Members of the finance committee, can we come to order? First things first and if you folks need a seat, I’m sure we can find one for you. You too Senator Apodaca. Okay, first things first, Sergeant at Arms, thanks very much Sergeant at Arms for helping us and Kestler, Steve McCaig, Isaac Walker, Billy Fisher and Matt Urban. You folks helped us organize us and we’re much appreciative of your hard work in helping us, along with our staff who is always doing a great job for us. First of all, I think I saw Secretary Gray here. Secretary Gray, there you are. Thanks for being with us today. It’s always a pleasure to see you. We have Senate Bill 786 before us. What we’re going to do, Senator Rabin? Did we pass that one already? Thank you. See how fast things go by around here? Let’s try House Bill 1050. I think you might like that one better. Senator Rabin, I’d like you to give a brief explanation if you’d like. [SPEAKER CHANGES] Thank you Mr. Chairman. [SPEAKER CHANGES] And before – [SPEAKER CHANGES] We’ve got a motion, Senator Rabin, that House Bill 1050 is a PCS discussion. All in favor, please say aye. Opposed nay. Ayes have it. All right, you have House Bill 1050 PCS before you. Senator Rabin, please begin. [SPEAKER CHANGES] Thank you Mr. Chairman and members. This House Bill 1050 is a bill that we worked on throughout the interim. We spent about seven months on this. Most of you are quite aware of what has gone on and all of the parts we’re going to present. 15 or 16 parts to you tonight. I’m going to let staff do that, when I finally quit talking. This PCS varies in three ways from the original house bill that came over. It removes section 8.4 of that bill. That section would have exempted 50% of the sales tax on modular homes. I believe you all remember that. It substantially changes part 12 under the senate PCS, the local privilege license authority is repealed effective July 1, 2015. And the local privilege tax authority for 2014 is limited to those businesses physically located within the municipality or city limits. Thirdly, it removes part of section 16. That part would have reinstated the ability of any school of medicine affiliated with the University of North Carolina and the university of North Carolina health care system to be able to use the set of debt collection act, to collect unpaid debt. Having gone over that, I will let staff if they’re ready, to please explain the parts of the PCS and before they do that, Mr. Chairman, I have a technical correction, an amendment for the technical change. [SPEAKER CHANGES] Do the members have a copy of that? [SPEAKER CHANGES] They do, yes. [SPEAKER CHANGES] Is that before you? [SPEAKER CHANGES] Yes, they do. [SPEAKER CHANGES] Senator Rabin, let’s go ahead and do the technical corrections, so we can discuss as it should be discussed on the ?? [SPEAKER CHANGES] Move to amend the bill as you can see. It is truly technical. On page 18, line 36 by deleting 12 and substituting 13. And on page 51, line 19 by adding a new bill section which reads as you can see below. [SPEAKER CHANGES] Members of committee, spend a minute checking that and if there are questions for Senator Rabin and or staff, we can take that up prior to passage of this amendment. [SPEAKER CHANGES] Mr. Chairman? [SPEAKER CHANGES] Yes sir, Senator Rabin. [SPEAKER CHANGES]I would move that we accept this amendment and incorporate it as we discuss the bill. [SPEAKER CHANGES]Members of the committee, you have that motion before you to accept this amendment and include it into the House 1050 PCS. [SPEAKER CHANGES] Any discussion? [SPEAKER CHANGES]Mr. Chair? I’m sorry. I have a question if I can ask. I don’t know if it’s for the sponsor?
Is this on the amendment? [SPEAKER CHANGES] It is on the amendment. I just want to understand, if I could, the third or fourth section, which adds a provision for the use of tax proceeds. It’s on lines 27 and 8 of the amendment. I just want to understand what that does. [SPEAKER CHANGES] Staff, can you help us with that? [SPEAKER CHANGES] Yes sir. Senator Stein. All of the funds from the taxes of other tobacco products generally go to the university cancer fund. And if we do not make this change, the funds from the vapor products tax will also go there. The original intent was to have them go to the general fund. So this just clarifies that the revenue generated from the vapor products tax will go to the general fund and not the cancer research fund. [SPEAKER CHANGES] That answer your question? Other questions? Senator Ford. [SPEAKER CHANGES] Thank you, Mr. Chair. For staff. Does that mean that based upon the original language, that it would have been as a tobacco product, which is the reason why it was going to the cancer institute? [SPEAKER CHANGES] When the bill was originally introduced in the house, it actually created a separate tax for vapor. When it was on the house floor it was amended to say that this is a tobacco product. And that’s what made the funds go to the cancer fund. And at that time, a technical change was not made at the same time to clarify that funds do not go to the cancer fund. [SPEAKER CHANGES] You all set Senator Ford? Members of the committee, any additional questions? You have a motion before you from Senator Rabin, regarding the amendment that he has presented and we are going to roll that in with the House Bill 1050 PCS. All in favor, please say aye. All opposed, nay. Ayes have it. Senator Rabin, do you want staff to begin explaining this bill? [SPEAKER CHANGES] Yes, if staff would begin with part one please, NOL/NEL? [SPEAKER CHANGES] Mr. Chairman, I’ll be glad to start. Part one is something that came from the revenue law study committee. There was a subcommittee formed. It met twice. It met with interested parties. It met with the department of revenue, and this is a part of the bill that has been agreed to by all of those parties. There was a detail summary that was sent to you over the weekend and is available on the Senate finance website. Basically it replaces the net economic loss calculation with the state net loss calculation that’s more comparable to the federal NOL calculation. We are the only state that has a net economic loss calculation. This will make it simpler to calculate for businesses. It also removes the requirement that a net economic loss has to first be offset by non-taxable income. That has been a source of much debate between taxpayers and the department of revenue as to what is and is not taxable income, and must be used to offset. It removes that. And it also instructs the secretary of revenue to apply the standards that are applicable under federal law when determining to what extend a law survives a merger or an acquisition. So all of these provisions are making the law, we believe, simpler to administer and to adhere to. The second part of the bill is also ?? from the revenue law study committee, it is clarifying some language that was enacted last year by the general assembly. One has to do with the section 179 expense deduction. The wrong investment limit was included in the bill last year. This actually increases that investment limit. So there are taxpayers waiting to file their 2013 tax returns to that they can adhere to our statute. It also makes a couple of other technical changes to that part of the bill and I’ll be happy to answer any questions. Part three of the legislation concerns the agricultural exemption certificate. Last year the general assembly put in a requirement that farmers, in order to be eligible for the sales tax exemption for certain farming equipment and products that were used in the farming operation, had to have an annual gross income requirement of 10,000 dollars a year. The revenue laws committee heard concerns from farmers that there are some types of operations that might not actually produce income in certain years. So instead of it being an annual requirement, it is a three-year averaging requirement. It has to have a three year average of 10,000 dollars. The bill also makes some technical and administrative changes asked for by the department and by the farming community, just to help in the transition to this financial requirement.
