A taxing chore

May 2, 2013 

North Carolina’s tax system is one only an accountant could love. That’s assuming the accountant was getting paid by the hour to review available tax breaks for corporations or special interest groups.

The bottom line on a News & Observer series by veteran staff writers Dan Kane and J. Andrew Curliss, “The Missing Money,” is that the state’s tax code is riddled with breaks and loopholes which various organizations use to their advantage. Estimates by the state Department of Revenue say the costs of the breaks this year will be $1 billion.

And North Carolina could use a billion dollars. Teachers could be hired, teachers’ assistants protected; public universities and community colleges could maintain services instead of having to cut them; state workers might be able to get a good raise. The state could stretch that money a long way indeed.

But the money isn’t going to be there for a host of reasons, as many reasons as there are tax breaks and loopholes..

High flying

Just to pick one example, let’s use US Airways. It’s one of the companies that is a sole beneficiary of a tax break. The airline, which operates the state’s only major hub in Charlotte, enjoys a sales tax cap on fuel, and exemptions on lubricants, repair parts and accessories purchased in North Carolina. In 2011, that saved US Airways $8.5 million.

In that case, and others, competition is often Reason Number One cited for tax breaks and incentives. The logic goes: If we don’t offer the break, if we don’t give the incentive, companies will go elsewhere and that will translate into lost jobs and ultimately lost taxes. So the game must be played.

It’s not entirely a bogus argument.

In the last of their series reports, Curliss cited the breaks given to the film industry, a big-spending, come-and-go business that brings a lot of glamour and excitement to the state and to an area for a while.

They also do business with local merchants for everything from clothes to batteries to lumber to lights to extras. One movie company put together in 2011 a production that filmed in Raleigh and elsewhere in the state. It reported to the Department of Revenue that it spent a total (including goods and wages) of $6,835,506 in the state and employed 200 people. In return, because of a break awarded to film companies, the company got a credit of $1.7 million, or 25 percent of its total spending.

And then there’s...

But there are other breaks that are more troublesome.

Alex Lee Inc., a Hickory company that owns the Lowes Food chain, got a break for creating jobs, about $400,000 annually. The break happened with the leadership of Republican Sen. Phil Berger, the upper chamber’s most powerful person as president pro-tem. Berger, as reported by Kane and Curliss, maneuvered legislation through the General Assembly with the help of others that will save Alex Lee over $2 million in corporate taxes over five years.

The company also, by the way, donated heavily to the committee that helps elect Republicans to the state Senate.

A host of tax breaks are the kind no one would want to touch: sales tax exemption on food, sales tax refunds to nonprofits (hospitals), limited sales tax on vehicles, income tax break on Social Security benefits, sales tax breaks for farming supplies.

No one believes the state’s tax code is a model of efficiency and fairness. But beware reform proposals that continue to favor business (special exemptions) or wealthier individuals (higher sales taxes, flat tax rates) because such changes are not really reform. Actual reform will ease the burden on the middle class and put a tighter rein on tax breaks and incentives for politically connected industries.

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