker, in which case tax is due. A couple years ago the department changed its interpretation although there was no change in the statute and what this provision does is put it back to the original interpretation. So what this provision, specifically in the law it clarifies that if you rent your private residence through a broker for less than fifteen days of the year then sales tax and occupancy tax would apply. The next section in this part, typically we have as you know the state gives sales tax refunds to non-profits and local governments; however, there is an exception for sales tax paid on utilities. In other words they don't get a refund for sales tax paid on utilities and the ones listed in the statute now are telecommunications and electricity. When as part of the tax act last year we converted pipe natural gas to the sales tax base so this puts pipe natural gas in that list. It also puts video programming in that last. Many years ago, I think in the early 2000s, the general assembly made the decision to treat video programming as a utility, but at the time this wasn't made as a conforming change. So this puts pipe natural gas and video programming in the list of utilities for which non-profits and local governments do not get a sales tax refund. Section 8.3 does two things. It repeals an obsolete provision dealing with a sales tax exemption for vending machines of one cent. It also, last year we removed the sales tax exemption applicable to newspapers sold by street vendors and newspaper carriers and vending machines and the intent was to treat all newspaper sales the same; however, we have this global sales tax exemption sitting out there that exempts 50% of the sales price of items sold through a vending machine so since some newspapers we are sold through a vending machine, this goes in and says except for newspapers and again the intent is to treat all newspaper sales the same. And then finally the last section, again last year we increased the sales tax rate on manufactured homes. As you know previously they were at a preferential rate and once it was put under the regular sales tax there were some concerns by the industry because much of the factory built homes, so much of the materials that went into it were similar to stick built homes so this was sort of a compromise to exempt 50% of the invoice price from sales tax and that is part eight. [SPEAKER CHANGES] Questions from the committee, Mr. Lukee. [SPEAKER CHANGES]
They are subject to the state local sales tax correct? And as of January 1st (just to say). I'm sorry, the state sales tax, right. So this would exempt 50 percent of the invoice price from sales tax beginning. I'm sorry not the invoice price but the sales price beginning July 1st. [SPEAKER CHANGES] Follow. So, basically drops to 2.38 percent, half of 4.7 [Speaker Changes] But essentially the rate stays the same as it’s the base that changes and the base instead of the tax rate is being applied to the full sales price, it will be applied to 50 percent of the sales price. [SPEAKER CHANGES] Thank you [SPEAKER CHANGES] Further questions from the committee. Ms. (Avrid?), Section 9 [SPEAKER CHANGES] Section 9 are a list of technical clarifying changes that were brought to the committee by tax payers in the excess tax rolled in by the department of revenue. I'll be happy to answer any questions. The committee did receive these and had them in revenue loss, I believe in February or March and they've been out in the public room for months and we had not any comments back on them. [SPEAKER CHANGES] Thank you. Questions from the community. Thank you. Mr. (Rowney?), Part 10 [SPEAKER CHANGES] Part 10 does two things – The first thing it does is it requires tax implants to keep an ABC permit, so it's modeled after the lottery commission where if you want to be a lottery ticket retailer, you have to pay your sales tax and if you want to be an alcohol retailer or have an ABC permit you're going to have to pay your state taxes and so it doesn't come into effect for two years and the plan, the way it's structured procedurally, is the ABC board when the people come in to renew two years into the future they'll single list of these people companies to part revenue and check if their tax comply and if they're not, they won't get their permit renewed until the department of revenue clears them. One of the ways that it can be cleared is obviously to pay the tax and another option is to do an installment agreement. So if you've either paid your tax or plan to pay your tax then your ABC permit can be renewed. The second thing it does is the department of revenue imposes a 20% collection assistance fee for overdue tax debt once they're 90 days overdue. That money pays for personnel in the collections division that go out there and try to collect the debt. Section 10 would allow the department of revenue to increase the amount of funding from the collection of assistance fee. Fund that can go to help ?? databases that tell where tax payers have moved to. Currently, they're authorized to spend 150,000 dollars annually on taxpayer locator services and this would increase it to 500,000 dollars annually but it's coming out of this non reverting fund that already exists in the department of revenue. [SPEAKER CHANGES] Thank you, Mr. (Rowney?). Any questions from the committee. If not, we'll go to Section 11, Ms. Griffin [SPEAKER CHANGES] This section provides for the central assessment of mobile telecommunications of the tangible personal property of mobile communications and tower aggregator companies. Under current law this property is assessed locally by each of the counties. But this has also been an issue for number of years because of the complexity of it and the nature of the industry, the number of mergers and acquisitions and there's been a desire to have it centrally assessed by the department of revenue which is what this provides for and then the department would allocate those evaluations back to each of the counties where the property is situated and this was something that was worked on with the department and those companies and all the parties have agreed to it. [SPEAKER CHANGES] Questions from the committee? If not, thank you Ms. Griffin Section 12, Ms. (Avrid?) [SPEAKER CHANGES] I think that's new as well. This is the privilege license tax changes. So this section beginning July 1st 2015 would repeal the existing system that you've heard about quite a bit and we're placid with the new flat (up to) 100 dollar tax on all businesses (physically) located within the city limits. That city would have the option to go up to a 100 dollars. It removes all of the caps and exemptions that are currently in the law with the exception of (you can see if you're looking at the bill on page 35 line 37 through 44) those prohibitions are in the current law and the reason for that is...