Part 4 of the bill has to do with pre-paid meal plans. This was the last year the general assembly removed the exemption for food sold to students in an educational institution of higher learning. What we realized is that times have changed a lot since the 50's when that exemption was put into place. Students don't necessarily buy a meal per say, they buy a pre-paid meal plan. So what this does is to impose the tax on the gross receipts derived for a pre-paid meal plan. It mirrors some of the language of general assembly enacted some years ago for pre-paid calling cards. Part 5 of the bill deals with the expansion of the sales tax space last biennium to admission charges. It makes a lot and several clarifying changes. Substantively, what it does different from last year is that it changes the types of admissions that are exempt from the tax. There was a sub-committee created in the revenue laws. A study committee that looked at the exemptions, looked at the confusion surrounding the exemptions and that committee recommended that the best way to end that confusion was to tax all admission charges the same regardless of who sponsors the event and what the event is for. So the number of exemptions that are included in the bill are much narrower. Basically, if the event has to be sponsored by an elementary or secondary school or it must be sponsored by a very small non-profit and that would mean they are no paid staff, no money is being distributed to anyone to perform or conduct the event and all the money from the event is being used for that non-charitable purpose. Part 6 has to do with service contracts. These were addressing some of the issues associated with the expansion of the sales tax base to the sales price of the service contract. Basically defining who is the retailer in these situations of service contracts. Because often there is a facilitator used. It is often not the retailer himself that is the provider of the service contract, but simply facilitating the transaction. Questions arose about what to do if those service contracts are cancelled or terminated. So this provides the applicable types of refund provisions that would apply. Trina will explain the next parts of the bill. [SPEAKER CHANGE] The next part of the bill deals with those retailers that also act as contractors in certain situations. The revenue laws study committee also had a sub-committee for this particular issue. The recommendation by the committee was to state that to the extent the items of tangible personal property become part of real property, then the purchaser of that item would be the consumer and responsible for the payment of the tax. Again you may have heard this issue. It came up a couple of years ago with respect to Lowe's and Home Depot, the major home improvement stores. There was really no guidance in the law as to how to treat those types of transactions. There were a series of administrative bulletins that the department had issued over many years and over time there were some inconsistencies and again ambiguities. This adds some clarity there. The next section of the bill, part 8 has 3 different sales tax changes in it. The first one which is 8.1 has to do with sales tax and occupancy tax on accommodations. Specifically when you rent your private residence for less than 15 days in a year. Under current law, there's an exemption that says the sales tax does not apply if you rent your private residence for less than 15 days of the year. Many years ago the department interpreted that exemption to not apply if you use a real estate broker to rent your private residence. A couple of years ago, they changed their interpretation of that to say that regardless of whether the homeowner or a broker rents it, if it's less that 15 days is exempt from sales tax and occupancy tax. This restores the prior department interpretation. The next provision has to do with the sales tax refund for non-profits and certain governmental entities and it disallows a refund with regard to piped natural gas and video programming. So as you know, generally speaking non-profits and local governments do get a sales tax refund.
purchases of tangible personal property but historically we have excluded purchases of utilities such as electricity and telecommunications. When Pipe Natural Gas was moved last year as part of the tax format to the sales tax, we failed to include this exclusion on a further refund and then many years ago when we sort of made similar changes with video programming it also was not included. So again, section 8.2 would disallow a refund on purchases of the Pipe Natural Gas and video programming. Section 8.3 has to do with the treatment, the sales tax exception. Another thing that was done last year as tax reform was to make sure that sales of newspapers were all treated the same, whether it was a sale in a store versus the sale in a vending machine versus a sale by delivery. But there was a sales tax exemption out there that was for, that provided an exemption of 50% for anything sold through a coin operated vending machine, which would include newspapers. So this sort of completes that. So the newspapers are all treated similarly and again and disallows this 50 percent sales tax exemption for newspapers through a coin-operated vending machine. The next section of the bill is a series of changes requested by the excise tax division of the Department of Revenue. These would be related to your alcohol, tobacco, and motor fuel. Most of them are administrative in nature. Then the next section, I think is, Greg, is the tax compliance changes and Greg can address those. [SPEAKER CHANGES] Part 10 of the bill does two main things. The first thing it does is if you maintain an ABC Permit, it's going to require tax compliance. This is patterned after the way, if your going to be a lottery ticket retailer, you have to be in tax compliance. And that also uses a template, so to have an ABC Permit, your gonna have to be in tax compliance. Tax compliance includes being in an installment agreement with the department. So you can have actually paid your tax or you could have made an agreement with the department about how your going to pay your tax. And then it gives a procedure for this so that the way it would work is the ABC Board, when a renewal request came in, would send the list to the Department of Revenue. It would check the people on the list. Individuals and corporations, and then if somebody is not in compliance then they would tell the ABC Board not to issue the permit, and then that would stay there until the Department of Revenue said that you had paid your tax or entered into an agreement to pay your tax. And they would tell the ABC Board to release that hold the department put on it. So it only, the ABC Board is the one that sends the list to the department and it's done at renewal time. The second thing the bill does is it increases the amount the department can spend of the collects assistance fee. If you don't pay your tax in 90 days, a 20% collection assistance fee is assessed. This money is used to offset the collection of [?] [?]. And one of the things the division does is it enters into contracts with third party data services to get addresses for taxpayers that the department can't find. Currently the department spends $100,000 a year on these locator services and that's not enough and so the department would like to be able to spend $500,000 out of this non reverting fund for locator services. [SPEAKER CHANGES] Part 11 of the bill, property tax changes. This would provide for the central assessment of mobile telecommunications property. Under current law, this property is accessed at the local level. But over the last several years, there has been both interest by both the parties due to the nature of the property that it be done at the department level, to sort of provide that continuity and expertise. And so this would provide the Department of Revenue, would value this property and then allocate it to the counties where the property is sited. And the parties, both the interested parties worked very closely with the Department of Revenue in revising these statutes. Part 12 of the bill is privileged license tax changes. This does a couple of things. The first thing it does is that it re-enacts the current law with respect to authorizing cities to levy a local privilege tax and it does so.
