HOUSE REVENUE PACKAGE SUMMARY

HB 1588

6/10/2009

Individual Income Tax –Effective for taxable years beginning on after January 1, 2009

Revenue Impact $256.7 million

Income tax rate increase to 8.25 percent for couples earning more than $200,000 and up to $500,000.

Income tax rate increase to 8.5 percent for couples earning more than $500,000.

Single Income Tax Return for Unitary Business- Effective beginning on or after January 1, 2010

Revenue Impact $18 million

Bill requires unitary businesses to file a single income tax return that includes the state net income of the unitary business group.

Franchise Tax on LLCs- Effective beginning on or after January 1, 2010

Revenue Impact $59 million

The bill would make the franchise tax applicable to all business entities.

Throwback Rule- Effective beginning on or after January 1, 2010

Revenue Impact $5.9 million

Amends the State’s corporate income tax so that sales of property shipped by a corporation from North Carolina to the federal government or to a purchaser located in a state that cannot tax the corporation would be included in calculating the corporation’s North Carolina income for tax purposes.

Change Bank Interest Deduction- Effective beginning on or after January 1, 2010

Revenue Impact $2.6 million

The bill reverses a corporate income tax interpretation allowing corporations engaged in banking business to deduct interest expenses incurred in producing tax-exempt interest income.

Sales Tax-Warranties, Installations and Repairs; Local and Interstate Courier Services; Digital Products and Click-Throughs- Effective October 1, 2009

Revenue Impact (Digital/Click-Throughs $13.2 million) (Amusements/Movies $23.6 million) (Warranties, Installations, Repairs $176.2 million) and (Local and Interstate Courier Services $25 million)

This legislation would also impose state and local sales and use tax on service contracts and on repairs, maintenance and installation services for tangible personal property effective October 1, 2009 and would permanently impose sales and use tax on local and interstate courier services (DHL, FedEx, UPS etc).

Movies and other amusements in lieu of the privilege tax (exemptions include: events at elementary or secondary school, entertainment activity produced for benefit of religious, charitable, benevolent or educational purposes, youth athletic contest with an admissions price under $10.00 (participants under age 20), choral or theatrical performance, recreational or entertainment activity for teenagers and farm-related entertainment.) Also, includes digital products and remote sellers with gross receipts of at least $10,000.

Increase General Sales and Use Tax Rate- Effective August 1, 2009 and October 1, 2009

Revenue Impact 1/4 – cent sales tax $195 million Tax Rate 7 percent = 4.75 percent state and 2.25 local. Reduce local sales tax to 2 percent and increase State Sales Tax to 5 percent on October 1, 2009 pursuant to the legislation on Medicaid with the State taking responsibility for local Medicaid funding.

The general rate of State Sales Tax does not apply to construction materials purchased to fulfill a lump-sum or unit-price contract entered into or awarded before the effective date of the increase or entered into or awarded pursuant to a bid made before the effective date of the increase when the construction materials would otherwise be subject to the increased rate of tax.

Alcoholic Beverage Taxes- Effective August 1, 2009

Revenue Impact $8 million

Increases the excise tax on liquor from 25 percent to 26.5 percent.

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