00:00 cities receive a share of the tax revenue from those industries so we moved those existing provisions into the new provisions so cities would not be able to levee this new business tax on these but it would apply to all other businesses I'll be happy to answer any other questions on that. [??] Hamilton Thank you Mr Chairman so I wanna ask specifically about the provisions the first one line 37 B subsection one line 41 supplying piped natural gas we talked about this before the committee meeting started I just wanna be certain that that is not construed to mean that Fracking or industries that are doing the actual extraction of natural gas would they be exempt from a business licence as well under this statue miss [??] I would not interpret it this way this refers to supplying piped natural gas if you're gonna do hydraulic fracturing or drilling that would not be supplying natural gas that would be extraction of the inner metals extraction of the gas it would not be subject to this provision follow up. follow up. should we clarify that in the language so that it would you consider that to be subject to interpretation that a city could be in a position not to be able to levee this tax just based on no clarity in the law. I'd be happy to [??] that makes it more clear I think it's fairly clear but we can totally derive something that ties it back to something as under the subject of utilities commission make it very clear that it's the distribution of the piped natural gas and not the extraction. okay that would be great I think because the purpose of these provisions are specific to utilities that receive some of it back when in the gas if natural gas extraction occurs in the state of North Carolina which is still up for debate obviously we wouldn't want cities not to be able to collect adequate taxes from a private business. thank you any further questions from the committee I'm sorry Alexander pardon me. Thank you Mr chairman trying to get the microphone to work here I have a question 'cause I'm somewhat confused about what we're doing on this privilege license if you would refer to the bill page 35 line 28. Sir Mr chairman yes ma'am would you want me to respond proceed absolutely yes ma'am sure so to the first section of this part lines twenty five three seven address a drafting error that occurred last session lines one sixty eight two eleven a is the operative part of the statue that authorizes cities to levee a privilege license tax and in the technical changes bill by error that statue was repealed in the same section of that bill that section was also amended and so there has been some what that does is create an ambiguity in the law and arguably come July first that the privilege license tax someone could make an argument that it has been repealed but the intent obviously since that bill also amended that statue and we had another bill that recommended revenue laws study it which it has so the first part of that part corrects that error so in reenacts that provision effective when this bill becomes law to maintain the a status quot which was the intent the next part of the bill section 12.2 where you see one sixty eight [??] two eleven is repealed is effective July first 2015 and because of the extent of the changes rather than amend that statue we just repealed it and created a new one because it was so different from what the existing law was the drafting decision was made let's just repeal that statue and create a whole new one does that help answer the question a little bit. follow up. it does and it doesn't in simple layman's terms do we have a privilege license authority vested in our cities and counties right now I would say yes because that repeal. 05:00
?? was effective. The effective date said January 1st, 2014 for taxable years beginning on or after January 1st, 2014 and the taxable year for privilege license tax is on the fiscal year July 1st to June 30th however I think, I don't know that there is a black and white answer. I think what this error did was create an ambiguity in the law and I think both sides could arguably reason that it's repealed. I also think there are some strong arguments that it was not a valid repeal so I think that's why this bill is trying to fix that. