Well, they did what previous General Assemblies and governors have tried for decades and have never been able to do until now – reform North Carolina’s outdated, cumbersome and complicated tax system. After months of debate, discussion, arguments and concessions, the governor and legislative leaders announced a tax reform plan this afternoon.  And a very good plan it is.

Under our current system 84% of state government’s revenue comes from personal income, sales and use, and corporate taxes. No reform would be possible without attention to those three sources.  All reform proposals included lowering and flattening the personal income rate, broadening the sales tax base and lowering and phasing down the corporate tax.  And that’s what today’s proposal does too.  And eliminates the death tax and caps the gas tax for good measure.

According to the Tax Foundation’s State Business Tax Climate Index, North Carolina moves from 44th to 17th under this plan.

Here’s a before and after snapshot….

Before Tax Reform:

Personal Income Tax:

Marginal rates of 6%, 7% and 7.75%

No cap on mortgage/property tax deduction

$100 child tax credit

Corporate Income Tax:


Sales tax:

Average state and local: 6.85%

Dozens of exemptions, refunds and special rates

Death Tax: .08% – 16% on estates of $5,250,000 and more

Gas Tax: 37.5 cent cap expired June 30, 2013

 After Tax Reform:

Personal Income Tax:

flat rate of 5.8% in 2014, further reduced to 5.75% in 2015

First $15k exempt for married filers, $12k for head of household and $7,500 for single filers

$125 child tax credit for those making below $40k

Mortgage and property tax deduction capped at $20k

 Corporate Income Tax:

6% in 2014

5% in 2015

if revenue projections are on target;

4% in 2016

3% in 2017

Sales Tax:

Rate unchanged

Allows non-profit reimbursement up to $45M

Many exemptions expire at the end of 2013

Death Tax:


Gas Tax:

Capped at 37.5 cents

Revenue neutral in 2013; when fully implemented annual $450M tax cut.

Local governments will have increased revenue opening the opportunity for property tax reductions.