BLOGS: Keeping Up With Jones Street

Friday, May 30, 2014, 12:19 PM

Health Insurance Coverage for the Treatment of Autism Spectrum Disorder

Womble Carlyle Government Relations lobbied successfully to gain coverage for the treatment of Autism Spectrum Disorder under the NC State Health Plan.  Autism affects 1 in 68 children, and the physician-prescribed treatment, called ABA Therapy, can cost families up to $60,000 per year in the most severe cases. The NC SHP benefit will provide coverage of ABA Therapy for up to $36,000 per year for patients up to 26 years old.

Weekly Wrap Up for May 26th

A super-busy week in Raleigh:

HB 1050 - Omnibus Tax Changes was signed by the Governor after the House concurred in the Senate changes. It is now Session Law 2014-3 and can be found here:
SB 786 - The Energy Modernization Act (Fracking) was ratified and presented to the Govenror for his signature. The final version of the bill is here:
The State Budget:  The Senate released its $21.2 billion spending plan and plans its first floor vote late Friday.  Senate Bill 744 can be viewed here: There is a Money Report which of budget adjustments which accompanies the bill:

Week Ahead:
SB 743 - NC Economic Development Partnership Modifications, introduced by Senator Brown (identical to HB 1031, Rep. Murry which we wrote about earlier), will likely be heard in the Senate Commerce Committee next week. The bill text is here:
The House will begin its version of the State Budget.
HB 1032 on Patent Trolling will is on the House Calendar for Monday night. The latest version of the bill is here:
HB 1101 and HB 1102 on Mechanics Liens are calendared in the House for Monday night. Latest verions are here:  and here:

The Senate Budget

This week the Senate unveiled its $21.2 billion spending plan. We expect a vote late Friday after a robust debate and plenty of amendments.

This bill includes about $28 million in new fees - mostly from hospitals (who must bear more of the cost of treating Medicaid patients) but also from establishments with ABC permits, a doubling of the license fee for commercial fishermen, to name a few. Reserve funds for special purposes that had healthy balances also take a major hit.

Medicaid eligibility is significantly tightened and the Medicaid program is taken out of DHHS over the objection of Governor McCrory and Secretary Wos.

North Carolina teachers could see average pay increases of $5,800 in exchange for giving up their tenure status; this comes after years of no pay raises. The raises cost about $370 million which would be dollars realized, in part, from reducing the funding for Teacher Assistants and cutting the Department of Public Instruction by about 30%.

In what clearly shows the frustration of legislators, the budget contains a provision that requires a 3 judge panel hear all claims that new laws are unconstitutional on their face. This appears to be a reaction to a recent court decision in which the North Carolina Association of Educators (NCAE) prevailed against the elimination of teacher tenure.

We will be back next week to talk about how the Senate Budget fared.

Changes Coming for NC's Business Court

Senators Rucho and Barringer filed SB 853 - An Act to Modernize the Business Court by making Technical, Clarifying, and Administrative Changes to the Procedures for Complex Business Cases this week. The bill was referred to Senate Judiciary Committee; a hearing has not yet been scheduled.

Current and former legislators laud the creation of the NC Business Court -- a part of the Superior Court handling the most complex business litigation -- as a stroke of genius. Last year it seemed the General Assembly would tinker with Superior Court in ways that were regarded as politically-motivated but it was dropped. This effort is described as purely to make the Business Court better for business.

There are several noteworthy provisions, including:
  • Tightening up jurisdiction by allowing any party to designate as a mandatory Business Court case disputes concerning partnerships, LLCs and corporations, large-scale contract disputes, unfair competition, trade secrets disputes and others.
  • It provides for mandatory Business Court jurisdiction a material issue related to tax law that is the subject of a contested case, a dispute in which the amount in controversy is at least $5 million, and actions involving the regulation of pole attachments.
  • It allows for a direct appeal to the NC Supreme Court.
  • The bill requires that the Business Court issue written opinions.
  • If the Court takes more than 6 months to decide a case it must include an explanation in a semi-annual report to the General Assembly.
This bill is probably a net-positive for NC businesses but we'd also like to see 3 additional Business Court locations and 3 additional judges. **Your feedback on the effects of this bill will be important to legislators.