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] Yes. One last followup, so it is your opinion that this series of circumstances have not created a cause of action that a taxpayer could cite for a refund. [SPEAKER CHANGES] I think the question becomes a lot grayer come July 1st. Could I say that no one could bring a lawsuit for the period from Jan 1st to July 1st? I'm sure someone could try. I think that's probably of all the scenarios probably the weakest just because of the way the privilege license tax year runs but I think someone could make that argument. I think come July 1st it becomes a much more difficult question. [SPEAKER CHANGES] Thank you. Representative Loki[??] [SPEAKER CHANGES] Thank you Mr Chairman. I would like to go to the fiscal analysis because on this part of the bill I've heard a lot from Durham City Council about the loss of revenue with the repeal of the privilege license tax as it has been for many years so would [??] please tell us how much cities stand to lose if this bill is enacted? [SPEAKER CHANGES] Ms Johnson. [change speaker] If enacted this bill would cause a loss of between 11.4 million to 25 million in your cities. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] So there's no discussion here in the committee about whether we want to really cost our cities 11.4 to 24.6 million and we're just moving ahead without any consideration of the revenue loss? That is my question, I guess, for Chair Howard. [SPEAKER CHANGES] Thank you Representative Loki[?]. For 11 years you and I sat together on revenue loss and this issue has been debated and discussed for the past 11 years. Each year merchants would come and appear before the committee and give us examples. The issue is calculated in many, many different ways. Let me start by saying that some cities choose not to even impose a privilege license tax. Some cities use the square footage of the building to calculate the privilege tax. Some use the number of employees that work for that particular business and probably the most egregious calculation is done by using the gross revenues of that particular business which literally means that someone hired by a city can come into your business and demand to see your tax returns and your books. The amount of dollars is pretty much all over the page. It's something that is definitely hurting economic development inside the cities. One of the things that everybody's been concerned about, Miss Holly for instance, with the loss of grocery stores in blighted areas in certain parts of the city. When a grocery store can locate a mile outside of the city and avoid even paying
paying city tax and privilege license. They are only paying the county tax. That's what we're seeing. And I will, with great defense, tell you this. Senator Rucho is sitting over in the back of the room and Senator Rabon. We spent many hours trying to work through solutions with the retail merchants and with the league. The last attempt was made on Tuesday. And we had a proposal that quickly the merchants association came back to us and said "We'll accept this". We did not hear back from the league with acceptance or denial until, their only response was "I hope we can continue to work on this". Well folks, we've worked on it twelve years now, and if you want to just keep kicking the can on down the road, we can do that. That's the easiest thing to do. But there's some other pieces of this that you probably aren't hearing. Under 998 there was new revenues that did go to the cities. Under the recent Amazon settlement and agreement, that's an enhancement for cities. Is there a better way to fix it than this? We've tried, and we'll continue to try. We're going to try to move the bill out this morning and get it on the floor of the house. It still will need to go over to the senate. So there's adequate time for people to come back to the table but I think we need to do something. If you want to talk about economic development and trying to keep the businesses inside the city limits and I'm sorry that everybody has not been privilege to the testimony that revenue laws has heard. But it's appalling, of what's been happening with cities. And I'll give you an example. Right here in Wake County, loss of a grocery store in an area that needed a grocery store. A lot of elderly people really needed the grocery store. One grocery store ups and leaves. And another grocery store - Carlie C's - the gentleman came in and testified before the committee. They were courted by the city to come in and remodel the old grocery store and do a nice Carlie C's - which they did. And two hours after the ribbon cutting they opened their mail and they got the privilege license tax, after being solicited and begged to come here. It is what it is, and you can, if your foot's wide enough this morning, kick it one more time. And we can just let it keep rolling on down the road, and another twelve years later you're going to see the same thing. It's not going to get any better. And I will tell you that every effort to work with the cities and with the retail merchants and everybody that had a concern, every effort has been made, and that effort will continue as we move forward. Mr. Chairman? [SPEAKER CHANGES] Representative Hamilton. [SPEAKER CHANGES] Thank you, Mr. Chairman. I don't know that I really have a question, but since I'm not on revenue laws, I'm just hearing about this and I'm trying to get my head around it. What I'm trying to understand however is that in my city, Wilmington, we collect 2.6 million dollars annually through the privilege license tax. If this tax is capped at a hundred dollars max, that will drop their revenues down from this privilege license to about 300,000 dollars. And we're talking about a 19 million dollar budget. That's a substantial hit, in addition to loss of revenue based on economic downturn that the city has already felt. So I know a little bit about