With two modifications. The first modification is that cities would be, for this next fiscal year, 2014-2015, cities would be limited to using the same privilege license schedule that they used for the previous year. In other words, they could not increase any rates or caps. The second limitation is that they would be limited to levying the tax on businesses physically located in the city limits. Under current law, cities are permitted to tax businesses that are conducting business and that have, basically, illegally significant economic nexus with the city. This would limit it only to those that have a physical location. Then, effective July 1st, 2015, the bill repeals the local privilege license tax authority for both cities and counties. The other thing I will just point out, since it is under a separate statute, is, there are separate statutes that allow cities and counties to levy a privilege license tax on cities and counties that have low-level radioactive waste sites or hazardous waste sites within their limits. Those statutes are also repealed under this provision. [SPEAKER CHANGES] Part 13 is the license plate agent compensation. The license plate agents or tag agents are the entities that provide vehicle registration and registration renewals across the state as contractors for the department of motor vehicles. Under the new tax and tag program, these entities are also collecting property tax. A bill last year increased the compensation for the tag agents for these property tax transactions for a limited period of time. What this part does is make that increase permanent and increases the per-transaction amount going forward. Part 14 of the bill is the ?? clarifying bill; there is a summary in here and these provisions have been out for a very long time. I am not going to go through every single portion of this; I am going to go through one part of the bill that has gotten some questions. Section 14.24 of this part creates a limited registration plate for individuals, who had their car previously registered with the division, but the registration has either been expired for more than a year or they have surrendered their plates. This basically allows an entity to register their vehicle and get a temporary tag without paying their taxes if they want to dispute the amount of taxes owed without paying for the taxes before getting the tag. That is part 14. Part 15 is the tax on vapor products. This would create a new tax on vapor products. It says that vapor products are a tobacco product, but as a subset they are not taxed identically to other tobacco products in the state. We currently have a tax of .45 cents on each pack of cigarettes and other tobacco products are currently taxed at 12.8% of the price. This would provide that vapor, which is the liquid used in the e-cigarettes, would be taxed at .5 cents per liquid milliliter. This would be administered similar to the other tobacco tax and, as we said in the amendment, it would not go to the cancer fund; it would go to the general fund. The remaining part of the remaining sections of that part also provides that vapor products are prohibited in both state confinement facilities and in local jails. So tobacco products are already prohibited in jails and confinement facilities and this clarifies that vapor products are also not allowed. [SPEAKER CHANGES] Senator Rabin, I believe that explains the bill. Any comments and then we will open to questions from the committee. [SPEAKER CHANGES] No, Mister Chairman. We have gone through this pretty thoroughly time and time again in the ?? and the house and then here, so I think most of the members are aware of what is before them, other than the minor changes, so if we could just move ahead, please. [SPEAKER CHANGES] Alright. Members of the committee, we have a clear description of it offering opportunity for questions. Senator ??. [SPEAKER CHANGES] Thank you, Mister Chairman. I have had several discussions with you and some of the staff. I haven’t had the opportunity to talk to Senator Rabin, but I would like to call your attention to Section 5. It is not what is in the bill that I have concern about. It is what is NOT in the bill. Now, let me explain. Not a problem with assessing the sales tax on admissions, but as it is defined: it is a tax on gross receipts; not on receipts.
