This past week Republicans in the North Carolina Senate released a plan to revamp the state’s tax code. This new plan slightly reduces the sales tax rate across the state while also expanding the tax base by removing many sales tax exemptions.
Right now, consumers pay a combined state and local sales tax rate of 6.75% in most North Carolina counties. This bill would lower the total rate to 6.5 percent. However, more sales would be taxable. Right now, North Carolina only charges sales taxes on about 30 services. This bill would add another 100 or so to the taxable list. Services like repairs, haircuts, legal services, and window cleaning would all become taxable under this new law.
In addition, this bill removes the sales tax exemption for groceries, prescription drugs, and insulin. Republicans believe that by adding new transactions to the taxable base, they would bring in hundreds in millions of dollars of new annual revenues while creating a fairer tax code.
The Republicans want to use this extra money to finance cuts in the North Carolina’s income and corporate tax rates as well as to completely remove the state’s estate tax.
Democrats argue that this new tax code reduces taxes for the wealthy while raising them for the lower and middle class. Republicans believe it would not, as they point out low income residents receive government benefits that are tax free.
This is still just a proposal and the Republicans won’t have the exact plan finalized until late May or early June. North Carolina GOP leaders expect that a new tax code will be in place by the end of the year.