State legislative leaders announced they reached an agreement on a budget compromise that includes several public policy priorities championed by NCACPA.
Lawmakers have been negotiating for months to find common ground between the House and Senate budgets passed earlier this year. NCACPA expects legislators to approve a joint conference committee report on HB 259, the 2023 Appropriations Act, in a series of votes on Sept. 21 and 22.
NCDOR SOFTWARE MODERNIZATION
One of NCACPA’s top legislative priorities this year was to secure funding for tax software modernization at the NC Department of Revenue. The NCDOR’s antiquated mainframe has become increasingly difficult to support and is long overdue for replacement. HB 259 includes $50 million in funding for the first phase of the procurement project.
This issue ultimately impacts all NCACPA members, whether in public accounting, industry, government, non-profit, or education. It is also an important victory for the clients, organizations, and communities served by the accounting profession.
POWER OF ATTORNEY PROJECT
The budget further authorizes the expenditure of $400,000 to complete the NCDOR’s Power of Attorney project. NCACPA has advocated for many years that NCDOR notices directed to a taxpayer should be automatically provided to the taxpayer’s designated POA representative. In order to achieve that outcome, the NCDOR needs to implement two significant changes in its technology:
- Capture the POA registration data in a digital document management system, and
- Capture all notice data in a digital document management system so that it can be matched and shared with designated POA representatives.
The first part of this technology transformation was completed in February 2022. The second part will be funded by this appropriation.
FINANCIAL LITERACY TRAINING
The budget bill includes $450,000 per year to fund professional development of educators who teach the Economics and Personal Finance course in North Carolina high schools. NCACPA lobbied to make the course a graduation requirement in 2019 and has consistently pushed for training funds for teachers.
TAX CHANGES
The finance provisions of the budget are contained in Part XLII of the committee report. Tax code changes include:
- Accelerating already planned cuts in the state’s personal income tax rate. The rate would drop from the current 4.75% to 4.5% in 2024, 4.25% in 2025, and 3.99% in 2026. After 2026, further rate cuts are tied to hitting General Fund revenue targets. If the state hits the target for the specified year, the rate for the subsequent tax year will decrease by half a point, with 2.49% being the lowest the rate can reach. The revenue triggers are specified through FY 2032-2033.
- Expanding eligibility for the Taxed Partnership election for the Pass-Through Entity Tax. Building on victories for taxpayers secured by NCACPA in Session Law 2023-12 earlier this year, the budget expands the list of eligible partners of a Taxed Partnership to include other types of trusts as well as C corporations.
- Extended time to make a Taxed PTE election for previously ineligible partnerships. Section 42.21.(b) of the bill includes a retroactive provision to allow previously ineligible partnerships that timely filed a tax return for TY 2022 to make a Taxed PTE election by filing an amended return on or before October 15, 2023.
- Repeal of the professional privilege tax on CPAs and other professionals. The repeal would be effective for taxable years on or after July 1, 2024.
- Caps the Franchise Tax for C corporations. Section 42.6A of the bill caps the franchise tax at $500 for the first $1 million of a C corporation’s tax base. After that, the existing rate of $1.50 per $1,000 ot its tax base applies, up to a maximum tax due of $150,000. This change becomes effective on January 1, 2025, and applies to the franchise tax calculation on the 2024 corporate income tax return.
- Enacting a new Transportation Commerce Tax on for-hire ground transport services, such as Uber and Lyft. Effective July 1, 2025, exclusive-ride services would be taxed at 1.5%, and shared-ride services would be taxed at 1%. Revenue from the tax will benefit the state’s Highway Fund.
- Several changes to the sales tax law, including extended exemptions for professional motorsports and aviation fuel; expanded exemptions for aviation parts, boat fuel used for freight transportation, and sales by continuing care retirement communities to residents; and a new tax exemption for breast pumps and related parts and supplies.
It is not known whether Governor Roy Cooper will sign the bill into law, let it become law without his signature, or veto the measure. The Republican supermajority in both chambers would likely override a veto, as they have done so on several other bills this session.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.