Tax and Fee Changes NC Budget

Personal Income Tax The income tax rate drops from 5.75 percent to percent, effective in the 2017 tax year. The standard deduction, the amount of income taxpayers who do not itemize deductions can shield from taxation, goes from $15,000 to $15,500 for married couples and $7,500 to $7,750 for singles as of next year.

Medical Expenses for Senior Citizens Tax break for seniors and others who have high medical expenses. A tax deduction for medical expenses had been eliminated as part of earlier tax changes, and legislators heard lots of complaints when seniors did their taxes this year and learned they’d owe thousands more.

Impact The changes will cost the state $117.3 million in the current fiscal year, rising to $719.8 million in FY

Sales Tax The sales tax* will be applied to the installation, maintenance or repair of objects that are subject to sales tax when they are sold, starting March 1. *The North Carolina (NC) state sales tax rate is currently 4.75%. Depending on local municipalities, the total tax rate can be as high as 7.25%. County and local taxes in most areas bring the sales tax rate to 6.75% – 7% in most counties but some can be as high as 8 or 8.25%.

Impact The state will gain $44.5 million in revenue in the current fiscal year, rising to $159.5 million in FY

Examples of Services that will be Taxed Beginning March 1, 2016 Car repairs Oil changes Flooring installation Kitchen remodeling Appliance installation Service contracts on things like computers

Examples of Non-Taxed Services Home repairs where the contractor isn’t selling materials Advertising Veterinary services Pet care Lawn mowing

Historic Preservation The bill reinstates a tax credit given to people who renovate historic buildings, although the new credit is less generous than under previous state law. Impact. The state loses $8 million annually once the credit goes into effect next year.

Corporate Income Tax A 2013 law set up a schedule to cut the corporate income tax rate, then at 6.9 percent, each year until it reached 3 percent if the amount of state revenue from all sources met certain targets. The new budget bill ensures that the cuts go into effect. The rate is 5 percent this year, will be 4 percent next year and 3 percent in Corporations will change the way they calculate their income over a three-year period beginning Jan. 1, further reducing the amount of tax the state collects. The budget phases in a change to the way corporations are taxes, shifting the state to a "single sales factor" system. This type of change is particularly advantageous to manufacturers, who will pay based on how much they sell rather than how big their payroll is or how much equipment they own and use.

Impact The state loses $117 million in the current fiscal year, $372.4 million in , rising to $627.3 million in FY

Projected Savings from Income Tax Cuts According to the legislature’s nonpartisan research staff, here’s how much the average taxpayer – based on annual income level – will save as a result of the personal income tax cuts in this year’s state budget: Less than $14,000: $6 savings, or 12.1 percent of total income tax burden $13,000-$29,999: $50 savings, or 9.3 percent of total income tax burden $30,000-$50,999: $100 savings, or 6.9 percent of total income tax burden $51,000-$94,999: $169 savings, or 5.9 percent of total income tax burden More than $94,999: $476 savings, or 4.7 percent of total income tax burden Average across income brackets: $161 savings, or 5.3 percent of total income tax

DMV Fees The renewal fee for the standard driver’s license, paid every eight years, rises from $32 to $40, effective Jan. 1. Most other license, registration and title fees go up by about 30 percent, also as of Jan. 1. Examples include the annual car registration fee, which goes from $51 to $66, and an application for a new car title, which rises from $40 to $52.

Impact The state gets an additional $91.3 million in the current fiscal year and $217 million more in FY

Municipal Vehicle Fee Cities and towns can increase the annual tax on vehicles from $5 to as much as $30 as of July 1 next year. Impact. None to the state.

Miscellaneous Fee Changes Parents of newborn babies would pay more for a required screening. That fee will increase from $19 to $24 starting Oct. 1. Community college tuition will increase from $72 to $76 per credit hour for residents and from $264 to $268 for non-residents, starting in the spring semester. Other fee changes will apply to food retailer inspections, landfill permits, insurance regulations, the state Boxing Commission and other areas.

What does this mean to us? The net effect is a budget that will collect $74.7 million less in the $308.9 million less in the $603.9 million less in Conservative backers of the budget laud the overall tax cut and say the shift toward sales taxes will help lure businesses and stabilize the state's revenue streams. However, simple logic says that, with across the board income tax cuts and increases in sales taxes and fees, middle-income and poor residents will end up paying more in sales taxes and fees than they will benefit from the income tax cuts.