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House | March 5, 2015 | Chamber | Finance Committee

Full MP3 Audio File

They we go. Ladies and gentlemen, your one minute warning. [SPEAKER CHANGES] It took you two minutes to give the one minute warning. [SPEAKER CHANGES] I know. [SPEAKER CHANGES] Now you got it on, turn it off. [SPEAKER CHANGES] Committee of Finance, Committee will come to order. Good morning, everyone. [SPEAKER CHANGES] Good morning. [SPEAKER CHANGES] I'd like to welcome you all here to the Finance Committee, like to introduce our Sergeant-at-Arms today. First, Reggie Sills. Marvin Lee, Terry McGraw, Chris McKraken, and staff we have here with us today is Heather Phenell, did I pronounce that right, C.D. Everitt and Trina Griffon. At the request of the bill's sponsor, House Bill 40 is being displaced, so we have before us House Bill 41, and the Chair recognizes Representative Brawley. [SPEAKER CHANGES] Thank you, Mr. Chairman. We have a PCS that was properly noticed, I'd like to move the PCS-B before us. [SPEAKER CHANGES] So noted, will you second? If not objected, PCS is properly before us. [SPEAKER CHANGES] Thank you, Mr. Chairman. The original bill on the revenue law's technical changes came out of revenue laws in 2014, there were two versions, a Senate and a House version. Both were hijacked for other purposes, in fact, the last iteration that was on the floor was House Bill 1224 which had a less than stellar reception, so these technical corrections were left over. Since then there were a few more minor corrections which were included in the technical corrections amendment that was included in your packet on Tuesday. The purpose of today's PCS was to roll the technical corrections amendment into the technical corrections bill. Staff has also discovered that there was one other problem that has been brought to us by the public staff of the General Assembly, or the public staff of the Utilities Commission, so we have a technical corrections amendment to the technical corrections PCS to the technical corrections bill, so we're gonna be technical today. I think Representative Hager was going to offer that, but in his absence I would like to put forth the Amendment ATD-6d1, and ask staff to explain that. We also have representatives of the public staff and the director here today for questions if necessary. [SPEAKER CHANGES] With the amendment before us, would staff please brief that? [SPEAKER CHANGES] Yes, thank you. The amendment should be at your desk, it does say Representative Hager, but Representative Brawley has agreed to run this. This is a change to section four of the bill, this is one of the new sections, it was not included last year. As you recall in 2013 the General Assembly passed 2013-316, which is commonly referred to as the Tax Reform Act, and in that bill the franchise tax on electricity and piped natural gas was repealed and it was replaced with a sales tax. However, that bill also did other tax changes, including lowering the corporate income tax rate. The bill directed the Utilities Commission to pass on the savings from the repeal of the franchise tax onto the rate payers. The commission did that in May of 2014, it also passed on the savings from the corporate income tax to rate payers. However, in October of 2014, the commission reverse its first order and allowed the utilities to retain the savings from the corporate income tax and not pass that onto rate payers. What this bill does is it clarifies that it was the intent of the General Assembly to pass through those savings and the taxes to the rate payers. So what the amendment does is it adds more language to that same statute to make it clearer that it was the intent of the General Assembly back in 2013 to make that change, that's the first change you see in lines 1 through 6. The second change lines 8 through 14 just adds language to clarify that the tax here that we're talking about goes back to tax year 2014. So that's the amendment and how it relates to section four of the PCS. [SPEAKER CHANGES] Any further discussion, further debate of the amendment? [SPEAKER CHANGES] Representative Collins. [SPEAKER CHANGES] I have a question for staff related to that. Does the second part of what she just explained mean that our rate payers are going to get some kind of retroactive reimbursement for what the Utilities Commission has allowed the utilities to withhold from them, basically contrary to our will for 2014? [SPEAKER CHANGES] Staff? [SPEAKER CHANGES] Yes, Representative Collins, I should note that all the electric public utilities except for Dominion, and all of the natural gas utilities are already passing on these savings. There's only one utility that's not doing this and that is Dominion, and if this were to be enacted, the commission would open a docket and they would refund the over collection from that. [SPEAKER CHANGES] Any further discussion, further questions?

