RALEIGH, N.C.- House and Senate Democrats are close to a deal on how to generate $1 billion in new taxes this year in North Carolina.

Leaders in both chambers said Tuesday a tentative agreement on how to raise the revenues could come very soon. Finding such a deal has been the key obstacle to passage of a permanent budget three weeks after the new fiscal year began.

House Speaker Joe Hackney said the chamber’s Democrats were meeting Tuesday afternoon to discuss the offer.

Senate tax negotiator David Hoyle said his side has offered sales and income tax increases as well as higher excise taxes on cigarettes and alcohol. Hoyle said the Senate withdrew its effort to overhaul the tax system and expand greatly the number of services subject to the sales tax.

Winston-Salem Journal Editorial

Fool me once, shame on you.

Fool me five times …

Gov. Bev Perdue and legislative leaders must think that North Carolinians have short memories when it comes to taxes. That’s not a smart assumption.

From the look of things in Raleigh, the General Assembly is likely to approve about a billion dollars in tax increases this month, all to help fill the $4 billion-plus budget hole created by the recession. As if new taxes in hard times aren’t hard enough to handle – even when they are necessary – Perdue and other state leaders are insulting taxpayers by calling some of the increases “temporary.”

In 2001, North Carolina faced a budget hole. Newly elected Gov. Mike Easley and legislative leaders promised that the sales and high-income tax increases they passed would be temporary. But each year, when it came time for those “temporary taxes” to expire, they would be extended, and the promise to let them die soon would be renewed.

At one point, some of the taxes were allowed to expire, but at least one quarter of one percent of sales tax became permanent. We still pay it today.

There’s no reason for taxpayers to think anything will be different when these latest so-called temporary taxes are set to expire. There’s no evidence the economy will come roaring back to life and that state revenues will balloon. To the contrary, it looks as if slow economic times are ahead for quite a time.
There’s a better way to raise the revenue North Carolina needs to educate our children and provide essential services. The governor and the legislature can follow the lead of senators who are saying that the sales tax should be expanded to cover more of the modern economy – mostly services.

With a broader sales-tax base, these senators propose to actually cut the overall sales-tax rate. That would mean that North Carolinians might pay a sales tax on a ballgame ticket, but they would pay less tax when they bought clothes for their children.

The Senate approach is the right one for a 21st-century economy. The current sales tax does not cover the broad range of consumer economic activity and is therefore a less reliable tax when the economy goes into a dive, as it has. By broadening the tax and lowering rates, legislators would make the tax structure more predictable during good times and bad.

And if revenues were more reliable, political leaders could drop all the talk about temporary tax increases. The public knows not to rely on such promises.

RALEIGH, N.C.  – The decade-long effort to overhaul North Carolina’s tax system finally has some legs this year, but will they weaken if a budget stalemate drags on?

Taxes are the central debate that delayed passage of the state’s $18 billion-plus budget before the new fiscal year began. House and Senate Democrats are at odds over how many additional services should be covered by the sales tax, and whether tax rates should go up or down.

“We’re back to philosophical differences,” said Sen. David Hoyle, D-Gaston, one of the chief tax negotiators, after a week of closed-door bargaining found little common ground.

It’s unclear whether those legs have enough muscle to withstand complaints from interest groups whose customers would be singled out to pay more taxes. Republicans won’t go along with any plan because they say raising taxes is the wrong message from Democrats who seek $1 billion more this year to help narrow a wide budget gap.

And while House Democrats and Democratic Gov. Beverly Perdue agree with the concept of tax reform, they say the Senate’s package is too much change too quickly. They suggested putting it off for a year or two.

An impatient Perdue said last week she’ll take most any kind of tax plan after the worst year-to-year revenue decline since at least 1970.

“At the end of the day, you’ve got to have the revenue,” Perdue said. “To sit here for three or four weeks, or another month or however long it’s going to be, is not the right solution.”

The tax debate follows years of meetings by state panels examining how to tap into an economy that has moved increasingly away from traditional manufacturing to service industries. Exempting fewer services from the sales tax base means greater potential for more revenues from more services without placing an increasing burden on any one group.

Business leaders and elder statesmen on both sides of North Carolina politics – particularly former Gov. Jim Hunt and ex-Charlotte Mayor Richard Vinroot – have urged changes that would broaden the base while lowering high corporate and individual income tax rates that are the highest in the Southeast.

Senate finance leaders unveiled a proposal in April that remains largely intact on the bargaining table.

It would increase the number of services subject to the sales tax from 30 to about 80 – adding building repairs, property maintenance, all sorts of spectator events and even storage units. North Carolina would rise from the bottom third of the states in the number of covered services to the top 10, according to the N.C. Budget and Tax Center.

The sales tax rate most consumers pay would be reduced from 6.75 percent to 6.25 percent, while individual and corporate income tax rates also would fall as loopholes and deductions are closed and tax returns simplified.

The House plan eliminates sales tax exemptions like the Senate does to warranties, repairs and installations and more online purchases. But other changes are less dramatic. The plan als raises the sales tax to 7 percent and creates new tax rates for the highest wage earners – a provision on which House liberals seem unbending to change.

“The House package has more balance in it,” said Rep. Jennifer Weiss, D-Wake, a key House negotiator.