..then economics and I agree with Representative Howard, Chair Howard, that the gross tax receipts is an issue and should definitely be dealt with through the privilege license law, but if we cut this down that dramatically, property taxes in my city will have to go up dramatically in an effort to cover this loss and that will not include additional city services. We will be paying more in property taxes to make up for this loss and receiving the same city services, fire, police officers, and things of nature. So basically we're denying the cities their ability to collect this from commercial activity and then we'll have to pass that along to all the property owners so I am extremely concerned about a) that somehow this got repealed and none of us knew it or there's some question of what happened and b) that in an effort to "fix it" we're capping it at a rate that is not sustainable and we will only be passing this down to local governments to cover the difference for the property owners and ??. That will hurt economic development like you've never seen. [SPEAKER CHANGE] Thank you, Representative Alexander. Representative Jones. [SPEAKER CHANGE] Thank you Mr. Chairman, I wanted to say that I also heard from my largest municipality when it came to the privilege tax issue and they've been pretty responsible. They actually collect all their taxes under $100, but the one issue they were very concerned about relates to the taxing of the video sweepstakes. Now I understand that for many of us we felt like that was illegal anyway but the reality is that they are still operating so I just wanted to say that I'm going to be offering an amendment that will allow cities to be able to levy a tax on the video sweepstakes machines, otherwise I'm very supportive of these efforts and I agree with Representative Howard. I believe it will be very helpful to limit to $100, thank you. [SPEAKER CHANGE] Thank you, Representative Stone. [SPEAKER CHANGE] Good morning, thank you Chair. I've actually had the privilege of dealing with this privilege tax back in 2009 when the city of Sanford Ashley in 2008 imposed the privilege tax. What it essentially did was it put our businesses in our community against each other because it was the first time we ever had a privilege tax put on us from the city. Now for those who don't know I operate a small grocery store and this tax came in and essentially taxed every square foot of my store: milk, bread, ice cream, vending machines up front. It was unreal what the tax was doing to our businesses. We also found out that you can actually have a net loss and still have to pay the tax. The other part of the tax was the lowest gross margin businesses paid the most tax, the people who made the most money were exempt. So I'm just glad that we're finally addressing this issue, it should have been done twelve years ago, and I recommend that we move this bill forward and let's let the law stand up and fix this because for one guy to pay $100 and the next guy to pay $5000 is just not fair and we also saw a lot of businesses threatening to do the exact same thing, move outside the city limits. So anyway our cities ?? but we need to be fair to each business. [SPEAKER CHANGE] Thank you, Representative Holly. [SPEAKER CHANGE] Thank you Mr. Chair. Yes, this is true that I lost grocery stores and I heard your testimonies but I also know that I literally live probably in the equivalency of a rural area in the city limits because of the difficulties that we have with these grocery stores, but to cap it all and to treat them all the same when every entity is different I have a problem with. I understand the privilege license tax is prohibited even in my community for encouragement, but we're also in my community a tier 1 inside an urban area and I think something else can be worked out without just capping it to treat everybody the same because ?? not the same as cities and some differences and I think we kind of need to work on this one a little bit more. [SPEAKER CHANGE] Follow up? Yes ??? [SPEAKER CHANGE] Members of the committee...