The amendment is properly before us. All in favor say aye. All opposed. The amendment carries. Representative Brawley? [SPEAKER CHANGES] Thank you, mister chairman. At this point, I'd like for staff to explain the bill as amended. [SPEAKER CHANGES] Staff? [SPEAKER CHANGES] Thank you, mister chairman. Heather and I will tag team on this. As you know, from being in, in the general assembly, the revenue laws committee typically has a technical bill. This technical bill is from last year. It's one of the first times it hasn't actually been enacted, so many of these changes in this bill have some retroactive effective dates because they were seeking to clarify things that you did in the last biennium. Most of the sections in here are purely technical, deleting obsolete references, changing references, but Heather and I will note the few that are a little more involved. In section one, you will recall that last year you passed a bill that made changes in regards to retailer contractors. This section just makes it clear that the legislation is prospective only. Section two is also clarifying something that you did last year. If you recall, the golf tournament that was in Southern Pines and the occupancy tax statutes and their applicability to private residences. You passed a law pertaining to that. Section two just clarifies that it, it does only apply to private residences. [SPEAKER CHANGES] Section four is the section I discussed with the amendment. I won't add anything unless we have further questions. Section five is regarding the new tax on vapor products that becomes effective June 1, 2015 that was enacted by the general assembly last year. What this does is it makes it clear that manufacturers in North Carolina who are manufacturing vapor products can continue to collect the tax on vapor products they sell on the internet without being required to collect the tax on retail sales. Typically the retail sales tax is collected by the wholesaler or the retailer. So it relieves the manufacturer of that tax, but that tax will be collected. Section six clarifies when the credit for renewable energy property can be taken. The federal credit relies on the credit, just states that the property must be placed in service. The state credit states that the credit must be placed in service by the taxpayer, and this has created some confusion, so this conforms with current Department of Revenue practice, and it allows, whether the lessor or the lessee places it in service, the credit may be taken by the taxpayer. [SPEAKER CHANGES] Moving down to section 13, this has to do with the exemption for farmers, the sales tax exemption for farmers. As you recall in the tax reform legislation, there was an income requirement added, so that to be eligible for that exemption, a person had to have at least $10,000 of income from farming operations to qualify as a farmer for purposes of that sales tax exemption. Section 13 makes several clarifying changes. The first thing it does is to say that in determining whether or not that $10,000 threshold has been met, it will include sales plus all other amounts used to determine farm income. We realized when we looked at the federal farm that it's not, it's based on net sales instead of gross sales, so this just says it's based on gross sales plus any other income. So this in fact makes it easier to reach that income limit. Second, it clarifies that the exemption expires upon the earlier of a person ceasing to be involved in farming or when they fail to meet the income requirement for three consecutive years. It makes a similar change with your conditional exemption certificate for new farmers. It also provides for those new farmers who have a conditional exemption certificate, they are supposed to show, each year, their federal return, and right now it requires that they give that return within 90 days of when the tax year ended or by April 15. This just says that that would also include a time for extensions, make that clear. Third, it makes a change to it when it has to do with contractors, performance contractors. In the old sales tax laws, there was an exemption that if you built, if you were a performance contractor and you built a facility for a farmer, then the materials you bought were exempt. Now that we have the income limit, we learned that when contractors went to use that exemption, they couldn't. So what this does is to provide that whoever's building that building for the farmer isn't, may use the farmer's exemption number to buy the materials, and it also provides that for everybody who's paid sales tax in the meantime, there's a refund process put into place. We'll move to section 17. Last

...last year the legislature provided for the central assessment of mobile telecommunications property for property tax purposes. As you know, property is typically valued at the county level, but that property has become so involved that there was a policy decision made to move the assessment of that property to the state level through the property tax division. There was no intent in making that change to shift the value among the counties, and so what this does is that it provides that, once the department determines the value, it will allocate that value among the counties where the property is located. [SPEAKER CHANGES] Section 18 is regarding the privileges tax. Cities have been prohibited from imposing a privilege tax on utility related businesses. In last year that specific prohibition language was repealed. Repealing that prohibition doesn't mean that they can now impose the tax, but it has created some questions so this just simply restates that in a statute to make it crystal clear that they do not have the authority to impose the franchise or the privilege tax rather on utility related businesses. Section 19 is also related to the franchise tax on electricity, pipe natural gas as I discussed earlier. That was repealed in 2013. Part of that tax is distributed to local governments - to cities. When the tax is repealed it also repealed the authority to distribute the last quarter so this makes it clear that the department of revenue can use the new sales tax revenue, which was the tax that replaced, the franchise tax and make that final distribution to the cities. [SPEAKER CHANGES] They're two more sections we'll just go over briefly for you. That is Section 22. It repeals a reference to, it removes a reference to a repealed statute and in so doing clarifies that the income of a partnership that is apportionable to multiple states is allocated and apportioned in accordance with our apportionment formula, and I mention this to you because of the current statute refers to a ratio rather than the rules of apportionment and allocations so that has been corrected. The last section I'll go over with you is Section 24. This is a section that has been added in this PCS. It is a section that the Senate adopted, and the Senate Finance Committee to the companion bill Senate 19. The reason it was added to the bill was there was some time sensitivity that has to do with the tax treatment of payments received by airline employees from an airline company when it is in bankruptcy. The federal government provided that some of the roll over money that has been put into an IRA would not be subject to tax at the time it is put into that investment account. It would be taxed when it comes out of that investment account. By conforming to the code, through the IRC update which you all are doing, state law conforms to that. However, Congress acted late. Congress extended the Federal Statute of Limitations to allow taxpayers to amend their past returns, remove the money from gross income. This makes a similar change in North Carolina. It extends our Statute of Limitations to allow those few tax payers, we know of less than 5 - we only know of 1 or 2 - there's a very small number, to file amended returns so their income will be treated the same at the state level as it is at the federal level otherwise that income will be taxed twice at the state level: once when it's put into the account and again when it's removed. So this provision extends the Statute of Limitations for a brief period of time. Anyone who is effected by this would have to file request for refund by October 15th of this year. [SPEAKER CHANGES] Thank you for that very detailed information. Are there questions? [SPEAKER CHANGES] Representative Collins [SPEAKER CHANGES] I'd like to move for a motion at the appropriate time. [SPEAKER CHANGES] It would appear this is the appropriate time. [SPEAKER CHANGES] I move that we approve the proposed committee substitute to House Bill 41, unfavorable to the original. [SPEAKER CHANGES] As amended by Representative Hager correctly. [SPEAKER CHANGES] As ?? [SPEAKER CHANGES] ?? [SPEAKER CHANGES] The full report to PCS. This is a tough one. Why'd you have so many amendments. Roll into new PCS unfavorable to the original bill. [SPEAKER CHANGES] Which did it really? [SPEAKER CHANGES] All in favor say, Aye. [SPEAKER CHANGES] AYE [SPEAKER CHANGES] All opposed say, No. [SPEAKER CHANGES] Motion carries. All business being conducted. Committee is adjourned.