North Carolina Tax Simplification and Reduction Act

Jul 23, 2013 –  BURLINGTON, NC – Governor Pat McCrory signed into law today the North Carolina Tax Simplification and Reduction Act. Some of the highlights from the Act include the following tax provisions:
Personal Income Tax

  • Reduction to and simplification of the three-tiered state personal income tax (the current three-bracket rates of 6%, 7% and 7.75% will be replaced by one bracket with a 5.8% rate in 2014 and a 5.75% rate in 2015)
  • Elimination of personal exemptions
  • Increased standard deduction to $15,000 for married couples and $7,500 for singles
  • Elimination of the $50,000 business income deduction in 2014
  • Elimination of the $4,000 deduction for government retirement income and $2,000 deduction for private retirement income
  • Elimination of the deduction for severance wages
  • Continuation of the state child tax credit, with an increase in the credit to $125 for families making less than $40,000
  • Provision for a $20,000 combined maximum deduction for mortgage interest and property taxes
  • Protection of all Social Security income from state taxes
  • Elimination of  numerous tax credits:
    • Credit for charitable contributions of non-itemizers
    • Credit for child care
    • Credit for permanent and total disability
    • Credit for education expenses
    • Credit for property taxes on farm equipment

Corporate Income Tax

  • Reduction of the corporate income tax from 6.9% to 6% in 2014 and then to 5% in 2015
  • Further reduction of the corporate income tax to 4% in 2016 and 3% in 2017, if the state meets revenue targets
  • Extension of the research and development credit to January 1, 2016

Sales Tax

  • Expansion to include service contracts for warranty, repair, and maintenance of tangible personal property
  • Expansion to include “entertainment activities” such as tickets for movies, live performances, museums, and other amusements
  • Replaces 3% franchise tax with coverage under sales tax for electricity and piped natural gas
  • Eliminates preferential rates for sales of manufactured and modular homes
  • Eliminates the following exemptions effective January 1, 2014:
    • Meals sold at higher education facilities
    • Nutritional supplements sold by chiropractors
    • Repeals the back-to-school and Energy Star sales tax holidays, effective 2014.

Other highlights from the tax plan include:

  • Cap of the state gas tax at 37.5 cents per gallon through June 30, 2015,
  • Elimination of North Carolina’s death tax, and
  • Preservation of the sales tax refund for nonprofits.  

For more information on the tax reform provisions, contact the tax professionals at Gilliam Coble & Moser, L.L.P.