Please view the bill as filed here:

Thursday, May 29, 2014, 4:24 PM

SB 786 - Energy Modernization Act / Fracking clears another legislative hurdle

Senate Bill 186 passed the House today 64 to 50 largely along party lines. Members debated 16 amendments. A key point of debate is that chemicals used in fracking are considered trade secrets and state officials privy to those secrets may not disclose them under penalty of law. The argument continued over the public's right to know what chemicals are pumped under their property and perhaps into their drinking water wells.  Rep. Grier Martin (Wake Co - Democrat) said, "When your trade secrets enter my daughter's drinking water it's my right to know." Rep. David Lewis (Harnett Co - Republican) calls the bill "Economic opportunity and prosperity for NC."

The bill now returns to the Senate for a concurrence vote.

New Tax Changes Await Governor's Signature

This afternoon the House concurred in the changes the Senate made in HB 1050 - Omnibus Tax Changes. The House bill exempted half the price of a modular home from NC sales tax; the Senate removed that exemption. The House bill capped the privilege license tax on businesses at $100; the Senate eliminates the tax on July 1, 2015. Other differences between the two were minor.

NC civics note**[The state constitution requires that a bill pass each chamber in identical form before it can be ratified. When one chamber makes changes to a bill that started in the other chamber - in this case the Senate changed the House bill - the bill returns to the originating chamber for a concurrence vote. If the bill receives concurrence it can then be ratified; if not, both chambers appointment members to a conference committee to settle the differences and reach a compromise....they hope.]

The Ratified version of the bill is here:

Wednesday, May 28, 2014, 4:07 PM

Hump Day Update

My head is spinning. Is yours? Happy Hump Day!

Last night the Senate Finance Committee had an unusual - and unusual - evening meeting to take up it's version of HB 1030 - Omnibus Tax Changes. Two hours later the bill was approved upon motion of Senator Tillman, "That's my motion. Take it or leave it." The new version of the bill is here:

The Senate Republicans caucused all Tuesday afternoon on their draft budget proposal. They emerged from behind closed doors touting a new pay plan for teachers. At a press conference this morning we learned that teachers would receive an average pay increase of $5,000, costing the state nearly a half a billion dollars. Specifics regarding the funding of the raises will be included in the Senate budget draft  to be posted online tonight, and which will begin moving through the Senate tomorrow morning with stops in the Appropriations Committee, Finance Committee and Pensions and Retirement Committee -- this is the standard path in each chamber. Senate Session started and stopped several times today leading me to believe they are still getting comfortable with their spending plan.

The House Public Utilities Committee approved the Fracking Bill on Tuesday. SB 786 will next be considered by the full House. The bill was changed in committee to allow fracking permits to be issued sooner than July 1, 2015 if the rules have been approved. The committee-approved bill can be found here: Expect a House vote on Wednesday and again on Thursday, and expect amendments from opponents.

The House Judiciary B Subcommittee approved HB 1032 - Patent Trolling. We learned in committee that this bill has been under consideration in 23 states due to federal inaction on frivolous patent infringement lawsuits. John Boswell, General Counsel of SAS, testified that they recently had a case in Texas that cost them $8 million in legal fees. They won on summary judgment; their accuser had no assets. The bill was supported in committee by SAS, NCTA, NC Retail Merchants' Association, NC Realtors' Association, and technology companies large and small. Rep. Stam was concerned the bill offers a remedy to the "target" in a frivolous patent infringement lawsuit but does not offer the same to the "accuser". We may see a floor amendment.

House Judiciary C Subcommittee approved both bills dealing with Mechanics Liens today. HB 1101 and HB 1102 will appear on the House calendar later in the week.

Tuesday, May 27, 2014, 7:38 PM

House Action on Fracking Bill

Tonight the House Public Utilities Committee approved the Senate bill to end the moratorium on fracking and keep the chemical recipe trade secrets secret.

Senate Takes Up House-Passed Tax Reform Package

The Senate Finance Committee had a rare evening meeting Tuesday (7:00 p.m.) to take up its version of HB 1050 - Omnibus Tax Changes.

The Senate Proposed Committee Substitute can be found here:

The Senate version of the bill differs from the House version by eliminating the modular home sales tax break and by giving towns and cities another year - until July 1, 2015 - before repealing; however, cities would be limited their current schedule and can only levy tax on businesses located within city limits.

