A little-noticed provision in North Carolina’s Senate budget could drive bank traders out of Charlotte – along with their multimillion-dollar payrolls – a Mecklenburg County lawmaker warned Thursday.
And a spokesman for the state Bankers Association said it could raise taxes on all banks.
Republican Rep. Bill Brawley of Matthews, who co-chairs the House Finance Committee, told the panel that bankers have said they could even be forced to relocate trading operations to New York, where taxes would be lower.
“We would be incenting them, if you will, to occupy Wall Street,” Brawley said.
At issue is a Senate provision that would adopt “market-based sourcing” as a means to apportion taxes of multistate corporations. Simply put, it would mean that North Carolina as well as other states could tax income from certain transactions. Now taxes from such income are based on the location of the payer. The Senate would base them on the location of the trading operations.
Thirteen states use some form of the system, according to the American Institute of CPAs.
It’s part of a Senate plan to broaden the sales tax base to more services, including car repair, veterinary services and advertising.
House lawmakers heard details of the plan ahead of negotiations with the Senate, where the two sides will try to reconcile differences.
Nathan Batts, a senior vice president of the N.C. Bankers Association, said while Senate tax cuts would help businesses, other provisions would have “unanticipated consequences.”
“As the legislation is currently written,” he said, “there would be a substantial negative impact on some institutions.”
The market-based sourcing provision, he said, would amount to double taxation on income. Another part of the Senate bill would lower deductions banks can take on certain dividend income.
In comments to his committee, Brawley said the bill would affect employees at Charlotte’s major banks. Wells Fargo has hundreds of people in its trading division. Bank of America’s Corporate Investment Group has an overall annual payroll of $25 million a year.
Not only would local governments lose property taxes were they to move, he said, but nonprofits that have come to depend on their largesse also would be affected.
“I am certain people in the Senate did not do this intentionally to harm bankers,” he said later. “It’s exactly the opposite of what we want to happen.”
Sen. Bob Rucho, another Matthews Republican who heads the Senate Finance Committee, said the changes are consistent with expanding the state’s tax base. He said lawmakers are “working through” the issue. He said banks have benefited from lower corporate taxes in North Carolina over the last two years.
“We can work our way through it and still have everybody treated fairly,” he said.