United States: North Carolina General Assembly Week In Review - October 23, 2015

ICYMI, Political News

Governor signs eight bills

Governor Pat McCrory signed eight bills into law this week, leaving less than 25 bills awaiting his signature. The Governor has until October 30th to sign or veto the remaining bills. However, if the Governor takes no action on a bill, the bill will become law without his signature. If the Governor were to veto a bill after adjournment he is required to reconvene the General Assembly.

SB 472 Local Incentives for Historic Rehabilitation - Authorizes cities and counties to make grants or loans for the rehabilitation of historic structures and to make appropriations for economic development purposes.

HB 679 UNC Self-Liquidating Projects - Authorizes the acquisition or construction and the financing of four capital improvement projects of the University of North Carolina.

HB 924 Highway Safety/Other Changes - Clarifies when a law enforcement officer is required to request a blood sample, the law governing prohibited use of red and blue lights, the subpoena authority of the Director of the SBI and repeals certain mandatory reporting regarding pseudoephedrine products.

HB 647 Epi Pens in All Child-Serving Businesses – Allows authorized entities, any entity at which allergens capable of causing anaphylaxis may be present such as summer camps, day cares, and restaurants, to maintain a supply of epinephrine auto-injectors. Also authorizes healthcare providers to prescribe and pharmacists to dispense epinephrine auto-injectors to those authorized entities.

SB 694 Reegan's Rule/Enforce Pharmacy Benefit Management - Encourages parent education during well child visits at specific age intervals regarding Type I Diabetes and amends the law pertaining to Pharmacy Benefit Managers.

SB 279 Amend Qualifications/Practice of Counseling – Amends the professional counselors act to modify educational qualifications for the practice of counseling and requires local boards of education to address sex trafficking prevention and awareness.

SB 519 Amend Child Custody Laws – Promotes the encouragement of parenting time with children by both parents.

HB 943 Connect NC Bond Act of 2015 – Will place a $2 billion bond package on the March 2016 Presidential Primary ballot in North Carolina. If approved by the voters, the bill makes investments in education facilities, parks, National Guard facilities and water and sewer infrastructure throughout NC.

See Governor Press Releases on the bill signings here and here.

Not Running

Rep. Bryan Holloway (R-Stokes) announced today he is resigning, effective immediately, from the NC General Assembly. Rep. Holloway is leaving to pursue an opportunity with the NC School Board Association. Announced earlier this week, Rep. Nathan Baskerville (D-Vance) stated he will not seek reelection in 2016. Reps. Holloway and Baskerville are the latest of eight General Assembly members to announce their retirement or resignation.

New Operations Director for NC's Medicaid program

Dee Jones has been named the new operations director for NC's Medicaid program, overseeing the transition from the fee-for-service method to managed care. HB 372, Medicaid Reform Act, created the new Division of Health Benefits. Jones is formerly the chief operating officer of the Department of Administration.

New Secretary of the Military and Veteran Affairs

Tuesday NC's first Department of Military and Veterans Affairs Secretary was sworn in at the state Capitol. Retired Marine Corps. Maj. Gen. Cornell Wilson Jr. also served as a member of the NC Military Affairs Commission.

Fiscal Research Revenue Report Reveals Growth

Fiscal Research released the Quarterly General Fund Revenue Report in October. Among other findings, the report reveals the General Fund collections for the first quarter of the current fiscal year are $40.3 million (0.8%) above the revenue target. Fiscal Research reports that tax revenues are $60.7 million ahead of the $4.9 billion target with over half of the surplus coming from Corporate Income tax collections. However, non-tax revenues from fees and investments are $20.4 below the target of $216.6 million. Fiscal Research also cautions in its presentation that the first several months of the fiscal year are typically the least important for the full year. Fiscal research notes among its conclusions that "[t]he economy remains in a stable, yet modest growth pattern. Forecasters project this pattern will persist at least through the next 9 to 12 months. Recession risks are slightly elevated do to this prolonged, below-average recovery, but remain below 20%."

Important Economic Development Resulting from 2015 Session

McGuireWoods Consulting (MWC) and its clients proactively advocated and negotiated several successful policy provisions impacting economic development and tax issues. Several of these provisions and other legislation affecting economic development and tax issues from the 2015 session are included below.

2015 Appropriations Act, HB 97

Venture Capital Multiplier Fund – provides a perpetual and sustainable source of funding for the investment of 10% of the net assets of the Escheat Fund. The legislation authorizes the engagement of a third-party professional actuary or consultant to administer funds and select investment opportunities appropriate for receiving allocations from the Fund on the basis of potential return on investment and the risks attendant thereto. This policy was supported by several MWC clients.

Single Sales Tax Factor –phases-in a single sales factor during 2016-17 tax years, 2018 tax year will impose 100% single sales factor for all corporations. NC currently uses a double-weighted sales apportionment factor for most corporations. For the 2016 tax year NC will impose a triple-weighted sales factor, and for the 2017 tax impose a quadruple-weighted sales factor. MWC was actively involved in these negotiations on behalf of several clients.

