The North Carolina Senate unveiled its version of the state budget on Monday, June 21. By the end of the week, SB 105 received the floor votes necessary to send it the House.
The two-year spending plan allocates $25.7 billion in 2021-22 and $26.6 billion in 2022-23. The bill also includes and expands upon tax cuts previously approved by the Senate in their rewrite of HB 334.
Major tax provisions of the Appropriations Act would:
- Reduce the personal income tax rate from 5.25% to 3.99% by 2026, starting with 4.99% in 2022.
- Increase the child tax deduction by $500 per child and expand eligibility for the deduction.
- Increase the personal income tax standard deduction for all filers to match the 2022 federal standard deduction
- Phase out the corporate income tax over five years, beginning in TY24.
- Simplify the franchise tax by eliminating the two property tax calculation requirements and basing the tax solely on the net income calculation.
- Create a SALT cap workaround for pass-through entities.
- Provide a separate net operating loss calculation for individual taxpayers.
SB 105 contains Internal Revenue Code conformity provisions and other tax law changes, including two NCACPA policy priorities:
- Creating a graduated late tax payment penalty.
- Correcting an unintended consequence of decoupling from the CARES Act by allowing a taxpayer to fully deduct over five years the applicable amount of business interest expense under Section 163(j).
The Senate’s proposed Job Opportunity and Business Saving (JOBS) Grant Program is part of the budget as well. The program would spend up to $1 billion of federal funds to award grants to North Carolina businesses that previously received pandemic assistance from state or federal programs such as PPP loans, EIDL advances, and others. Grants would be distributed automatically and calculated at a rate of 7.5% of the first $250,000 of assistance received from each program. The maximum grant a qualifying business could receive per assistance program would be $18,750.
The JOBS Grant proposal stands in stark contrast to measures previously approved by the House to allow PPP expense deductibility and conform to the federal exclusion for the first $10,200 of 2020 unemployment compensation. Neither of those proposals were incorporated into Senate’s plan.
The House is expected to complete its budget proposal in July. The two chambers will then appoint a conference committee to hash out a compromise to send to Governor Cooper for his signature or veto. Legislative leaders hope to have the entire process wrapped up by mid-August.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.