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The Future of Tax Reform in NC > A Story of Competitive Growth

| Tax Policy & Competitiveness

Over the past several weeks, we took a couple deep-dive looks at the first two chapters of North Carolina Illustrated: A Visual Guide to Tax Reform. You were reminded of a time when North Carolina’s business tax climate ranked among the bottom ten states in overall competitiveness by the Tax Foundation, before leaping forward to see how the major tax overhauls that began in 2013 catapulted our competitive tax climate all the way to 14th in the standings. At the NC Chamber we’re focused on keeping North Carolina continually moving up the leaderboard, however. So this week I want to give you the scoop on the final chapter. It’s a look ahead at the steps we can take to make our state tax climate even more competitive in 2016 and beyond.

Generally, the third chapter of North Carolina Illustrated encourages North Carolina’s leaders to continue working to broaden bases and lower rates if we want to keep moving toward a more neutral and simple – and competitive – state tax code. The final recommendation offered by the report is perhaps the most important for businesses. North Carolina is among just a handful of states to levy a capital stock tax – a low-rate tax, but one imposed directly on business capital. We call ours the “franchise tax,” and it’s levied at a rate of 0.15 percent, with no limit on the maximum payment. As such, the franchise tax directly threatens healthy capital formation for businesses already located in North Carolina, while serving as a potential deterrent for companies looking to relocate here.

The final chapter of North Carolina Illustrated makes a strong case that if North Carolina’s leaders can mitigate – or better, eliminate – this growth-busting tax on businesses, our state’s already attractive business tax climate will be even better positioned among our toughest competitors. While fewer than 20 states levy such a tax, many of them include regional competitors like Tennessee, South Carolina and Georgia. Other states, however, including Missouri, New York and Pennsylvania, have begun to phase out their capital stock taxes. That’s why, in order to remain ahead of our competition and ensure we continue providing employers with a healthy business tax climate at the state level, the NC Chamber will fight to simplify and reduce the franchise tax as a key priority in our 2016 JOBS Agenda.

North Carolina’s competitive tax climate is expected to rise again (to 13th overall) in the Tax Foundation’s rankings once the reforms secured during the past few legislative sessions are fully phased in. As the NC Chamber prepares to lead another charge for targeted, commonsense tax reform and modernization in 2016, we’ll keep you updated on the steps North Carolina continues to take to make its tax climate even more competitive in the global race for jobs.

Gary J. Salamido
Vice President, Government Affairs
North Carolina Chamber