I just want to stress to you again that we have made every effort possible to continue to work on it and to soften the blow if that's the word you want to use, without a lot of cooperation of lack of communication or whatever you want to say. That door is still open. This bill still has a long way to go, before the House and then over to the Senate and then maybe back to the House. So it's got a long ways to go, but there's already the option. First option is cities, they don't have to impose the privilege license tax, that's one option. Second option is that they can go from $10 up to the maximum of $100. Everybody doesn't have to be treated the same. They don't have to go to $100, so there's that flexibility, that float in there. With that said, Mr. Chairman, I just think we need to move on with it in the context that it is and continue to work on it if that's possible. [SPEAKER CHANGE] Yes, ma'am. Members, if you will, let us move through the rest of the bill and then we'll come back to you if that's all right. At this time we'll have Section 13. Miss Fennel. [SPEAKER CHANGE] Yes, sir. Section 13 increases the compensation pay to license plate agents or tag agents. Last year under session law 2013-372 the General Assembly gave tag agents an increase in the per-transaction amount that they receive for collecting property taxes under the new tax and tag together program. That increase was to $1.06 and it was only for the first 6 months of the program. This section makes that increase permanent, and now the tag agents will receive $1.06 for the collection of property tax for now and in the future. [SPEAKER CHANGE] Any questions from the committee? If not, next section. [SPEAKER CHANGE] Part 14 is the technical and clarifying part of the bill. There is a detailed explanation of each part of this in your package in the summary. This has been on the Revenue Law's website. I'm going to go through the last change in this part, which is new and has generated some questions. This part is also related to the Tax and Tag Program. As you are probably well aware, you now when you pay your registration on your car, you also pay your property taxes, so there are two customer services issues that DOT has asked us to help them fix, and what this is going to allow the department and the tag agents to do is issue a limited registration plate for certain vehicles that are registered more than a year after the registration expires. Now it is legal to fail to renew your car as long as you're not driving that car, and the first situation when this largely happens is actually for service members. When they are deployed they often do not re-register their car when they're on deployment. When they return from deployment, when they go to re-register their car they must pay the property tax on the car before they can re-register the car, however under federal law, the state cannot impose property taxes on most motor vehicles owned by those service members, so what this bill does is allow them to receive a temporary plate and give them time to resolve that tax issue and register the car so the car can be driven. The second issue also is regarding an issue with the property tax. Again, if you do not renew your registration and you allow it to lapse for more than a year, when you go in to renew the registration you must pay the property tax for the upcoming property tax year, but you have not received notice of that tax and you have not received notice of that valuation because you allowed the registration to lapse. In that situation, you don't have the opportunity to appeal you valuation. This allows you to get a temporary plate and to go in and appeal that valuation before you have to pay the tax. So that is the last section of the technical change bill. [SPEAKER CHANGE] Questions from the committee? If not, section 15. Miss Fennel. [SPEAKER CHANGE] Yes, sir. Section 15 creates a new tax on vapor products. So vapor products are e-cigarettes, vapor cigarettes, this is not your average cigarette, this is not your normal cigarette. What this does is create a 5 cents per milliliter tax on the consumable product of the vapor product. So this is a liquid that contains nicotine that is consumed when you use an e-cigarette. These products are currently subject to the sales tax. They are not currently subject to a tobacco excise tax. They currently do not fall within the definition of a tobacco product for the purposes of tobacco taxation within the state. So this does create a new tax on these products. This section also clarifies that these products may not be used in jails, confinement facilities and in state prisons. [SPEAKER CHANGE] Questions from the committee. Representative Carney. [SPEAKER CHANGE] Thank you, Mr. Chairman. And now I'd like to send forth an amendment. [SPEAKER CHANGE] We recognize send forth an
Thank you, Mr. Chairman. Members of the committee, we got this bill two days ago in revenue laws. It’s a five page bill. We had a presentation by just a representative of the industry. We did not hear from anyone else with the health care industry, whatever. We have had, the advocates, rather. We, I just think this bill has so many unanswered questions. We’re starting to be, we would be the only state, I understand, from the presentation that hasn't, would be attempting to impose a tax prior to the FDA making their ruling on regulating this industry. It’s new. Is it better than the cigarettes, healthwise? That’s still to be determined. I think that what we really have to realize here and why I believe it needs fuller, more in-depth discussion as a stand-alone bill and more presentation, is the fact that, at 5 cents, when you buy one and we have this presentation and handouts, if you buy one of these electronic cigarette, you buy the box that has your holder in it. You pay a sales tax on that. But then, that vial that has the vapor in it, which is a, an addictive, supposedly that gets people to continue to smoking these things, these vapor cigarettes, whether it’s a tobacco derivative, or not, that has not been fully determined or revealed. It’s a new issue out there, but you pay, the proposal would pay 5 cents on that vial. That’s the equivalent of one pack of cigarettes, where today, when you buy that, you’re paying 45 cents. The revenue hit going forward could be extremely