What’s At Stake If Republicans Eliminate NC’s Corporate Tax

With the state facing shortfalls in health care, education, and housing, the GOP proposal would cost the state more than $1 billion.

RALEIGH, N.C. (AP) — Democratic lawmakers and advocacy groups called Monday for blocking the planned elimination of North Carolina’s corporate income tax, arguing that companies that benefit from operating in the state should pay a proper share for necessary public services.

Prospects are low for passage of identical House and Senate legislation that would retain the state’s current 2.5% corporate rate — an idea that also was proposed in Democratic Gov. Roy Cooper’s budget proposal last week. The Republican-controlled legislature passed a budget law in 2021 that directs the corporate income tax be phased out by 2030, starting with a decline to 2.25% in 2025.

Corporate income tax collections composed about 5% of the state’s $27 billion in overall collections during the 2020-21 fiscal year, according to the state Department of Revenue. Corporations pay other taxes, too.

Keeping the current corporate income tax intact also will keep money coming in to state coffers to address deficiencies in public education, affordable housing and health care, Sen. Lisa Grafstein, a Wake County Democrat and bill sponsor, said at a news conference outside the Legislative Building. She said companies benefit from the state’s amenities and infrastructure.

“It would mean dollars to make sure that every person, no matter the race, no matter the ethnicity, receives a sound basic education, access to job training, and can drink safe water and breathe clean air,” said Cassandra Stokes with the North Carolina Black Alliance. Representatives of the North Carolina Association of Educators and N.C. Budget & Tax Center also spoke Monday.

GOP legislators already have lowered the corporate rate from 6.9% a decade ago. The head of the North Carolina Chamber suggested recently that it was willing to discuss foregoing a zero rate if it meant, for example, revenues could beef up child care options for the state’s workforce statewide.

Republican lawmakers contend individual and corporate tax reductions have contributed to the state’s booming economy, resulting in excessive collections to fund services. Some GOP legislative leaders are considering whether to propose accelerating income tax reductions contained in the 2021 budget law. Republicans are within one House seat of holding veto-proof majorities in both chambers, giving them leverage in budget talks.

Cooper mentioned the North Carolina Chamber in his State of the State address while pitching to prevent the corporate rate from falling below 2.5%, which is already among the lowest in the country among state that have corporate income taxes. Cooper signed the 2021 budget into law, saying that the good inside outweighed the things he disliked, which included the corporate income tax rate phaseout.

N.C. Chamber spokesperson Kate Payne said in a written statement later Monday that the business lobbying group was focused for now on efforts to eliminate the business franchise tax.

While the chamber wants the state’s personal and corporate tax rates “to be the most competitive,” Payne said, it also believes competitiveness is related to education, infrastructure and a talented workforce “if we want to be able to continue to attract investment in North Carolina and its people.”