Corporate Tax won’t go to 3%, according to revenue estimates and new trigger

Yesterday while reading through the budget, my colleague and I ran across some interesting language in the latest version of the state’s two-year spending plan.  Lawmakers are claiming that the corporate income tax will be lowered to 3%, but that isn’t necessarily the case.  Below are some excerpts from a Carolina Journal story that explains the change and why the corporate rate will more than likely stay at 4%.

As part of the 2013 budget bill, the General Assembly inserted a trigger that — if General Fund tax revenues grew as projected — would reduce the corporate tax rate by 1 percent in two consecutive years. The trigger was inserted as a safeguard to protect state revenues in case of a recession or some other economic drain on tax collections.

The corporate income tax rate will drop to 4 percent on Jan. 1, 2016, because General Fund tax collections surpassed $20.2 billion at the end of the 2014-15 budget year, which ended June 30. For the rate to slip to 3 percent, General Fund tax collections for the current fiscal year ending June 30, 2016, would need to reach $20.975 billion. Failure to hit the target would leave the corporate tax rate at 4 percent.

The “money report” attached to the new budget bill projects net General Fund tax revenues, after applying newly enacted tax cuts, will be $20,900,300 — $74.7 million short of the target. On page 413 of the budget document, a provision repeals the June 30, 2016 deadline, so the 3 percent rate could take effect in a later year when revenues hit the target.

To read the entire article by Carolina Journal’s Dan Way, click here.

Sarah Curry

Sarah Curry is Director of Fiscal Policy Studies at the John Locke Foundation.

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