Corporate Rate Reduction – beginning on January 1, 2016, the state corporate tax rate will decrease from 5% to 4%. The corporate rate will further decrease to 3% on the fiscal year following the year the net General Fund tax collected in a fiscal year exceeds $20.975 billion.

Tax Base Expansion – sales tax will apply to repair, maintenance, and installation services for a motor vehicle or tangible personal property beginning on March 1, 2016.

Local Option Sales Tax (LOST) Revenue for Economic Development, Public Education, and Community Colleges – disburses $84.8 million for fiscal year 2016-17, and $84.8 million plus the percentage change of the total collection of local tax levied under Articles 39, 40, and 42 in the following fiscal years, to counties by a new allocation formula intended to "address sales tax leakage that results from the different revenue raising capacity of local option sales taxes in each taxing jurisdiction." Counties must use these funds for economic development, public education, or community college expenses. MWC was actively involved in these negotiations on behalf of several clients.

Historic Preservation Tax Credit – creates a new tax credit for rehabilitating historic buildings going into effect January 1, 2016 and expiring January 1, 2020. The credit provides a tiered system for income producing certified historic structures, 15% for up to $10 million of qualified expenses, and 10% for over $10 million to $20 million of qualified expenses. There is no credit for qualified expenses over $20 million. The credit also provides bonus credits for projects in Tier 1 or 2 counties or for targeted investments in manufacturing or agricultural related projects that have been vacant for the two preceding years. There is a 15% credit for rehabilitating nonincome-producing certified historic structures, which will include private residences. The minimum qualified expenses must be at least $10,000 and cannot exceed $150,000 within a 24 month period.

Personal Income Tax Reduction – beginning in January of 2017, the individual income tax provision will decrease from 5.75% to 5.499% and increased standard deductions for married filing jointing by $500, heads of household by $400, and single or married filing separately by $250.

Franchise Tax Changes – makes changes to the franchise tax base to raise the maximum tax levied from $75,000 to $150,000 and minimum from $35 to $200.

NC Competes Act, HB 117

JDIG – extends the expiration of the program to January 1, 2019. The legislation also increases the amount that may be committed as grants under the program by $5 million for the current period, increases the calendar year statutory cap from $15M to $20M on an on-going basis, provides additional commitment for high yield projects, and makes other changes. MWC actively worked on this legislation.

OneNC – modifies local match requirements to a tiered requirement: 3 State dollars for 1 local dollar for tier 1, 2 State dollars for 1 local dollar for tier 2, and an even local match for tier 3. MWC actively worked on this legislation.

Aviation Fuel Incentives – extends the sunset of the current sales tax refund provision for interstate passenger air carriers to January 1, 2020 and expands the exemption. Beginning January 1, 2016, the legislation exempts from sales tax fuel sold to an interstate air business for use in a commercial aircraft; tax remaining sales of aviation gasoline and jet fuel at 7%. Effective October 1, 2015, the sales tax rate on aircraft and tax qualified jet engines increases to 4.75% with a maximum tax of $2,500 and exempts service contracts and repairs, maintenance, and installation services on qualified aircraft and qualified jet engines from sales tax. MWC actively worked on this legislation.

Datacenter Incentives – beginning on January 1, 2016, the legislation creates a sales tax exemption for qualifying datacenters for equipment and electricity. It expands the type of business properties that would qualify for the exemption. To qualify the center will need to meet wage standard and health insurance requirements, and would need to have a written certification from the Secretary of Commerce that at least $75 million in private funds has been or will be invested by one or more owners, users, or tenants of the datacenter within five years of the date the initial investment is made. MWC actively worked on this legislation.

Motor Vehicle Service Contract Exempt from Sales Tax – exempts service contracts on motor vehicles from sales tax as imposed in HB 97, on repair, maintenance, and installation services.

Extend NASCAR Sales Tax Preference – extends the current sales tax preferences for motorsports from January 1, 2016, to January 1, 2020.

Local Incentives for Historic Rehabilitation, SB 472

The bill became effective on October 20, 2015 when it was signed into law by the Governor. The new law provides that cities and counties may make appropriations for economic development that "increases the population, taxable property, agricultural industries and business prospects of any city or county." The new law creates special rules for 7 types of economic development projects. It adds "employment and industrial output to the list of permissible economic development goals." All appropriations for economic development are subject to the public hearing requirement of G.S. 158-7.1(c), the Local Government Budget and Fiscal Control Act, and public disclosure in the local government's annual financial report under the requirements of G.S. 158-7.1(e). The new law also allows cities and counties to make grants or loans for the rehabilitation of commercial or noncommercial historic structures, whether the structure is publicly or privately owned.

Legislation to Watch For in 2016

  • New Markets
  • Crowdfunding
  • Return of the Research and Development Tax Credit
  • Return of the Renewable Energy Tax Credit
  • Expansion of the Sales Tax base
  • Market-Based Sourcing Rules
  • Reduction in the Franchise Tax
  • Phase out of all sales tax refunds for non-profits
  • Increase in the Mill Machinery Privilege Tax with a per article cap of $80
  • Further changes to the Local Option Sales Tax

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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