Gross receipts were previously taxed in a gross receipts mechanism by amusement. They have a term of art, or that is a term of art, and historically gap principles apply to it which has to do with when the remittance was made, not the tax, but when the remittance was made, and this is true in other situations. When the remittance was made as to the gross receipts on admissions it was made after an event, this is sort of like after a product was sold, because the event is the product. Now, it’s been explained to me that we’re talking about a different kind of tax and I readily acknowledge that. The problem is, we’re still using the term gross receipts and then it says it will be collected in the manner set forth by a particular statute. Well gross receipts in the prior fashion were collected or remitted after an event. I’m told that the interpretation now is they would be remitted when received, but gross receipts and receipts are not the same thing and my suggestion is either you end up having to eliminate the word gross wherever it’s utilized or the alternative, if we continue to do things the same way with the same people doing the same thing then the payment is made at a time consistent with the way it’s done now and that is remittance after an event. [SPEAKER CHANGE] Senator Rabon, you want to handle this or Ms. Averett can handle this too. [SPEAKER CHANGE] I tend to agree with Senator Hartsell that you gave us two options and both of them were unworkable. One would be to remove the word gross, whether we could do that as technical or not, I don’t know, that would be for staff to say. And the other would be to continue as we are. I think the easy way would probably be to remove the word gross. [SPEAKER CHANGE] Ms. Averett could you explain the definition of gross receipts please? [SPEAKER CHANGE] The sales tax statutes have numerous places where its imposed upon the gross receipts of certain activities such as telecommunications, pipe natural gas, prepaid calling cards, numerous places. This bill also on page 10 lines 16 and 17 in that define for purposes of sales tax what the term gross receipts mean and it says that it has the same meaning as the term sales price because those two terms have been used for years interchangeably in the sales tax statutes The definition of the sales price is the total amount of consideration for which the tangible personal property or service is sold and then it goes on to give an explanation of what that is. So for purposes of sales tax, the term gross receipts has the same meaning as sales price. [SPEAKER CHANGE] Senator Hartsell. [SPEAKER CHANGE] But it’s not the same thing, that’s my concern. We’re taking a situation that is existing and folks have utilized for years in one fashion and then using the same definition to define the same activity or service and yet taxing it at a higher rate because it’s a sales tax as opposed to the old gross receipts tax and at the same time saying that we’re going to cause remittances to be made at a different time inconsistent with the acting policy and actually some technical review provisions of the state code have been issued by the department. [SPEAKER CHANGE] Ms. Averett clearly defined and she has the definition of sale price and gross receipts as being the same. [SPEAKER CHANGE] But it’s the same thing that it is in the current gross receipts tax and the application is the same thing. I’m just saying if you’re going to switch from one to the other, the remittances ought to be done consistently from one to the other.
[Speaker Changes] Eric Wayne, department of revenue, sales tax [??] to regular. I don't have the old statute before me. It's in my bag, I didn't grab it, Couple things on this that we've worked with Cindy Avert and other members of the revenue laws has to do, one of the things was a streamline sales tax problem so this was one of the problems to rectify it. The other issue lies in that, I heard you say Senator Heartsel that it historical been administered that was due at the time of the event. That has been raised to us, a couple times. I've talked to the former director that was over the privilege license which included gross receipts who have. We've went back through numerous written documents that indicated that the tax was due when the gross receipts were received, not necessarily when the entertainment activity was performed. [Speaker Changes] Mr. Senator Heartsel, follow up question. [Speaker Changes] As a follow up, quite candidly in each of those cases, the forms that were submitted were submitted after events. And you accepted them and there was no question about them as far as I know, Isn't that correct. [Speaker Changes] Well, I can't speak to that because I didn't actually do any type of examination on them. I'm just sharing with you, we've heard this before, we've gone back to try to see, the only time we were aware of this has to be, to do with I think one tax payer, where its happened two times on examination was the information that was shared with us. The bigger issue for us really has to do with the fact that the sales tax has trust tax and is collected in advance so we don't really have a necessary preference for when it's been admitted but if other taxpayers that make retail sales that collect sales tax, trust tax so it's payable when you receive it. Not six months later or a year later and in some situations even longer than that. [Speaker Changes] Senator Heartsel, this, excuse me, [Speaker Changes] It's treated as a liability until the event occurs [Speaker Changes] Senator Heartsel you weren't recognized, under the circumstances this was discussed in the revenue law and it was decided that the issue about when the payment is coming would be a just in the fifteen session and what we were doing is moving forward as the existing laws before you. Mr. Wayne makes it clear. Ms. Avert makes it clear. And under the circumstances, that is why the revenue law committee decided to move this to a fifteen decision after presentation from I believe it was the Panthers and who has Senator Raymond forgotten. [Speaker Changes] Hurricanes and the panthers [Speaker Changes] Hurricanes and the panthers presented at the last meeting of the revenue laws meeting and that was a decision that was made by the revenue laws chairs. [Speaker Changes] Mr. Chairman, I've patiently waited. May I be recognized please. [Speaker Changes] What's your name again? [Speaker Changes] Rouchou [Speaker Changes] Rouchou, you know that happens to many times. [Speaker Changes] Thank you [Speaker Changes] Alright.
