By now, you have likely heard about the promising state revenue forecast released by the N.C. General Assembly’s Fiscal Research Division and the Office of State Budget and Management, projecting that North Carolina will collect $4.1 billion more in tax revenue than previously predicted for Fiscal Year 2020-21. This was welcome news indeed, and a positive sign that the willingness of state leaders to embrace fiscal responsibility and competitive tax reforms – approaches we have long supported at the NC Chamber – will enable North Carolina to emerge from the COVID-19 pandemic well-positioned to continue growing our economy.
Though North Carolina recently cracked the top ten in the Tax Foundation’s 2021 State Business Tax Climate Index, we have work to do if we aim to become the most competitive state in the Southeast. This is why advancing tax reforms will continue to be a major focus for the NC Chamber in 2021 – and we want your input on the issues that matter to you. Please share your feedback on the tax priorities that are top-of-mind for your business by contacting Mark Coggins, director of government affairs at the NC Chamber and our lead advocate on tax policy.
One item looming large on our tax agenda is the issue of Paycheck Protection Program (PPP) loan deductibility. Federal leaders have passed PPP-deductibility as part of the CARES Act, enabling businesses to deduct expenses paid for with the proceeds of forgiven PPP loans when filing federal income taxes. Leaders in the N.C. General Assembly have introduced several bills that would bring our state into alignment with these measures and allow North Carolina job creators to deduct PPP-related expenses when calculating state income taxes. One of these bills, Senate Bill 104, would enact these measures starting with the 2020 taxable year, while another, Senate Bill 112, would apply to the 2020 taxable year only. The NC Chamber’s advocacy team is working through these bills to determine their impacts on our members, and any positions we take will be reported in our weekly This Week at the Capital e-newsletter. In the meantime, we are especially interested to hear how this issue is impacting you, so please reach out to Mark with your input.
The Chamber is also looking hard at pathways to cap, reduce, simplify, and ultimately eliminate our state franchise tax over the next five years. This regressive tax, which applies to a business’s net worth, is essentially a double tax on North Carolina job creators because it is levied in addition to the state corporate income tax. Many states with both corporate income and franchise taxes allow businesses to pay one or the other, but North Carolina is among the states requiring businesses to pay both. This creates the potential for duplicative taxation, while our state’s overly complex formula for calculating the franchise tax raises administrative burdens for many North Carolina businesses. Further, because the franchise tax is levied even on businesses that post losses, it is especially burdensome for new businesses looking to grow their footprint in North Carolina and those struggling to break even.
Another issue high on our tax priority list involves our engagement with state leaders to seek a resolution to the N.C. Department of Revenue’s (NCDOR) retroactive audit and disallowance activity surrounding the Renewable Energy Tax Credit (RETC) program. As we’ve reported previously, this important incentive program expired in 2016, but not before spurring our state to become a national leader in solar energy development. NCDOR’s actions are causing harm far beyond the RETC program, however, as the disallowance of credits promised to renewable energy investors has reportedly damaged investor confidence in North Carolina’s overall incentive climate. The NC Chamber and NC Chamber Legal Institute have engaged on multiple fronts to seek a resolution to this issue. You can learn more about our engagement in this recent story from S&P Global Market Intelligence, which features an interview with Ray Starling, who serves as general counsel at the NC Chamber and president of the NC Chamber Legal Institute.
We look forward to working on your behalf in 2021 to strengthen and protect our state’s competitive tax climate. If you have specific questions about the NC Chamber’s tax priorities, please contact Mark Coggins at the email address above.