Six weeks after the Senate passed its version of the biennial state budget, the House voted to approve a rewrite with their own tax and spending priorities. SB 105 passed third consideration by a vote of 72-41. The House stayed within the agreed upon spending caps of $25.7 billion for FY 2021-22 and $26.6 billion the following year.
NCACPA Policy Priorities
NCACPA secured passage of two policy priorities in both the House and Senate budget bills: (1) Creating a graduated late tax payment penalty; and (2) correcting an unintended consequence of decoupling from the CARES Act by allowing a taxpayer to fully deduct over five years the applicable amount of business interest expense under Section 163(j).
Financial Literacy Funding
Thanks in part to lobbying by NCACPA, the House budget includes an appropriation of more than $1 million for full funding of professional development training for instructors of NC’s high school course in financial literacy.
Power of Attorney
House budget writers included a provision requiring the NCDOR to submit monthly reports to the General Assembly detailing the status of the Department’s progress in updating its IT systems to electronically receive Power of Attorney registrations and transmit notices simultaneously to the taxpayer and their POA designee.
Tax Changes
Some of the most significant differences between the two versions of the appropriations bill are the proposed changes in tax rate and structure. Tax changes in the House budget include:
- Reducing the personal income tax rate from 5.25% to 4.99% starting in 2022.
- Exempting military pensions from the personal income tax.
- Reducing the corporate income tax rate from 2.5% to 2.25% in 2024 and 1.99% in 2025.
- Allowing businesses to deduct expenses associated with forgiven Paycheck Protection Program loans.
- Conforming to the federal income tax exclusion of the first $10,200 of 2020 unemployment benefits.
Several major tax provisions appear in both budget bills, such as:
- Increasing the personal income tax standard deduction for all filers to match the 2022 federal standard deduction.
- Eliminating the two property tax calculation requirements for the franchise tax and basing the tax solely on the net income calculation.
- Creating a SALT cap workaround for pass-through entities.
- Providing a separate net operating loss calculation for individual taxpayers.
Next Steps
The Senate is expected to reject the House changes on August 16, and each chamber will appoint members to a conference committee to work out a compromise budget. Legislative leaders hope to have a budget deal by the end of August.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.