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NC House Approves Tax Reform Plan; Senate Up Next


In an unusual Friday morning session, the North Carolina House tentatively approved historic Tax Reform legislation by a vote of 72-32, setting up what could be a lengthy debate with the Senate over its own proposal.

HB 998 (Tax Simplification and Reduction Act) would eliminate North Carolina’s three-tiered personal income tax bracket system and replace it with a 5.9% flat rate. The bill provides a $25,000 combined maximum deduction for mortgage interest and property taxes, while deductions for charitable contributions remain unlimited. These deductions were increased from an earlier version of the bill, thanks to the hard work of the North Carolina Association of REALTORS (NAR), which lobbied aggressively to protect the Mortgage Interest Deduction (MID).

HB 998 also doubles the standard deduction and increases the child tax credit from $100 to $250 for families making less than $100,000. Social Security benefits are not taxed under the plan. It cuts business taxes by reducing the franchise tax by more than 10% and reducing the corporate income tax rate from 6.9% to 5.4%.

While HB 998 does expand sales tax to some services, the additional services taxed in the House plan are those that currently collect and remit sales tax revenue. It appears that the House is siding with the Governor’s wishes in not extending sales tax to essential goods such as medicine and food.

HB 998 will be on the House floor again Monday night for 3rd reading before heading over to the Senate where the fate of the bill (and tax reform in general) is still not known.  Once the House disposes of the tax reform bill, it will move on to the budget with the full Appropriations Committee meeting next Tuesday and then floor votes following on Wednesday and Thursday.

Source: North Carolina Home Builders Association (NCHBA)

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