Senator Apodaca. [SPEAKER CHANGES] Mr. Chairman, I, this is intriguing conversation we have here. I'd like to throw another question out. In my real life I run a travel agency, and this happened to me when Hendersonville switched the gross receipt tax. They tried to charge me for the price of an airline ticket when I sold it although we received no commission we had to file back and, you know, as a delay, we had to now charge customer commission because the airlines do not reimburse. But we collect those monies for the airlines and return it to them. So taking that scenario and many, many times, although you've never used this very much cause you’re very cheap, [LAUGHTER]they use the internet. If you were to take your family to Disney or Carowinds, or whatever we collect those monies at the travel agency. We remit them to the company and we don't receive our money until after the trip is done. So are we responsible to pay those taxes on those tickets we collect at that time? [SPEAKER CHANGES] Ms. Abery would you like to try and respond to that question. I'm not sure I understood it but [speaker change] Senator Apodaca, I’m trying to make sure I understood it as well. Let’s just say you sold [Speaker change] Say you come in and buy tickets, we’ll keep it North Carolina. You buy tickets to Carowinds, you buy a motel, you do all this through my agency. Okay we do the bookings, we get the tickets and all this and you pay us up front for those. The money, the commissions back to the agency does not happen until after the trip is completed. So are you saying that if we collect money for Carowinds tickets we have to remit those taxes immediately to the state of North Carolina? [speaker change] Yes Senator because I believe in your example you receive the money for those tickets immediately. You may not have received your commission up front but you receive the money for those tickets and at the time you received the money for those tickets the sales tax that would have been applicable to those tickets would need to have been remitted. [speaker change] houston we got a problem [speaker change] Senator Apodaca as we convert over to a sales tax out of the gross receipts, sales tax is a trust tax that is paid for upon the receipt of the money. You know, that’s [Speaker change] Follow up Mr. Chairman [speaker change] I think the same thing could be said about federal withholdings and if I have a smaller company I don’t have to remit the withholdings but once a month sometimes once a quarter so that’s somewhat of a trust, you know, also it’s just I mean we’re putting unfair restrictions and extra work on small businesses to collect this tax, send it in immediately. I just can’t support that. [speaker change] Okay I’ve got Senator Tucker [speaker change] Thank you Mr Chairman, I’ll be quick and try not to be as confusing. The sales tax is only able to be collected in the city limit boundaries does that also, a municipalities cannot collect taxes from businesses that are in their ETJ area and satellite annexations [speaker change] I’m assuming we’re moving to privilege license tax. [speaker change] Yeah I’m sorry. Yeah I’m moving to privilege license tax [speaker change] The bill says that the city could only collect from businesses that are located within the city’s limits so it’s in the corporate limits of the city [speaker change] Thank you Mr. Chariman [speaker change] Okay I’ve got Senator Mckissick [speaker change] Yes actually one of my questions was similar to Senator Tucker’s in that I did not know if there was some type of estimation as to what the impact would be upon cities and the language we have here now. I saw early projections based upon the original bill coming at a revenue loss and likewise what came back to the house, but based upon this more-refined type of language here as it relates specifically to municipalities being only able to tax or at least charge privilege taxes to those cities for those businesses within the city limits. Do we know what impact that will have upon cities in terms of the estimated projections of economic impact [speaker change] Senator please respond [speader change] Thank you, Senator Mckissick for many of the smaller towns that charge a privilege license tax we believe they’ll be unaffected at all- there’s no real information about how many cities are actually charging privilege license
[0:00:00.0] …Taxes outside of the municipal boundaries for businesses that are located outside of the municipal boundaries but off course the second year there is a fiscal memo the estimated impact of repealing the privilege license tax will be 62.2 million. [SPEAKER CHANGES] Follow up question. [SPEAKER CHANGES] I mean I’m wondering why we are realizing it. It looks what the language cares now basically holds harmless to cities for one year I mean but to the extent that we don’t know the undetermined magnitude of that specific language is there a specific reason why we are doing it this way. [SPEAKER CHANGES] [Pause] Senator ____[01:11], the one thing that this bill does that you may have heard about is that there was a drafting area that was in part of the technical changes bill last year that inter-rottenly repealed the operative statutory section of the rising cities to levy a privilege license tax and so arguably on July as the July 1st of this year if this area would not corrected than the cities may not have the authority to levy the tax at all. So, this bill corrects that air and restores the privilege license tax and then as I mentioned it does limited to businesses physically located within a city’s limit. [SPEAKER CHANGES] A quick follow up. [SPEAKER CHANGES] Senator ____[01:56] [SPEAKER CHANGES] Yeah, I’m aware of that era or making the screen corrected but it doesn’t answer the question so why it’s been done this way but if I can’t get an answer of that maybe someone you can answer why at this point of time I haven’t seen before this language but it’s in here now pretty much eliminating the local taxation, low level radioactive and hazards waste facilities. Do we know what the impact of that because I don’t recall that being any clear bill became before revenue lost for the consideration so that we can see what that impact might be as well? [SPEAKER CHANGES] Senator ___[02:40], I don’t think we know that number because the staff said we don’t know but we do know this there is an additional 10 million plus change and a couple of million from Amazon that these cities are getting from the compassion of the sales base but should more than makeup for that in this fiscal year, I would assume. [SPEAKER CHANGES] Quick comment and then one final question, I guess that I understand… [SPEAKER CHANGES] Are you recognized? [SPEAKER CHANGES] Thank you Mr. Chairman. I understand that it will be some offset but we are talking about 10 million offset which is 62 million dollar loss overall and it doesn’t seem like we can disaggregate what it means by not going beyond the boundaries or city limit nor be able to identify what it means about these hazardous waste sites and the radioactive sites. I’m trying to figure out how I got there unless there was some numbers being projected about and having an impact on somebody, somewhere that I would think that we will be able to identify since I had been there before but if we cannot we get that either let me ask one final question about the language you are dealing with the ___[03:57]. And I guess the question there is based upon projections at this time it looks is 5% per milliliter and I’m not quite sure how this translates into different brands that might be using this particular commodity in terms of the vapors but what precisely will this mean in terms of impacts against revenues we might otherwise receive from cigarettes and cigarette taxes 45 cents a pack, we are putting this at 5 cents per milliliter, I know that we have the use product that Renault is introducing. And I’m glad to see if there is gonna be spending their presence in this state and spending it by 200 exams but I’m trying to translate that into how we might be looking at this being an equivalent to see to what this unit or measurement might be as it might translates into the equivalency in cigarette tax. [0:04:59.9] [End of file…]