impacting. Whether the 5 cents, and this is what the industry themselves put on them. And obviously, everybody wants to say the industry’s saving tax, as well. Last year we had a bill that represented Sam and represented Folgum and represented Glazier work done. And it was protecting our youth on these cigarette sales, and we passed it. But it was going forward, the whole taxing issue that was. Excuse me, that was treated as it was a tobacco product. This changes the definition, this bill changes the definition from a tobacco product to, or clarifies it as a vapor, a non-tobacco product. Well, we don’t know if it is or if it isn’t. For health purposes, if a young person can go buy a pack of cigarettes for $5.00, they’re going to pay 45 cents on that pack. If they go buy this, these cigarette vapor, they’re going to be paying a nickel. Well, obviously, they’re going to go to that because it’s cheaper. I just think I’m throwing all these issues out at you quickly because we just got it on Tuesday, and trying to ask your support to pull this out, at this time, of this omnibus bill. Let us discuss it and debate it further, because it is an important move we’re about to make here in North Carolina. And if we make this decision to tax them at five prior to the industry, I mean at the FDA ruling on regulating this particular product, we could be stuck with 5 cents and not being able to move forward without changing that definition from vapor back to a tobacco product. It is a thing they’re going to hold in their hand and take a draw on, just like they will a cigarette. Is it a tobacco product or not? That’s yet to be determined and I would ask for your support on the amendment to remove this from the omnibus bill. [SPEAKER CHANGES] Questions from the committee? Representative Moore. [SPEAKER CHANGES] I’m just curious. How are those being taxed presently? [SPEAKER CHANGES] They’re not. [SPEAKER CHANGES] Miss ?? [SPEAKER CHANGES] The easy ?? are currently subject to the sales tax. They are not subject to any of these tobacco excise taxes, because they do not fall within the definition. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] If this passes, will they ?? against it? [SPEAKER CHANGES] If the amendment fails and the bill stays in its current form, that means they’ll be subject to the sales tax plus the tax that the industry has asked for, is that correct? [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Okay. [SPEAKER CHANGES] Further question from the committee? Representative Jones. [SPEAKER CHANGES] Thank you, Mr. Chair. My question is to staff, and it has to do with the amount of the tax. I think the comment was made that
The five cents per milliliter was equivalent of a pack of cigarettes. Is that accurate, or is that based on scientific study, or I'm just trying to say are we truly comparing apples to apples here when we say one milliliter versus one pack of cigarettes? [SPEAKER CHANGES] That is actually a difficult question to answer. We can tell you for the new Reynolds product that has been discussed in committee, that product actually regulates the amount of vapor that is inhaled with each puff, so we can say that for them a cartridge is approximately equal to a pack of cigarettes. So that's where you can make a comparison. There are many different products out there. There are products that have cartridges and there are products that you can fill with vapor without it being in a cartridge, and some of those products it depends on how the person uses it, how much vapor is used with each pull and use of the product. So it's really hard to compare that to a cigarette. So at this point I don't know of a way to say that this amount of vapor product is equivalent to this amount of cigarettes because it varies so much among products. What you can say is that this product uses a liquid volume to operate, so we created a tax on the liquid volume measure, but it's hard to compare to what that compares to cigarettes. [SPEAKER CHANGES] Thank you. Representative Carney moves for the adoption for amendment, all in favor raise your hand. I'm sorry. All opposed, like sign. The amendment fails 14 to 14. [SPEAKER CHANGES] Excuse me, Mr. Chairman. [SPEAKER CHANGES] Yes, ma'am. [SPEAKER CHANGES] I'm sorry. I got pulled out of the room. I'd like my vote to be recorded as yes. [SPEAKER CHANGES] We've already cut. The vote's already been taken, I'm sorry. Thank you. Section 16, Ms. Griffin. I'm sorry. Excuse me, Jonathan, I'm sorry. [SPEAKER CHANGES] I was hoping to be ?? amendment, I'm sorry. [SPEAKER CHANGES] Mr. Chairman. Mr. Chairman. [SPEAKER CHANGES] Representative Alexander. [SPEAKER CHANGES] On the last vote, would a motion to would a motion to reconsider, a ?? motion to reconsider be in order? [SPEAKER CHANGES] At this point we're going to have to do that amendment on the floor cause we're running out of time. We vote at 9:45 and there's another amendment to this bill. Mr. Tarp. [SPEAKER CHANGES] This section would make a change to the corporate apportionment formula that's used for corporate income and franchise tax purposes. The proposal would increase the weight of the sales factor from two times sales to four times sales. If you're not familiar or to refresh your memory on this corporate apportionment process, I'll do this briefly, federal law prevents states from taxing all of a multi-state corporation's income. If they could do that, then you could have the same dollar taxed 50 times by 50 states. So corporations calculate an apportionment percentage and they multiply their income by that percentage to determine how much of their income is subject to tax in a given state. We also use that percentage for purposes of the franchise tax. Years back, model legislation suggested that states use an apportionment formula that was based on the percentage of property, payroll and sales in the state. So mathematically that formula is the property factor plus the payroll factor plus the sales factor divided by three. So, since we're interested in the sales factor there, it gets one third of the weight in that original formula. Over the years, states moved to increase the weight of the sales factor in the formula as an economic development tool. North Carolina did this as well. In 1989, North Carolina increased the sales factor weight to twice sales.