Senator Tillman moved for the bill's favorable report: "Take it or leave it" he said.

Thursday, May 22, 2014, 4:50 PM

RTP Legislator Takes on Patent Abuse

Representative Tom Murry, who is a lawyer and a pharmacist and represents the RTP-commuting folks in western Wake County and lives between the Triangle's 3 research institutions, is trying to discourage bad-faith claims of patent infringement with HB 1032 - An Act to Prevent the Abusive Use of Patents. If enacted this law would strike a balance between speedy resolution of patent infringement claims, protection for NC businesses from bad-faith patent infringement assertions and not interfering with legitimate patent enforcement claims.

The bill adds a new "Article 8, Abusive Patent Assertions" to Chapter 57 of the NCGS.

The bill sets out 12 factors a court may use as evidence in determining whether a person has made a bad-faith assertion of patent infringement, including whether the person has standing to make a claim or understands the impact of the patent. The bill also sets out factors a court may use as evidence in determining that a person has not made a bad-faith assertion of patent infringement.

The bill contains a section allowing a court to require a bond that would cover the target's costs and fees to litigate the claim. A target may bring an action in Superior Court against a person that made a bad-faith assertion of patent infringement against them and the court may award to a prevailing plaintiff equitable relief, damages, and costs and fees.

My summary doesn't do the bill justice, so please read the bill here:

This week the bill passed the House Commerce Committee with changes that were mostly technical and organizational in manner. The bill's next stop is Subcommittee B of the House Judiciary Committee on Tuesday, May 27th at 3:00.

Mechanics Liens Bill Movement

HB 1101 and HB 1102 dealing with Mechanics Liens which we wrote about earlier this week will be considered Wednesday 5/28 at 10:00 in the Subcommittee C of the House Judiciary Committee. The bill sponsor is Representative Sarah Stevens who also chairs this subcommittee. There is no public audio connection for this committee room so I will report on committee actions.

Fast Track for Tax Changes

HB 1050 - Omnibus Tax Changes, which we've written about already this week, was referred to the Senate Finance Committee. The talk around Jones Street is the bill may be considered as early as next week on its own or as a section in the Senate version of the budget. We expect the Senate to make a few changes: definitely adding back in the section on apportionment the House Finance Committee amended out, and maybe even undoing Representative Fulghum's amendment on e-cigarettes and the taxing of vapor. More to come....

Wednesday, May 21, 2014, 5:28 PM

The Senate Passes Energy Modernization Act

When I was a child, and daring, "frack" was my risky substitute cuss word; but not substitute enough.... Well it's back at the General Assembly this summer as lawmakers set the stage for hydraulic fracturing "fracking" in North Carolina. Opponents claim there is not enough clarity regarding the rights of property owners under which the fracking might occur and not enough public disclosure regarding what chemicals are used in the fracking process. Proponents insist that the revenue and job creating opportunity is too good to delay further and that the state's Mining Commission can adequately oversee the process.

SB 786 - Energy Modernization Act. Also known as An Act to
(1) Extend the Deadline for Development of a Modern Regulatory Program for the Management of Oil and Gas Exploration, Development, and Production in the State and the Use of Horizontal Drilling and Hydraulic Fracturing Treatments for that Purpose;
(2) Enact of Modify Certain Exemptions from Requirements of the Administrative Procedures Act Applicable to Rules for the Management of Oil and Gas Exploration, Development, and Production in the State and the Use of Horizontal Drilling and Hydraulic Fracturing Treatment for that Purpose;
(3) Create the North Carolina Oil and Gas Commission and Reconstitute the North Carolina Mining Commission;
(4) Amend Miscellaneous Statutes Governing Oil and Gas Exploration, Development, and Production Activities;
(5) Establish a Severance Tax Applicable to Oil and Gas Exploration, Development, and Production Activities;
(6) Amend Miscellaneous Statutes Unrelated to Oil and Gas Exploration, Development, and Production Activities; and
(7) Direct Studies on Various Issues, as Recommended by the Joint Legislative Commission on Energy Policy.

Attempts to amend the bill on 2nd reading with stricter water quality and property protections failed. Amendments on 3rd reading were more harmonious with unanimously approval aimed at striking a balance between the public's right to know about chemicals and processes involved in fracking and trade secrets, as well as requirements for bonding and restoration. The engrossed version of the bill is here:

Omnibus Tax Bill Passes the House. On to the Senate.