The taxation if that is unclear then i apologize if its not. [Speaker Change] Ms. Fennel. I'll take a shot at it I think that there is some speculation that when individuals start using vapor products they will stop using tobacco products. We have not factored that into the note because we don’t have information about whether people are using this as a replacement product or whether they are new users, so we have not factored that in. Over the past several years we have shown that cigarette taxes have gone down and that is a continuing trend but to the extent that that is due to new products such as vapor products or other new products we do not have information to be able to show what revenues reduce that verses people quitting or doing other things. So that is not reflected in the fiscal note and we do not have that information. [Speaker Change] Thank you. Alright moving on. i've got Senator Barringer then Senator Apodaca. [Speaker Change] Thank you Mr. Chair. i’d like to call our attention back to section 51 the Senator Hartsell and Senator Apodoca interchange. I have question and comment. My question is the way I read this and the way its coming fourth is that this is really not consistent with general accepted accounting principles. And its not just for the Hurricanes or racing for example the Carolina ballet and other theaters that sell season tickets if I want to exchange or turn those in it becomes a big problem for them for them to keep up with where the money is an all of that. So could you comment or tell me how general accepted accounting principles gets factored in to this because its my understanding that they would not have to do that under those principles that they could actually recognize the gain at the time of the event. [Speaker Change] Senator barringer this is my understanding of it when it was a tax- privilege tax imposed on the sponsor of the event as was in the old statute that was imposed on the gross receipts of that person. At that point I can see where the generally accepted counting principles as to when something is determined as income to that person may have been a factor. We have talked about the generally accepted counting principles as when something is recognized as income and try to see how that works with sales tax and we have not- at least on staff- if we have collectively spoken we don't see the connection, because sales tax there is a sales price for that ticket and on top of that sales price is the sales tax and the vendor-the retailer- may choose to embed it in the price if the person wants to but the sales tax is structured to be levied on top of the sales price and we so, I’d just like- it’s a different tax I cannot quite, you know we collectively talked about it at length and cannot quite see where the recognition of income has a bearing on the sales price of the ticket for purposes of the sales tax [speaker change] follow up comment. I disagree [speaker change] okay senator apodaca [speaker change] This question, probably for Cindy. The events that you collect the sales tax on, does it say anywhere in the statute that it has to be in North Carolina? [speaker change] The admissions are taxable when the event is in the state, so you would not be collecting sales tax on tickets to Disney World [speaker change] Could you point me to where that is, please? [speaker change] Follow up, so you wanted to see where it is? [Speaker change] If you give me some time, I will help you. [speaker change] Can we get back to that one. Alright good then I’ve got Senator Ford [Speaker change] Thank you Mr. Chairman. I want to bring your attention back to the privilege license tax which is an issue that I wanted to bring back up for staff as it relates to the date. I understand that the privilege license tax is going away. I get that. But as it relates to the physically located within the city limits. That date appears to be different as it’s enactment vs. when the privilege license tax is going to end. Can you bring clarity to that for me? [Speaker change] Excuse me. So the re enactment, so basically this allows the, puts the privilege license tax back in place for one more year. And privilege tax operates on a fiscal year so from July 1, 2014 to July
1, 2015, what you see in section 12.2 would be the law and then beginning July 1, 2015 it would be repealed. SPEAKER CHANGED: As it relates to the section of business being physically located within the city, do those dates coincide with that new provision in the law? SPEAKER CHANGED: What you say the new provision. You mean the physically located. Do you mean that as the new provision? SPEAKER CHANGED: Yes because I don’t remember that being a part of the original bill, so for me Ms. Chairmen this is new and I just want to make sure… SPEAKER CHANGED: When the bill came over from the house, there was discussion in the house finance committee meeting, I think representative Rally brought the attention to the members about the fact there were circumstances where people from out of the state or out of the county, or the municipality that exists were actually paying a business license tax. Part of what we did by reestablishing this. So the counties so the municipalities could continue to have the opportunity to raise money between now and July of 2015. Was to minimize any type of abuse and the abuse that was occurring is that all of a sudden one community said they were raising the taxes on it what we were saying is that you cant go anymore than what you did. And in this case we are trying to minimize anyone from trying to raise the tax during this transition period. And apparently I don’t remember the municipality I don’t want to say Greenville, but one of the cities had already made the move to raise groce receipt tax or a tax as a way of jacking up the revenue stream. SPEAKER CHANGED: Mr. Chairmen, I apologize, I’m trying to get clarity because the city of Charlotte has already calculated the loss on this provision and its going to amount to 3.4 million dollars and so I’m just trying to figure out when does this provision take effect? Is it going to take effect now? SPEAKER CHANGED: the physically located limitation takes effect for the fiscal year July 1, 2014. SPEAKER CHANGED: so it is now. I wanted to follow up with concept about business being physically located outside of a city or municipality. If you think about the concept that these business are able to come into any city and conduct business, use road, use fires, use water ,and solid waste services of any city and not have to any type of financial commitment for where they do business and I would just ask for some consideration from the members since the xx license tax is going away anyway this is going to be a significant revenue hit for my city and I think as a provision we could let it go with the existing legislation of 15-16 so Mr. chainmen I would appreciate any consideration on that. And if at that time if there are any comments on that I’d listen to that, but I do have another question. SPEAKER CHANGED: Senator Raymond do you have any comment on his question or comment? SPEAKER CHANGED: I do, thank you. We did not single out any municipality or group of municipalities when considering this, but we did say that in the very least we could be more consistent or request the cities could be more consistent and at least all stay within the city limits. And I will go back again and say I did not know until you commented Charlotte would be losing 3.4 million, but again I will go back to the 14 million additional income that is being gained from the expansion of the sales tax and from the Amazon deal. I would assume from these cities, the larger cities are the ones that are going to be getting a larger share of that. I don’t know what the real, the bottom line, the 3.4 whether it’s all set SPEAKER CHANGED: Senator Raymond respectfully I challenge the assertion that with somehow know that expansion of the sales tax in house bill 99.a in addition to the Amazon tax is going to come anywhere close to making these municipalities whole. so I would ask staff to provide us with that documentation because the charts and documentation I’ve gotten from staff calls the cities to continue to have a deficit and that is not my understanding
