JUNE 22, 2001

House turns over rocks
looking for more tax revenue

Like a person turning over the couch cushions looking for spare change, the House is looking in some obscure corners for any bit of extra revenue for next year’s cash-strapped budget. This week the chamber approved two bills to increase tax collections – one that will require more small business owners to pay state taxes monthly instead of quarterly and another that beefs up the state Department of Revenue’s power to collect past-due taxes and empowers it to go after tax deadbeats.

How much good that will do should be known Monday when the House unveils its version of the state budget for the year beginning July 1. The chamber doesn’t like the Senate’s package of loophole closings and the deep cuts imposed on health and human services, so it must come up with a balanced-budget alternative.

The House gave third-reading approval Thursday to H. 232 Budget Revenue Provisions – 2001, a catchall revenue bill that will bring in an extra $117 million next fiscal year by accelerating tax and fee payments to the state. The bill hit the floor a day after it came up unexpectedly in House Finance, which took a pending insurance and utility rate-setting bill and added provisions that will require many more small businesses to remit state sales and income taxes monthly instead of quarterly. The committee’s 25-5 vote to approve the measure showed it had bipartisan support. Eight of 13 Republicans on House Finance voted in favor if it.

By requiring many more businesses to remit their sales, income and employee withholdings on a monthly, instead of quarterly, basis, the state will collect month in June 2002 that otherwise wouldn’t have been paid until a month later, thereby giving the state 13 months of revenue over the coming year -- an extra $66.1 million -- but only 11 months in the following fiscal year. It’s essentially the same accounting-gimmick maneuver the Senate included in its budget (see June 1 Bulletin, page 1).


Also on Thursday, the House gave final approval to S. 353 DOR Debt Collection Changes {Kerr}, a Senate-passed bill that imposes a 20 percent fee on delinquent taxes and allows the Department of Revenue to hire private agencies to help it collect some of $370 million in overdue state taxes. The vote was 77-33, with opposition led by Minority Leader Leo Daughtry, after extensive debate over the idea of allowing the private agencies to collect debts from North Carolina residents and businesses. The state now uses collection agencies to go after delinquent taxes owned by out-of-state entities. Rep. Harold Brubaker (R-Randolph) said he favored the get-tough approach. Other members said they didn’t like the possibility of hounding some citizens who have legitimate reasons for falling behind on their taxes.

S. 353, which is supported by Revenue Secretary Norris Tolson, would add the 20 percent collection fee, which Revenue would get to keep, on top of the 8 percent interest and 10 percent penalty already applied to overdue tax debts. The money would go toward hiring as many as 100 additional collectors and field auditors. Tolson estimated the agency could collect $150 million of the $370 million in delinquent taxes over the next two years.
 
H. 232 amends the law to require employers who withhold an average of less than $100 (was, $500) of state income taxes each month to remit withheld taxes on a quarterly basis. It requires an employer who withholds an average of less than $100 (was, $500) but less than $2,000 from wages each month to file remit withheld taxes on a monthly basis.

As originally written, H. 232 was the insurance regulatory fee bill. It sets the insurance regulatory charge at 6.5 percent for 2001 and sets the public utility regulatory fee at 0.11 percent for each utility’s North Carolina jurisdictional revenues earned on or after July 1, 2001. It sets the electric membership corporation regulatory fee for fiscal 2001-02 at $200,000.

House leaders say the provisions they added to the bill -- lowering the threshold for monthly vs. quarterly payments -- isn’t a tax increase and won’t be burdensome for the many small businesses that will be affected. One sponsor said most companies pay monthly utility bills, now they’ll just have to make a monthly state tax payment.

H. 232 would also require businesses to pay their sales taxes to the state twice a month instead of monthly -- if their monthly sales tax collections amount to $10,000 or more. The current threshold is $20,000. That provision would bring in an estimated $10 million. Utilities including electricity, phone and gas companies would also be required to make semi-monthly sales, franchise and excise payments to the state instead of making them monthly. That change would bring in an estimated $31.5 million. Other efforts to accelerate tax payments would bring in an additional $12.6 million.

The bill includes a decrease in some taxes. Changes in the state's tax code to mirror changes in federal law would result in a net $3.4 million decrease in revenue to the state.

The House needs all the revenue it can get to avoid the deep cuts in health and human services programs, which the Senate did, including closing Dorothea Dix Hospital and two schools for the deaf. The House budget also is expected to include $6.4 million for the first stage of Gov. Mike Easley's "More at Four” pre-kindergarten program, which the Senate did not fund. The House also is expected to make bigger cuts to the UNC System than the Senate did, including taking control of as much as $100 million a year the university system receives in overhead expenses for research grants.