After two days of debate HB 1050 - Omnibus Tax Changes passed the House. (Bills that raise revenue must be have 2nd and 3rd readings on separate days).

House Members considered 10 amendments and approved 7 of them with bi-partisan support. Many were clarifying amendments regarding what constitutes a separate business location (an ATM does not), or states that the bill does not interfere with FDA jurisdiction over e-cigarettes or vapor.

An amendment to remove the e-cigarette section of the bill so that the taxing of e-cigarettes could be considered separately, failed. The amendment sponsor, Rep. Carney, a Democrat from Mecklenburg County said of levying the excise tax of e-cigarettes, "If you are going to vote for a new tax, make it count." That amendment failed nearly along party lines.

The section that changed NC's apportionment formula that was supported by the Senate came out in committee as we expected.

The House-passed bill did flatten the locally-levied franchise tax to $100. Many towns and cities will lose big revenue.

Monday, May 19, 2014, 10:45 AM

What's Happening with Administrative Rules

The Administrative Procedures Oversight Committee met since adjournment last summer and has recommended the following be introduced as bills for the 2014 short session.  I will add links to the bills as they are filed:

SB 777 - An Act to Eliminate Obsolete Boards and Commissions. This bill repeals the Small Business Contractor Act and the Small Business Contactor Authority; provides for the Committee on Drop Out Prevention to expire; eliminates the State Education Commission but keeps the Education Cabinet; provides for the Natural Heritage Area Determination Commission to expire; repeals the Governor's Management Council; repeals the Board of Directors for the NC Center for Nursing; repeals the Board of Corrections; and encourages the Chief Justice to abolish the Actual Innocence Commission.

SB 779 - An Act to Clarify the Process for Readoption of Existing Rules in Accordance with the Periodic Review and Expirations of Existing Rules Provision of the Administrative Procedure Act. The bill requires the Rules Review Commission to adopt a schedule for agency review of existing rules. The agency may amend the rule during readoption. If the rule is unchanged the agency is not required to prepare a fiscal note.   

SB 778 - An Act to Authorize Licensing Boards Subject to Chapter 55B of the General Statutes to Adopt Rules to Implement the Provisions of the Chapter.  This bill authorizes the adoption of rules including those that set fees.

SB 775 - An Act to Authorize the Office of Administrative Hearings to Allow Documents in a Contested Case to be Filed Electronically.

SB 781 - An Act to Clarify that the State Board of Education is Subject to Rule Making Under the Administrative Procedure Act and to Provide a Remedy When an Agency Fails to Act as Directed by Statute. Legislators have been frustrated that the Board is working under arbitrary policies and procedures rather than official promulgated rules.

SB 776 - An Act to Streamline the Rule-Making Process by Eliminating the Requirement that an Agency Obtain a Certification of Adherence to Rule-Making Principles Prior to Submitting the Proposed Text of a Rule for Publication.

SB 774 - An Act to Establish that the State Agency has the Burden of Proof in Certain Contested Cases. This bill assigns the burden of proof to the State rather than the petitioner if civil penalties or fines are imposed; it assigns the burden of proof to the State rather than the petitioner if a career state employee is discharged, demoted, or suspended.

New Bills Introduced Affecting Mechanics Liens

Mechanics Liens Bills Filed:

HB 1101 - An Act to Enhance the Protection provided to Persons Making Improvements to Leased Real Property Under Article 3 of Chapter 44A of the General Statutes, as Recommended by the LRC (Legislative Research Commission) Committee on Mechanics Liens and Leasehold Improvements.  This bill would amend the statute concerning bond requirements for people making improvements to leased property; requires that anyone who leases property must secure bonds for changes to public buildings, and which parties must secure bonds; and provides that public-private partnerships subject to GS 143-128.1C are not subject to this bill. You can read the bill here:

HB 1102 - An Act to Clarify the Information Required to be Provided in a Notice to Lien Agent, as Recommended by the LRC Committee on Mechanics Liens and Leasehold Improvements.  This bill would amend the statute concerning the identification of life agent, notice to lien agent, and effect of notice to provide that service of the Notice to Lien Agent does not satisfy the service or filing requirements that apply to a Notice of Subcontract. Further, a Notice to Lien Agent cannot be combined with or refer to a Notice of Subcontract or a Notice of Claim of Lien upon funds. You can read the bill here:

The LRC on Mechanics Liens and Leasehold Improvements is made of House and Senate Members and held public meetings since adjournment last summer.