If it is a case based on the data, then I can support you on that. But right now we're pushing cities off of a cliff with no parachute or safe landing in 1516. So, what I was looking for as I read the summary, the PCF summary from ?? is to see if there was going to be some kind of soft landing. And as it is right now, based on the data that I have received, there is none. [SPEAKER CHANGES] Jim? Let me respond again. I do not disagree with the 16, because this isn't going to end unless we do something about it. But, I do disagree with 1415, because I think the 14 million in 1415 will probably make up the difference in the, outside those municipalities. But, no. I will agree with you on 16. [SPEAKER CHANGES] Thank you. I've got Senator Tart. [SPEAKER CHANGES] Yes, Thank you Mr. Chair. I guess the the question will be, was any consideration given, I know we're using proximate y verse going back to the gross revenue issue. If you think about this, in Cornelius in two years we illuminated business property tax. Took it down 50% and eliminated it, because it is one of the most arbitrary and cruel taxes to business and creates a very unfriendly business climate. However, in this situation with Cornelius being a suburb to Charlotte, do we not create an incentive where we have businesses that reside across the town/city limit that conduct 90% of their business and revenue in the city of Charlotte. Is that fair? And how do we not consider, or was there ever consideration given to using gross receipts, gross revenue and location much like a partnership is done? That you have to pay taxes based on where it is earned. [SPEAKER CHANGES] Are you talking about the peddlers?? license tax? [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Senator Raybon, you have a comment on that? [SPEAKER CHANGES] Yes, I think we're getting a little off base here Mr. Chairman because the question that we are actually looking at is are we going to. This tax has been repealed, ladies and gentlemen, and the question is are we going to extend it another year or are we not. And if we are going to extend it the position that we have come up with is we are going to do so. And if it is a local privilege tax then it's going to be a local privilege tax. [SPEAKER CHANGES] Senator Tart? [SPEAKER CHANGES] Just as an additional. The abuse of the system came about by the municipalities using the gross receipts tax. That was never intended to do so. It was done by a mission when this area was trying to be cleaned up. I think representative Howard and Senator Raybon on a number of other occasions, like 12 and 13 years, there's been an effort to try and clean this area up. That's why we're getting away from gross receipts tax completely. And in reality we should be getting away from the privilege license tax. If, indeed, it's designed to be a measurement or a registration of what business is actually operating in both the state of North Carolina and subsequently down to the level of the municipalities. And that's the intent of what we would love to see. Chairman? [SPEAKER CHANGES] I've got Senator Brock. [SPEAKER CHANGES] Thank you Mr. Chairman. Looking on page 28 for the tax law compliance issue. Looking at the compliance for ABC permits. One of the questions I have, on some of the permits is the actual time to go through the Department of Revenue. We've had our process through the ABC commission that it has taken too much time to go through ALE. I know that for special one time permits, I had a deal now sitting over in a house that actually checks the legal status for special one time permits. Right now, there is not any limitations to how many times you can get a special one time permits. The question I have proposed to the ABC commission a long time ago, how many times is one time? It's a loophole in our current statute right now to how many times we can issue a permit on ABC. I know this is the finance part of it, but I think we need to be aware that we have this loophole of who can slide in on an ABC permit. [SPEAKER CHANGES] Senator Brock, I've got Riley, or not Riley, Gregg, I'm sorry. [SPEAKER CHANGES] I'm not totally sure I understand your question. The ABC permit, I heard in the beginning, you're talking about timeliness. The Department of Revenue currently does these checks for like lottery. So, there hasn't been any complaints about the Department of Revenues speed, but they will check someones tax compliance. And to be in tax compliance, the tax has to actually be collectible. So that means you've gone through
the entire process of the tax and you've gone through all your procedures and you've come to the point where you have not paid the tax and it has finally been determined to be due and collectible. So there's no more appeals, no more nothing, the check is due and you have not signed it. So the department's function would be to simply take a list of people from ABC and just see if any of them have a finally collectible debt owed to the department just like they do for the Lottery Commission. [SPEAKER CHANGES] Mr Chairman to follow up to clarify the question or the statement: That's true but the exemption that we're getting here to do a special one-time permit, the permits listed on lines 43 through 46, that's the loophole. That's where they're getting through as far as the process because we have this exemption and by the time someone files a permit under ABC they can have the event before ALE is notifi ed to see if that person is legal, if they owe taxes, or any other issues. [SPEAKER CHANGES] Senator Brock [SPEAKER CHANGES] If I may help a little bit here, this was brought to us by the Department of Revenue because of the fact that the compliance of people paying their taxes is dismally poor. If they can add to this, Secretary Gray, and what it was trying to do is give them the abillity to collect monies. In my recollection it may have been in the 50 or 60% of failure to collect. Secretary Gray, would you like to clarify that a little further? [SPEAKER CHANGES] Those institutions.. sorry sir, it's been a while since I was here. Those institutions that administer adult beverages have to have an annual renewal from the ABC Commission. Some of them aren't collecting and remitting on the sales of those adult beverages. But we automatically renew their license to dispense the adult beverage without knowing whether or not they're current. This simply gives us the chance to say to Joe's Bar and Grill, "Joe, you sold that beer, you collected a sales tax, but you didn't send it in. You don't send it in, you don't get your license renewed." That's where we are. [SPEAKER CHANGES] Well said. [SPEAKER CHANGES] Senator Brock, it isn't dealing with the special events, it's the normal businesses that are there permanently operating that are not complying with paying the taxes, and that's what this provision tries to help the Department of Revenue actually collect the money that is owed and the permit is what hangs over the head of the operator. [SPEAKER CHANGES] ?? just to be clear on this, what was happening that Joe's Bar and Grill was getting a special one-time permit each and every weekend time and time and time again. That is the problem we're having is that by the time they file for the permit and due diligence is to see if the permit is valid, the event has already taken place. [SPEAKER CHANGES] OK, thank you. I've got Senator Stein. [SPEAKER CHANGES] Mr. Chairman, I have a question about mobile homes, ecigs and the city tax issue. On the city tax, we're offsetting this year a loss of $62 million, actually for next year, and then there is $14 million in new revenue. So 14 doesn't offset 62. What happened to the House's idea of having a $100 flat one, or better yet, a two tier where it was $100 for one size and $500 for another? I agree with the rationality of the current system where one business can have wholly different privilege taxes depending on what community they are in so I think bringing rationality to it makes sense but I don't think we can be indefferent to the potentially, well, actually, the severe consequences to certain municipalities. [SPEAKER CHANGES] Senator Raven. [SPEAKER CHANGES] Thank you. Senator Stein, we would like to have fixed this. We didn't realize until late in the interim that 160A had even been repealed and we could not come to common ground if you will with our friends in the House as to what we could agree with and how we would be in the time that we had allowed and so we said well,let's reinstate it and give ourselves time to come up with something that will be a little more palatable
