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N.C. tax overhaul: Where it stands

Tax overhaul and the budget are the biggest remaining issues standing between North Carolina lawmakers and the end of the legislative session.

Lawmakers are trying to come to agreement on the tax issue first, because that will help determine how much money they’ll have in the budget. They’re trying to find a proposal acceptable to each chamber as well as GOP Gov. Pat McCrory.

Both plans stand in contrast to Sen. Bob Rucho’s proposal, which would have cut tax rates while expanding sales taxes to scores of services and creating a new business license tax.

Here’s where the issue stands.

House

• The House has passed a plan that would reduce three individual income tax brackets – including a 7.75 percent rate for the highest wage earners – to a single rate of 5.9 percent.

• The corporate income tax of 6.9 percent would gradually fall to 5.4 percent by 2018.

• In July 2014, the combined state and local sales tax in most counties would fall from 6.75 percent to 6.65 percent. The sales tax would expand to some services, including warranties and maintenance activities and car repairs.

• State revenue would drop by around $250 million over the next two years and $1 billion over four years.

Senate

• The plan, expected to get final approval this week, would lower the personal income tax rate to 5.4 percent in 2014 and to 5.25 percent in 2015. It creates a “zero bracket” under which low-income taxpayers would pay no income tax.

• The plan would cut the corporate income tax from 6.9 percent to 6 percent in 2014 and continues to reduce it until it’s eliminated in 2017.

• It expands the sales tax to purchases such as movies and entertainment. It also would end several exemptions to sales taxes, including for nutritional supplements sold by chiropractors and for newspapers sold from vending machines.

• State revenue would decline by $4 billion over the next four years.

The governor

• State Budget Director Art Pope recently sent some House lawmakers an alternative tax proposal that would gradually reduce state income taxes and expand the sales tax to dozens of additional services, such as car repairs and appliance installations. Aides say McCrory reviewed the proposal but has not endorsed it.

• Unlike the House and Senate plans, the proposal is revenue neutral, though the governor’s office suggests it could add state tax dollars. The Associated Press, the (Raleigh) News & Observer and WRAL TV contributed.

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