Friday, May 16, 2014, 10:16 AM

State-Sponsored Economic Development Modifications

Senator Harry Brown and Representative Tom Murry have introduced the long-awaited modifications to the state's economic development plan and partnerships  The bill moves many of the formerly Department of Commerce and Regional Partnerships functions to a contracted private nonprofit.  It also repeals NC's Economic Development Board and allows the Secretary to delegate her strategic economic development planning.  This is a sea-change for how the state has managed economic development over the past decade or more and we expect a lot of discussion and debate.  HB 1031 can be viewed here:

Legislative Update for the week of May 12th

The House Finance Committee passed HB 1050 - Omnibus Tax Law Changes ( - on Thursday.  In committee Representative Carney moved to delete a section of the bill regarding the taxing of vapor cigarettes so it could be considered separately from the omnibus package but the amendment failed on a tie vote; Representative Hamilton entered the room late and asked to have her vote recorded in favor of the amendment but the Chair declined stating that the vote was over. Then the Committee overwhelmingly supported Representative Starnes' amendment to remove the section of the bill that changes NC's apportionment calculation.  The Senate won't be pleased.

The Joint Legislative Committee on the Affordable Care Act Implementation met Tuesday to present a bill that would have banned any new health insurance mandate in NC for the next two years; if approved by the ACA Committee the bill would have skirted last year's crossover bill deadline and could be introduced this session.  Senator Hartsell, who was presenting the bill, intended for the legislation have a calming effect on the health insurance marketplace but it also would have killed several bills pending in the Senate that the House had overwhelmingly supported.  The bill was never approved due to the lack of a quorum all three times the committee met and the moratorium bill will not be introduced this session.  The bills it would have killed deal with insurance parity for chiropractors (, mandated coverage for oral chemotherapy drugs ( and autism treatment insurance coverage (

More Confusion Over the Privilege License Tax

In last year's Technical Corrections Bill (a bill passed each session generally intended to correct and clarify drafting errors and unintended consequences of bills enacted during that session) the General Assembly accidentally repealed G.S. 160A-211(a), which deleted the authority of towns and cities to levy the privilege license tax effective January 1, 2014.  Supporting the claim that the deletion was accidental was another section of the Technical Corrections Bill which amended the privilege tax, while a separate bill enacted last session called for a study of the privilege tax.

So not only will the debate over the privilege tax be lively this session, it will also be messy.

Thursday, May 15, 2014, 2:24 PM

2014 Legislative Short Session - Education bills introduced week of May 12th

The NC General Assembly kicked off its 2014 Short Session (adjournment goal of July 4th is reasonable) with bill introductions that are relevant:

·         HB 1041 (Howard) and SB 754 (Hartsell) – Charter School Preliminary Approval Process.  This is a recommendation of the Administrative Procedures Oversight Committee and has been introduced in each chamber by that chamber’s co-chair.  It would allow local boards of education as well as constituent institutions of UNC to grant preliminary approvals to charters.  Final approval must come from the State Board of Education.

·         HB 1042 (Howard) and SB 752 (Hartsell) – Clarify Charter Application Process.  This is a recommendation of the Administrative Procedures Oversight Committee and has been introduced in each chamber by that chamber’s co-chair.  It appears to be the bill that Senator Tillman has also been working on.  This contains language to offer a “fast-track” approval for replicated charters.

·         HB 1084 (Insko and Glazier) – Charter Schools/EIPs/New Accountability Standard.  This bill would stipulate that charter schools with a high percentage of special needs students would have a new accountability standard.

·         HB 1085 (Insko and Glazier) – Increase Charter School Accountability.  This bill would increase accountability of charter schools to DPI and would appropriate funds for two new positions; it would require criminal background checks of the initial Boards of Directors; names the Board of Directors as having control of the school and the charter; requires a site visit to school by DPI; provides remediation requirements for charters not meeting standards, and other provisions.

·         HB 1107 (Holloway) – Restore Lottery for School Construction.  Increases percentage of lottery funds for School Building Construction Fund.  This bill is eligible for introduction because it impacts the state budget.

