Some businesses fear an overhaul
of North Carolina's tax system could decrease the amount of business coming in their doors.
Republican lawmakers unveiled more details this week about the plan to cut individual income taxes and put $1-billion back into the pockets of working families.
In order to offset the cut in revenue, chamber leader Phil Berger and other GOP senators are eyeing a sales tax for many businesses in the service industry.
"Our tax code remains stuck in the 1930s," Berger said Tuesday. "Failure to reform our tax code has cost North Carolina. We're standing still while other states move forward."
Sen. Bob Rucho, R-Mecklenburg, one of the plan's authors says when the tax code was written our state's economy was based on selling goods. But today only one-third is sales of goods and two-thirds is sales of services.
"The way our tax policy is - it is based on taxing goods only. That's like running on two cylinders in a six cylinder car. You can't expect to get any type of traction or speed - or in our case economic growth and jobs," Rucho said.
The overhaul would make North Carolina's sales tax base one of the broadest in the country by eliminating exemptions and expanding to cover more services.
North Carolina currently subjects about 30 services to the sales tax. The proposal would add another 100 or so services to the list, including all kinds of repairs, personal services like haircuts and massages and professional services like those attorneys provide. Other services that would be subjected to the sales tax include pet grooming, commercial linen supplies and window cleaning, according to the documents.
Those service-oriented businesses which are currently exempt from sales taxes would apply a 6.5% sales tax. The change is expected to generate $2-billion in state revenue.
But barbers at Man-Mur's barber shop in Raleigh tell WNCN they fear a new sales tax would mean a customer pays more and tips less.
"Anytime you go up on a haircut price it hurts business because people are already struggling to pay for a haircut as it is now," said barber, Richard Creech.
Dean Bailey, President of King's Auto Repair previously expressed a similar concern.
"As prices go up we see a decrease in traffic in here so I think anything that adds to the outgo of the budget is going to have an impact."
"The current concept is if a service is being taxed in another state, then it would be part of the expanded base," Berger said. Business-to-business transactions would be exempt from sales taxes expanded by the proposal.
The bill has not been introduced and the Senate leaders said there are still details to be worked out.