Factor in that formula. So now a sales factor making up a total of two out of four parts, counted half of the same as the property and payroll factor combined. We went from a third weight of sales factor to half weight sales factor. This proposal would go to four times sales factor, meaning that factor would make up four of a total of six parts when you include property and payroll, or now two-thirds of the formula. Now the economic development argument, I can describe it in what I believe is a pretty simple hypothetical. If you had all of your property and payroll in North Carolina, but all of your sales outside of North Carolina, under the old original formula that means two-thirds of your income is subject to tax here. In '89 when you went to half weight for the sales factor that meant that only half of your income was subject to tax here. And now if you adopt to pass this proposal and the sales factor is given four times weight, or two-thirds, in that scenario only a third of your income would be subject to tax here. So that's the proposal. It does have a fiscal impact, if you look at the fiscal memo it reduces revenues in the 15-16 fiscal year by 23.4 million, and then the 16-17 year by 28.4, and fiscal year 17-18 by 29.2 million. [SPEAKER CHANGES] Representative Starnes, you are recognized to send forth an amendment. [SPEAKER CHANGES] Thank you mister chairman, the amendment just removes this section from the bill. I think that it's not prudent for us to go ahead and take additional revenue off the table at this time. This is not just a technical change, this is a major change in tax policy that deserves a bigger discussion than we have time for in this room today. We passed tax reform last year that says that when the revenue of this State hits certain levels then there's a trigger where the corporate income tax will continue to go down. We are in a situation where we have declining revenue, not increasing revenue in the State so I think it's not prudent, it's premature to go ahead and take additional money off the table, and I just urge the adoption of the amendment. [SPEAKER CHANGES] Representative Carney. [SPEAKER CHANGES] Thank you mister chairman, I also wanted to ask for your support to remove this bill from the larger bill. Jonathan gave us a really good, in depth presentation that I think this committee deserves hearing in it's entirety. He gave both the pros and the cons, the arguments for and against, and he went into a little presentation that I though was the most fair I've heard in a while and I appreciated that. But I do believe this full committee would benefit from that presentation and also, again as Representative Starnes said, this is a big hit in revenues when we are trying to find revenues next year for teachers, for other issues that are out there and I'm not sure it's time to move forward with it. I think it's a long-session issue, but I would ask your support. [SPEAKER CHANGES] Members you have heard the amendment from Representative Starnes, Representative Starnes moves for the adoption of his amendment. All in favor raise your right hand. [SPEAKER CHANGES] I think that [SPEAKER CHANGES] It's not quite. All opposed. Amendment is adopted. Representative Howard moves for the passage of her, go ahead Representative Howard. [SPEAKER CHANGES] Thank you mister chairman, I would move for a favorable motion on the bill. [SPEAKER CHANGES] As amended. Members you have heard the motion from chairperson Howard, all in favor raise your right hand. This is move for the adoption of the bill. All opposed. HB 1050 has been adopted, I'd like to thank you all for being here and attending this little slice of heaven. This meeting is adjourned. [SPEAKER CHANGES] Can we have the. [SPEAKER CHANGES] What were you wanting to know?