·         SB 787 (Apodaca) – Teacher Funds Must be 51% of Budget.  Requires that 51% of state appropriations for schools be used for funding teachers.  This bill is eligible for introduction because it impacts the state budget.

Tuesday, May 13, 2014, 9:36 AM

Amend Corporate Apportionment - a step in the right direction?

Today the Revenue Laws Study Committee recommended a bill draft for introduction in the 2014 Legislative Session that would change the way North Carolina determines tax liability for multistate corporations with a North Carolina nexus.

When determining state tax liability, multistate corporations consider what percentage of the corporation's sales are in a state; what percentage of a corporation's workforce is in a state; and what percentage of a corporation's property is in a state.  Under current law the sales factor is doubled-weighted in North Carolina.  The proposed bill would increase that to a four-times-weighted sales factor.

During the committee, the draft bill was rolled into a larger omnibus bill against the objections of several House Members who want the measure considered on its own merits rather than as part of a larger package; they are concerned about the fiscal impact to the State.  Senator Rucho countered that the economy has improved and unemployment is down in large part to legislative actions in the past three years.  He believes it's imperative to continue to improve the business climate in North Carolina with this apportionment change this session.

We expect the bill to be introduced this week and taken up by committee quickly.

Friday, May 9, 2014, 4:29 PM

Leftover Bills from 2013

The Legislature convenes May 14th for the short session of the biennium primarily to adjust the budget. Bills that passed either the House or the Senate, or bills with a fee, state appropriation or other fiscal impact to the State may also be considered.  Look here for the memo including the list of bills introduced in 2013 that are eligible in 2014.

Tuesday, May 6, 2014, 2:05 PM

Taking Off the Gloves: Tax and Revenue Law Change Proposals We Expect to See in the Short Session

Between legislative sessions the Joint Legislation Commission on Revenue Laws meets to determine how to handle tax and finance issues including repeals, clarifications and new proposals. We expect the following bills to be introduced:

·         An Act to address the imposition of the sales tax on admission charges to entertainment activity. This bill intends to clarify that similar entertainment events be treated similarly for sales tax purposes but acknowledges the administrative burden of imposing, collecting and remitting sales tax for smaller nonprofits.  The bill eliminates the current sales tax exemptions for agricultural fairs, youth athletic contests, nonprofit events and state attractions.  Events sponsored and held at elementary and secondary schools retain their current sales tax exemption.  Nonprofits who meet the following criteria are exempt from State income tax:  1) The entire proceeds of the activity are used for the nonprofit’s nonprofit purposes; 2) The entity does not declare dividends, receive profits, or pay salary or other compensation to any members or employees; 3) The entity does not compensate any person for participating in the event, performing in the event, placing in the event, or producing the event.

·         An Act to increase the compensation of License Plate Agents contracting with the Division of Motor VehiclesIncreases the compensation of the agents to reflect that property tax is now collected with license plate fees and registration.

·         An Act to make various changes to the administration of tobacco excise taxes, alcohol excise taxes, and motor fuel excise taxes.  Allows a wholesaler or importer of malt beverages and wine to provide a letter of credit as an alternative to a bond.  Allows a dealer of tobacco products to use a manufacturer’s tax affidavit rather than a notarized tax affidavit as supporting documentation for a tax refund for taxes paid on stale or unsold tobacco.  Amends secrecy provisions to allow the Department of Revenue to share information with the provider of a surety bond or other instrument on behalf of a taxpayer if that taxpayer does not comply with tax laws.  Adds state tax to all biodiesel fuel even though it is not subject to federal tax.  Gives the Secretary flexibility to waive or reduce some civil penalties imposed under the motor fuels tax statutes.  Requires that all vessels transporting motor fuel must keep permanent records.

·         An Act to address the sales tax certificate of exemption for qualifying purchases for use by a farmerClarifies the implementation of the gross income requirements and establishes a $10,000 threshold.  There are currently 49,437 agricultural exemption certificates outstanding in North Carolina.  USDA estimates NC has 52,000 farms.

