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Loophole-Closing Commission issues final report
 Gov. Mike Easley’s Efficiency and Loophole Closing Commission
voted not to recommend imposing higher taxes on repair and
renovation services, state retirees' pensions and smokeless
tobacco, but did agree that the General Assembly should raise
taxes on goods sold in vending machines, on interstate phone
calls, movies and satellite television.
Wrapping up its work last week, the commission advanced a
package of tax increases and loophole closings worth $177.9
million. The blue-ribbon panel also found government
efficiencies it said will save $141.6 million next year.
Whether the recommendations will be accepted by Easley and the
General Assembly remains to be seen. State Budget Officer
David McCoy said Easley and his staff will sift through the
commission’s report and decide which recommendations the
governor will forward to the legislature next week.
Business interests seemed relieved that the commission did not
recommend eliminating a number of tax preferences that had
been identified earlier.
Commission member Dan Gerlach, director of the N.C. Budget
& Tax Center, estimated that if the loophole closings are
fully phased in, individuals would pay 25 percent of the
additional taxes, or $55.9 million; businesses would pay 32
percent, or $70.5 million; and businesses and individuals
would together pay the remaining 43 percent, or $95.3 million.
The commission recommended
imposing a 6 percent tax on movies and live entertainment --
the same tax rate imposed on movie rentals. Similarly, the
panel recommended charging a 5 percent state tax on satellite
TV service, the same rate charged local tax cable operators
pay.
Most of the additional revenue by far would come from the
commission’s proposal to impose a 6 percent tax on all
interstate phone calls, which are not taxes now. Former Gov.
Bob Scott, a co-chair of the commission,
said the proposal would raise $90 million annually the
second year after it was imposed.
Tax
Law Changes Recommended by the Loophole-Closing Commission
- Repeal
the income tax credit on children’s health insurance.
Depending on income, the tax credit now is worth from $100
to $300. Additional revenue: $18.9 million.
- Conform
North Carolina law to federal statutes on treatment of
corporate subsidiary dividends. Additional revenue: $30
million.
- Charge
a 6 percent sales tax on fertilizers and seed. Only
farmers would be exempt from the levy. Additional revenue:
$5.3 million.
- Impose
a 1.9 percent gross premiums tax on HMOs, same as most
insurance companies pay. Additional revenue: $19.5
million.
- Make
limited liability companies subject to the franchise tax.
Additional revenue: $6 million.
- Impose
a 6 percent sales tax on movies and a 5 percent
sales tax on satellite TV service, to bring them in line
with the tax on their competitors. Additional revenue:
$20.7 million.
- Prohibit
companies from deducting as a business expense royalty
payments to an affiliated company. Additional revenue: $15
million.
- Impose
a 6 percent sales tax on all interstate long distance
phone calls. Additional revenue: $37.5 million the first
year, $90 million the second year.
- Set a uniform sales tax rate
of 6 percent on all items sold in vending machines.
Additional revenue: $2.5 million the first year, $6
million the second year.
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