RALEIGH -- A movement to overhaul North Carolina's 1930s era tax structure picked up support Tuesday when a bipartisan group of business leaders backed a plan to lower corporate and personal income taxes, while requiring many personal services to be taxed for the first time.
The business leaders argued that North Carolina's tax structure hurts business growth, provides an unreliable source of revenue in bad times, and is often overly complicated and unfair.
"We in North Carolina have an outdated tax system," former Gov. Jim Hunt said at a news conference at a downtown Raleigh hotel. "It is highly volatile."
The business support came a week before state Senate leaders plan to introduce a package of tax reforms that would sharply change how North Carolina raises its revenue.
Democratic Sen. David Hoyle, co-chairman of the Senate Finance Committee, said the proposed tax changes would likely include lowering the 6.9 percent corporate tax rate by 2 to 3 percentage points, cutting a cent off the state 6.75 cent sales tax and cutting personal income tax rates, with middle class residents seeing the biggest cut.
In return, services such as landscaping and auto mechanics would be subject to the sales tax for the first time. But Hoyle said the proposal would likely exempt certain services such as lawyers, accountants and barbers.
"We are talking about broadening the [sales tax] base and lowering the rates on corporate income tax and lowering the rates on sales and personal income tax -- at least as it affects middle income tax," said Hoyle, a Gaston County Democrat. "It may be a politically tough sale."
Several study groups over the past decade have recommended that North Carolina modernize its tax system. The current system was designed during the Depression at a time when the state depended heavily on manufacturing.
Since then, the economy has shifted away from traditional manufacturing and more toward a service-oriented economy.
Some business and political leaders think the timing is right to move on the tax reform, with the state facing a $2 billion budget deficit this year and a $3.4 billion budget deficit next year.
The most recent group to support a tax overhaul was a 20-member committee headed by John McNairy, president of Tidewater Transit Co., former Charlotte Mayor Richard Vinroot and Jack Cecil, president of Biltmore Farms Inc. The group was an outgrowth of the Emerging Issues Forum, a Raleigh-based think tank that Hunt founded.
McNairy said the proposal had the backing of the N.C. Chamber of Commerce.
Though North Carolina is not regarded as a high tax state, business leaders have long complained that the corporate income tax was a disincentive for businesses to locate in the Tar Heel State.
