by Jim Kouri - The New York City-based firm of Ernst and Young recently released a study on the tax climate for business in North Carolina that does not bode well for the state's future, according to observers.

While the data they used is correct,  illogically they used data that is not reflective of tax requirements of  most small and large businesses in North Carolina, according to State Senator Robert M. Pittenger.

According to Pittenger's office, businesses in North Carolina pay either the corporate rate, or if they are sub-chapter "S" corporations, they would pay the individual rate. Both rates, as noted in the chart  below, are the highest in the southeast.

"Why would a corporation move to  North Carolina and pay a 6.9% corporate  rate, while it can relocate to South Carolina and pay 5%? A CEO’s  decision is logically affected by paying an individual tax of 7.75% in  North Carolina or no individual tax in  Tennessee," said Sen. Pittenger.

“The best  marketing tool that South Carolina has  for recruiting new business and industry to our state is North Carolina tax rates” quipped South Carolina  Governor Mark Sanford recently at a luncheon in Charlotte of over  100 business leaders.

According to state business figures, North Carolina has lost over 400 companies in the last few years, taking over 50,000 new jobs and $4 billion of capital  investment to the neighboring states of Virginia, South  Carolina, and Tennessee.

The number would be far greater if Florida, Georgia and Alabama were included. The  non-partisan Tax Foundation’s latest study of state business tax climates ranked North Carolina 40th out of the 50 states (the higher the number, the worse the ranking), far worse than any of its neighboring states or Florida.

FL –  5th; VA –  14th; TN –  16th; GA –  20th; SC –  26th; NC - 40th

In the tax chart below and the obvious is clear for decisionmakers determining where they will move their companies. According to critics, NC's burdensome tax rates are also discouraging the growth of local  businesses and industries.

More than 70% of the  present jobs in North Carolina are from small business and 90% of the new jobs are  from small business.  While nearly all corporations  pay the maximum 6.9% tax rate,  the legislative leadership has made  special concessions to some major large banking, energy, and other  corporations, most of whom have an effective rate of  2-2.5%.   

Other large corporations have been given major  incentives worth hundreds of millions of dollars.   Ideally, all  corporations would be paying the lower rate and all incentives would be  eliminated to have a fair and effective tax structure to attract business  and  industry.

"North  Carolina needs to consider a  complete governmental restructuring to reduce the size, scope and cost of  government to help lower our tax requirement. The last restructuring was  in 1972. I serve on the Joint Legislative Commission on Program Evaluation, which was created to review government spending for duplicate  programs. I am hopeful that this effort will result in substantive changes  and not be another window dressing effort," said Sen.Pittenger.

"However, of concern to me, is  the lack of adequate audit oversight to this Commission. The Democrat  leadership rejected my amendment in the 2007 session to add just 15 new performance auditors, adding to our present number of 17 performance  auditors," he said in a press release.

In contrast, Texas has over 100 performance auditors which review government spending annually and have  saved Texas over $10 billion in the last  twelve years, according to Sen. Pittenger.

"North Carolina  needs leadership that does not play games with numbers to camouflage a very serious problem greatly impeding our state’s economic development, to  provide more and better jobs for our citizens," he said

STATE CORPORATE TAX INCOME TAX SALES TAX

North Carolina 6.9% 7.75% 4.25%

Tennessee 6.5% 0% 7.00%

Alabama 6.5% 5.00% 4.00%

Virginia 6.0% 5.75% 3.50%

Georgia 6.0% 6.00% 4.00%

Florida 5.5% 0% 6.00%

South Carolina 5.0% 7.00% 5.00%


For more information contact: Robert  Pittenger, NC Senate – District 39
7730 Baltusrol Lane Charlotte, NC 28210
Tel. 704-365-0065