MINONP [0:00:00.0] …The cities and that’s the long and short I think. [SPEAKER CHANGES] Well said Senator Rabin, it gives us between the end of session in January to come up with the plan that will allow us to move forward whether indeed a Local Privilege Tax is the best way to register businesses or not maybe a state level way would it be but that gives an opportunity to do so Senator Stein. [SPEAKER CHANGES] Okay, thank you and moving on to the E6 follow up, thank you. [SPEAKER CHANGES] I was pleased to see that the house change the definitions so that the tobacco products, what States have pass laws on it? Right now North Carolina has two ways of taxing tobacco, you either tax it as cigarettes or you tax it as other tobacco product. What States have dealt with this issue and how do they resolve whether to treat as cigarette or treat it as other tobacco product or do what is proposed in this bill create a new third category altogether? [SPEAKER CHANGES] Mr. Chairman that would be a question for staff. [SPEAKER CHANGES] Can I answer? The Senator Stein thank you, Senator Stein there is one other say that addressed issue no other state has to tax tobacco products and we have to admit that I can’t remember Michigan or Minnesota but there is one state and they have tax as an other tobacco product and they impose the tax that on wafer product is they imposed on all other tobacco products and then it’s 95% of the whole sale price. [SPEAKER CHANGES] Question for the bill sponsor? [SPEAKER CHANGES] Yes, sir thank you, Senator Rabin did you consider just treating it like other tobacco products just the way the other state that is dealt with this issue has and we already have two categories why we are creating a third is my question? [SPEAKER CHANGES] Okay. Well, we did not consider treating it as the other tobacco products and in time we may actually Senator Stein the industry came to us and requested that they be taxed on this product because currently they are not being taxed and it is a new product that hopefully will soon be manufactured in the State and the company as you may have been at the meeting came and requested to be taxed on this product. [SPEAKER CHANGES] I have the final question on mobile home issue. [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Just to make sure I understand the change that we made is gonna resolved if we accepted the house language. Now, that we are present to change it is that this is all gonna be the people with mobile homes have to pay higher tax under the Senate language versus they would have apparent to the house language. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Yes, sir. Senator Stein that is not part of our PCS but it was marginal homes and not mobile homes and there is a difference. The marginal homes and the thinking along those lines where there is about 50% of the price of that home actually on the State Bill parts of it. So, the normal bill home would be taxed on that and the marginal home would not but we have quite a lot to do yeah that will be another bill another day. [SPEAKER CHANGES] Follow up questions, follow up and there is maybe the staff, my understanding was that is manufactured marginal homes which is everyone is popularly… [SPEAKER CHANGES] Manufactured yes… [SPEAKER CHANGES] …Of what mobile home is, is that correct? [SPEAKER CHANGES] Yeah. [SPEAKER CHANGES] It’s the manufactured and marginal mobile home. [SPEAKER CHANGES] Okay and the question to staff. Now, that is already law from passing the bill last year. [SPEAKER CHANGES] Correct. [SPEAKER CHANGES] So, Senator Stein that law exists as the bill was passed last year, the tax policy it’s there. So, we haven’t changed anything that wasn’t passed in the previous session. Okay, I have Senator Tillman. [SPEAKER CHANGES] Thank you Mr. Chairman. As it gets way passed I have made emotion for annual report. However, if we have taxes off the books in previous legislation and we are talking about putting them back on and reinstating some taxes and so forth. We are waiting for tax and I feel that Josh would love that if we will do that. [SPEAKER CHANGES] Thank you Mr. Chairman. [SPEAKER CHANGES] Okay, Senator Rabin do you have the comment on the fiscal note? [SPEAKER CHANGES] I believe what I get it out, yes sir I do, thank you. [SPEAKER CHANGES] Do we have any other? [SPEAKER CHANGES] Yeah, it’s a zero. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Yes, Mr. Chairman for the record the… [SPEAKER CHANGES] It is now but they are talking about amendments so that’s for 14-15 is 0, 15, 16 is 0, 16, 17 off course $200,000. [0:04:59.9] [End of file…]
So this is not a tax increase as we see it. [Speaker Changes] No sir, Mr. Chairman just to follow up. No it's not an that's my point. We want to keep it that way. There are others here that've got things floating around they'd like to do to this bill so just a little, and I make a motion for favor report, take it or leave it. That's your call. [Speaker Changes] Okay members of the committee, Senator Tillman has put forward a motion to have a favor report for the PCS of the house bill ten fifty as amended, any further discussion. Senator Raven, any additional questions or comments we have a notion before us. Further discussion, Senator Hartsel. [Speaker Changes] [??] [Speaker Changes] Yeah, you got to talk louder because they can't hear what you said. [Speaker Changes] I have an amendment that I'd like to send forward relating to this admissions charge piece but it is not on the typical amendment form, I can just get transposed to a form. I'll just run it on the floor. [Speaker Changes] I was ganna say, would, why don't you run it on the floor and we'll handle it accordingly like that. Alright, I have a motion before us, no further discussion and the motion, yes sir, Senator Tucker. [Speaker Changes] [??] Who called me Colonel Sanders. Line up afterwords, I can take ya. Alright, I didn't mean to bring the comedy show but I guess when you dress like this, I mean this is Senator Mckissics suit. [Speaker Changes] Not my suit, not that quality. [Speaker Changes] In all seriousness, do we have any public comment that is ganna be made before the votes are. [Speaker Changes] We hadn't opened it up through that so at this point, no. Okay, we have a motion before us, all in favor of the motion that Senator Tillman presented regarding the approval of House Bill ten fifty as amended, please say I. I apologize, PCS of ten fifty as amended please say I. All opposed nay. I's have it. Okay, that means this meeting is adjourned. Thank you for being here in Ukendits.