·         An Act to replace the corporate income tax deduction for net economic loss with a deduction for state net lossEffective for tax years beginning January 1, 2015 this bill would do the following things:  1) Replace the net economic loss calculation with a State net loss calculation that is more comparable to the federal net operating loss calculation;  2) Remove the requirement that net income loss carried forward must first be offset by nontaxable income;  3) Instruct the Secretary of Revenue to apply the standards under sections 381 and 382 of the Code when determining to what extent a loss survives a merger or acquisition.  (*This removes applicability of North Carolina case law that governs to what extent a net economic loss survives a merger or acquisition).  This bill does not reduce the 15 year carry forward period but changes the calculation.  The cost to the State of administering this tax change is estimated at $5 million per year.

·         An Act to address the sales tax on prepaid meal plansThis bill imposes the sales tax on the gross receipts derived from a prepaid meal plan at a dining room of a regularly operated educational institution.  The tax is imposed on purchases made with food dollars at the time of the purchases.

·         An Act to repeal the antiquated, inconsistent, and unfair system of local privilege license taxation and replace it with a flat local business tax that applies to all businesses equallyThis bill repeals the current authority for cities and counties to levy a privilege tax.  Cities would be authorized to levy a business tax of up to $100 per business location within that city.  All prior caps and restrictions are removed excepting certain utilities for which cities receive a share of the tax revenue.  Many NC cities stand to lose substantial income under this proposal:  Raleigh ($3.3 million), Hickory ($751,000), Durham ($294,263), Fayetteville ($1 million), Greensboro ($717,902), High Point ($1 million), Hendersonville ($359,616), Pineville ($472,333), Winston-Salem ($1 million), Charlotte ($8.5 million), Wilmington ($699,873), Jacksonville ($318,397), Lumberton ($1 million), Cary ($303,666), Morrisville ($656,492) and Monroe ($317,506).  The bill would become effective July 1, 2015.

·         An Act to address the applicability of the sales tax laws to retailer-contractorsClarifies that a retailer-contractor is liable for the tax on tangible personal property used in a real property improvement contract with a customer.  The tangible personal property becomes part of the real property as a result of the real property improvement contract.

·         An Act to address the imposition of the sales tax on service contracts.  This bill deals with administrative issues related to implementation of the sales tax on service contracts beginning January 1, 2015 as a result of Session Law 2013-316.

·         An Act to require tax compliance for ABC Permit and to increase the amount authorized for taxpayer locater services from the collection assistance account.  The bill requires holders of ABC Permits to pay all State taxes and file all returns.  The bill requires the same for retailers of the NC Lottery games.  The bill also allows the Department of Revenue to increase its use of the collection assistance fee to contract for taxpayer locater services from $150,000 to $500,000.

Monday, May 5, 2014, 11:20 AM

Budget Woes in an Election Year

The North Carolina General Assembly begins its 2014 Short Session on May 14th.  The main purpose of the short session is to adjust the budget.  However, eligible bills from last session plus study committee recommendations will also be in play.

The Budget for the Current Year:  The budget for the fiscal year ending June 2014 has been dealt some bad news in two forms.  
  • First, tax collections are $414 million below budgeted projections which reduces the expected tax revenues to $19.2 billion; this shortfall will also impact the 2014-15 budget since it is based on the tax structure.  
  • Second, there is a Medicaid shortfall of $140 million.  
This year’s budget left $250.5 million unappropriated (just sitting in the checking account) which will help alleviate the total expected shortfall of $554 million.  That leaves about $303 million for the State Budget Director to squeeze from state agencies and other budget line items to close out the year on June 30th.

The Budget the General Assembly will  be working on this session:  The 2014-2015 spending plan was including in the biennial budget passed last year, so the purpose of this legislative session is to adjust it.  Next year’s budget spends $20.9 billion and leaves $355 million unappropriated (just sitting in the checking account).  If tax collections continue at the same rate as this year, the unappropriated $355 million will have to be applied to the $414 million tax collections shortfall expected next year, leaving $59 million needed to true up the budget before budget writers can start spending new money. 
However, the Governor, Lt. Governor, and Legislative Leaders have publicly announced raising the starting salary for teachers to $33,000 which will be a new cost in the range of $60  to $75 million.  And, this election year budget writers hope to give state employees their first pay raise in 8 years.  (Food for thought: a 1% across-the-board increase for state employees costs $131.4 million OR a $1,000 *bonus* to each state employee costs $313.2 million).

Buckle up.
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