Carolinas HealthCare System and the N.C. Hospital Association have withdrawn from the North Carolina Chamber over the business groups support of a bill that would cap sales tax refunds for nonprofits.
The falling-out is over House Bill 998, which would phase out the corporate income tax and reduce the state personal income tax rate but also create a cap on state and local sales tax refunds to nonprofits. The bill won Senate approval last week and now awaits action in the House.
Charlotte-based CHS, a public, nonprofit system that operates about 40 hospitals, said in a statement that the bill would have cost it $45 million in refunds last year. It added that such a financial hit would have a devastating impact on CHS.
Given the difference of opinion between us and the chamber on this important policy matter, we felt it best to end the relationship between our two organizations, CHS said.
N.C. Chamber officials did not respond to requests for comment.
The N.C. Hospital Association also on Monday cited the negative financial impact it fears the bill would have on nonprofit hospitals. Association spokeswoman Stephanie Strickland, in an email, said taking sales tax refunds from nonprofit hospitals will cost them nearly $220 million a year.
No cap is acceptable, she wrote. Rural hospitals have stated that taxing larger hospitals will harm them both directly and indirectly and in both the short and long terms.
When the House bill was introduced, it had no cap on refunds to nonprofits. But in June, the Senate unveiled a compromise tax overhaul proposal with the caps. Senate President Pro Tem Phil Berger, a Republican from Eden, backed the sweeping compromise plan, saying it would make the state more attractive to businesses.
Chamber: Simpler and fair
The N.C. Chamber hailed the new version. On June 12, Lew Ebert, president of the chamber, testified before lawmakers in support of it. In a statement at the time, the chamber said the new version would position our state to be a leading job creator in the South and create a simpler and fair system that taxpayers can understand and employers can easily comply.
Under the version of the bill that now heads to the House, nonprofits would face an annual cap of $7.5 million for state sales tax refunds and $3 million for local sales tax refunds starting in July 2014. Three years later, the amount would fall to $2 million for state sales tax refunds and $850,000 for local sales tax refunds.
Charlotte Chamber of Commerce President Bob Morgan, in a statement Monday, said his organization supports the concept of tax reform. But we do not agree with any provisions that disproportionately and negatively impact the largest employers in our region, our hospitals. We shared this concern with the Mecklenburg County legislative delegation as the Senate began considering the House bill.
In a statement issued Monday, Amy Auth, spokeswoman for Berger, said a cap of $2.85 million would allow nearly every nonprofit, including rural hospitals and most colleges and universities, to receive a full refund of their sales taxes. A nonprofit would have to spend more than $42.5 million on sales tax-eligible purchases to reach the $2.85 million refund cap, she wrote.
True nonprofit organizations that the refund was designed to help churches, Boy and Girl Scout troops and local charitable organizations would still benefit from this exemption, she wrote. But big businesses, such as large hospital systems that pay their executives millions of dollars and accumulate large profits while claiming non-profit status to avoid paying taxes, would have to start paying their fair share toward the state services they use.
The state is more than fair to its hospitals. Staff Writer Ames Alexander contributed.