State Would Lose Up To $345.5 Million In Revenue Under U.S. House Tax Bill Gutting State Corporate Taxes

E. Norris Tolson: Measure Would Be Unfair to Small Business Taxpayers and Spur More Tax Sheltering, Costly Litigation.

Date: 1/17/2006

RALEIGH – Citing an estimate from the National Governors’ Association (NGA), North Carolina Department of Revenue Secretary E. Norris Tolson warned today that a U.S. House of Representatives bill (H.R. 1956) would gut business activity taxation (BAT) by North Carolina of large multistate corporations, resulting in the loss of up to $345 million in revenues annually to the state.

The NGA estimates that H.R. 1956 could strip states of between $4.8 billion and $8.0 billion in much needed business activity tax revenues, depending on how widely the new law ends up being used by businesses.  The North Carolina Department of Revenue projects the possible loss at up to $345 million.

Tolson said:  “Unfortunately, the eventual loss for North Carolina could be much worse.  Companies would have a huge incentive to restructure to take advantage of the tax avoidance opportunities under H.R. 1956.  Our research confirms that this is a real problem. The National Governors’ Association report makes it clear that the likely tax loss in North Carolina and nationwide would be far too big to ignore.”

Tolson added:  “Our state simply can not afford any narrowing of our tax base.   The federal government has no right to usurp state taxation authority and overturn rulings of state and federal courts on these issues.   These unfair tax loopholes for a select group of large companies would simply shift the tax burden back onto property taxes, sales taxes or income taxes paid by individuals and small businesses in our states.  We could end up being forced to look at curtailing essential state services, such as schools, and health and safety programs.”

Tolson emphasized that state officials already have cautioned Congress that H.R. 1956 would be a disaster, if imposed.  Testifying on behalf of states before the Subcommittee on Commercial and Administrative Law, Kansas Secretary of Revenue, Joan Wagnon warned that H.R. 1956 does not promote fairness among taxpayers, that it would result in more litigation, and it would not promote economic growth. 

Tolson added:  “Passage of this legislation would reverse established case law in North Carolina.  There is no need for federal preemption of state and local law by switching from a system that works to a system that does not work.  North Carolina is always hard at work to promote fairness and uniformity.”

The NGA estimate of the impact of H.R. 1956 on state revenues may be found at http://www.nga.org/Files/pdf/0509BAT.PDF. The full text of the Wagnon testimony to Congress is available online at http://www.mtc.gov.  For additional information regarding the NGA report or the testimony, contact Ailis Aaron, (703) 276-3265 and aaaron@hastingsgroup.com.

###

Public Affairs Office
P.O. Box 25000, Raleigh, NC 27640-0001
An Equal Opportunity Employer