Sen. Bob Rucho, R-Mecklenburg, wants to bid state income taxes goodbye while expanding the sales tax.
Two-thirds of the economy is based on payment for services and one-third is based on buying goods, the lawmaker said. Rucho wants to move away from taxing property and payroll and move toward taxing what people purchase.
“Tax policy in this state needs to be simple and transparent,” Rucho said.
The Senate will hear a detailed description of Rucho’s tax reform ideas Tuesday.
Income tax
The goal is to do away with personal income tax, Rucho said.
Right now, North Carolinians pay between 6 percent to 7.75 percent in income tax, depending on filing status and taxable income.
Under Rucho’s plan North Carolina would join nine other states with no income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming.
Rucho believes the shift would draw people from states that pay high income tax rates, such as New York. He also thinks increasing the sales tax will create more income for the state.
People would pay a tax on what they buy — including services such as haircuts, landscaping and dental checkups.
The state’s sales tax rate is 4.75 percent. Counties can add local sales tax, which makes Gaston County’s sales tax rate 6.75 percent.
Corporate tax
Rucho also says he wants to reduce the corporate tax. Businesses pay a 6.9-percent corporate tax now.
He sees lowering what businesses pay as a way to reward companies doing business in the state and encourage outside businesses to take a look at North Carolina.
Rucho’s tax plan could allow businesses to buy big-ticket items without having to pay sales taxes.
Questions
Business leaders had questions about how businesses could be exempt from sales taxes, how this proposed tax structure could affect nonprofits and how long it might take for the state to see positive results.
Rucho said businesses would register with the N.C. Department of Revenue and get a card with a number. That would allow businesses to make big purchases without paying sales tax.
Having a changed tax system will provide certainty to businesses, Rucho said.
Some incentives now in place won’t be there, but Rucho says people will have extra dollars in their pockets and their tax burden will be reduced.
You can reach business reporter Amanda Memrick at 704-869-1839 or follow @AmandaMemrick on Twitter.