Senators are nearly as resolute on opposing higher tax rate. They say their plan still will collect more tax revenues from North Carolina’s wealthiest citizens.

“Raising (rates) even higher is something I feel should not be done,” said Senate leader Marc Basnight, D-Dare.

House Democrats are concerned the Senate plan has only had one public hearing and argue up to 50,000 businesses and entities now would have to collect sales taxes for the first time.

North Carolina’s golf industry has urged lawmakers to keep green fees exempt from the sales tax, saying the Senate’s provision could reduce the 70,000 jobs in the state’s golf industry by discouraging play.

“The bulk of our business is the blue collar worker,” said Del Ratcliffe, president of the North Carolina Golf Course Owners Association and whose company operates five public golf courses in Charlotte. With the bad economy, he added, “we’re seeing a definite decrease in the amount of golf” played.

Hoyle said the extra tax would cost on average the price of high-end golf ball per 18 holes – joking that one less shot into a water hazard would make up the difference.

RALEIGH, N.C.  – Amazon.com has pulled the plug on commissions for North Carolina Web sites that make referrals to the online retailer because a new tax could soon be enacted.

Seattle-based Amazon said it wrote to Web site operators, telling them the commission program will end after Friday.

Web sites that post links to the company about its products have received up to a 15 percent cut on sales.

But the Legislature is considering a way to collect sales taxes on these so-called “click-through” transactions. Amazon spokeswoman Patty Smith said the company believes the tax collection would be unconstitutional and decided to end the commissions because the change in the law could occur any day now.

House and Senate negotiators are still working on a final tax plan.

RALEIGH, N.C.  – North Carolina’s tax office finally has good news from lawmakers after a year of dwindling tax collections.

A key House lawmaker said Wednesday the Department of Revenue told colleagues it can generate an additional $150 million in revenues next year beyond what it had previously expected.

Rep. Jim Crawford of Granville County said the extra money gives budget-writers breathing room to put together a final spending plan for the next two years. The money could help prevent some expected cuts in education and health care.

It’s not immediately clear how the department would collect the additional revenue.

The state is dealing with what Democrats call a budget gap of more than $4 billion. Republican say the gap is much smaller.

RALEIGH, N.C.  – North Carolina legislators stung by the last-minute loss of a Miley Cyrus movie took the first step toward sweetening the state’s tax incentives to attract film and television productions.

The state Senate’s Finance Committee on Wednesday approved legislation to raise the income tax break for production companies from 15 percent to 25 percent. The measure now moves to the full Senate as lawmakers are in late-stage talks on cutting spending and raising taxes to produce a balanced budget for the year beginning in July.

Republican opponents of the expanded tax break said the timing is wrong since teachers will be laid off and other important services cut. Supporters said it will attract new productions and create jobs.

WINSTON-SALEM, N.C.  – Hundreds of workers from North Carolina cigarette factories owned by Reynolds American Inc. plan to protest the possibility of higher cigarette taxes.

The Winston-Salem-based company is paying to send busloads of employees to the General Assembly in Raleigh on Tuesday. Spokeswoman Maura Payne said the second-largest U.S. tobacco company is paying its employees as if they were at work.

The company is trying to prevent lawmakers from raising the state’s excise tax on cigarettes to help close a spending gap of more than $4 billion.

Gov. Beverly Perdue proposed increasing the tax by $1 per pack. House and Senate budget plans didn’t include that proposal. Congress this year raised the federal cigarette tax by 62 cents a pack.

RALEIGH, N.C.  – The proposed tax package approved Tuesday by the House Finance Committee, with details on changes and a breakdown of the $784 million in additional revenues expected to be generated for the 2009-10 fiscal year:

- create new individual income tax brackets of 8.25 percent and 8.5 percent for highest wage earners, compared to the current 7.75 percent: $256.7 million.

- require multistate businesses to file income tax returns designed to ensure in-state profits placed in out-of-state subsidiaries are taxed: $18.5 million.

- raise sales tax that most consumers pay in nearly all counties from 6.75 percent to 7 percent: $195 million.

- apply sales tax to cover warranties, installation and repairs: $176.2 million.

- apply sales tax to local and interstate courier services that deliver parcels: $25 million.

- apply sales tax to music, movies, books and other items purchased and distributed on the Internet, as well as transactions involving other Internet sales: $13.2 million.

- convert 1 percent franchise tax on movies and 3 percent on athletic events and other amusements to the full sales tax: $23.6 million.

- require limited liability businesses to pay corporate franchise tax: $59 million.

- change corporate income tax rules involving sales of property and interest expense deductions for banks: $8.5 million.

- increase liquor tax by 1.5 percent: $8 million.

RALEIGH, N.C.  – The House will consider a nearly $18 billion budget proposal for North Carolina state government next year that would grow if a $940 million tax plan is also approved.

The chamber’s two largest committees are expected Tuesday to consider the spending bill for the next two years and a separate tax package that would increase sales and income tax rates and taxes on cigarettes and alcohol.

Rep. Paul Luebke of Durham County is the chief architect of the tax package. He said additional revenues would target cuts in education and health care that lawmakers and advocates consider the most onerous.

House Democrats are in the majority and want a budget approved by the end of the week. Republicans say they won’t support higher taxes.