The General Assembly didn’t take any time to get into full gear. The House opened by moving an omnibus tax bill and completed action on a bill that will send 16- and 17-year-old offenders to the juvenile justice system rather than the adult justice system. The Senate approved an energy bill which would expedite hydraulic fracturing (fracking) and passed another regulatory reform bill.
HB725 (Young Offenders Rehabilitation Act) is known at the “Raise-the-Age” bill since it raises the age of juvenile jurisdiction to include 16- and 17-years-olds who have committed misdemeanor offenses. The bill would make the change effective July 1, 2020, recognizing that the State isn’t ready to immediately move all 16- and 17-years-olds into the juvenile justice system.
North Carolina is one of only two states (New York being the other) that automatically sends all 16- and 17-year old defendants to the adult justice system, and proponents of the bill argued that it was long past time for North Carolina to join the other states in recognizing that 16- and 17-year olds shouldn’t end up being incarcerated with adult offenders.
The debate on the bill did not split along the usual lines. The North Carolina Sheriffs’ Association opposed the bill, arguing that the State wasn’t ready and didn’t have the money or the facilities to deal with 16- and 17-years olds. The conservative John Locke Foundation argued that the long-term cost savings of making the change would potentially save the State $52 million.
The bill passed 77-39, and I voted for the bill. My vote primarily reflected my two decades as a summer camp director and owner. While a 16-year-old or 17-year-old may be physically an adult, I know that 16- or 17-year-olds don’t have mature brains. They don’t fully understand risks they may take; they don’t have good judgment. While 16- and 17-year-olds must be punished for crimes they commit, it is really wrong to punish them as adults when they don’t usually have the ability to make decisions as adults would. As a summer camp director and owner, I rarely hired 16- and 17-year olds to look after children, since they didn’t have the ability to appreciate risks. For that reason, I didn’t think they should be fully culpable in the same way an adult is because they don’t have good judgment.
The more difficult bill for me was HB1050 (Omnibus Tax Law Changes), and omnibus was the operative word. Running 56 pages, the bill included a wide variety of changes to the tax law changes. During the time between the Long Session and the Short Session, the Revenue Laws Study Committee met each month, and this bill was the product of that committee’s work.
While most of the bill was highly technical and mostly only of interest to tax lawyers and accountants, three provisions were debated at some length.
Privilege License Tax
This is a tax levied by local governments. Historically, I’m told, this system of taxation has been considered an outmoded and inefficient method of raising revenue largely because it places a tax burden on only a limited number of businesses. Opponents of the tax say it is archaic, arbitrary, and inconsistent. They say it is archaic because it is based on references to repealed statutes. They say it is arbitrary because there is no rationale for exempting some businesses, capping the amount of tax that may be imposed on other business, and subjecting still others to an unlimited amount of tax. They say it is inconsistent because different cities impose the tax in different amounts and use different interpretations of how to apply the repealed statutes.
Given this description, one may wonder why this tax was much of an issue. Well, the City of Charlotte, for example, raises several million dollars from all sorts of businesses, and it would have a hole in its budget if the ability to levy the tax were immediately repealed. For the City of Hendersonville, the number is about $300,000 — not an insignificant number.
Effective July 1, 2015, the House bill would repeal the current local privilege license tax and replace it with a broader tax base and flat tax rate of $100 per business. Supporters of the bill noted that, for many cities, the loss of revenue from the repeal of the privilege license tax is overcome by revenue it receives in local sales tax revenue from an expansion of the sales tax base under the tax reform bill passed last year and from the greater collection of sales tax applicable to online purchases from the agreement of Amazon to collect and remit sale tax on purchases made through Amazon. (For more information on the privilege tax, please click here.)
Tax on Vapor Products (the “e-cigarette issue”)
The bill imposes an excise tax of 5 cents per milliliter of the consumable product of vapor products commonly referred to as electronic cigarettes, effective February 1, 2015. The whole debate revolved around whether e-cigarettes should be taxed like cigarettes, and whether e-cigarettes were less harmful than cigarettes, and whether e-cigarettes could be used to break the addiction to cigarettes and other tobacco products. Surprisingly, an e-cigarette manufacturer sought the new tax on vapor products, presumably to avoid e-cigarettes from being taxed as cigarettes.
Prepaid Meal Plans
After the passage of the tax reform bill last session, one of the issues that bubbled up was how to tax meals served to students in dining rooms regularly operated by educational institutions. Last year’s tax reform bill repealed the sale tax exemption on meal plans, but the problem was the way educational institutions serve meals is very different than when the tax exemption was put in place. Today, education institutions sell a variety of meal plans that offer choices between a specific number of “meal swipes” on a prepaid meal plan and “food dollars” that may be used to purchase items directly. The meal swipes are problematical to tax on a transactional basis because the gross receipts paid for the meal swipes apply regardless of whether the meals are consumed. The revision imposes the sale tax on the gross receipts derived from prepaid meals plans.
Unless one has a student attending college, this tax issue may not seem important, but I sure heard from a number of my constituents about this issue. The lesson learned is that making changes to the tax code sometimes has unexpected, unintended consequences.
On Third Reading, the tax law changes were adopted by a vote of 84 to 29, with most Republicans voting for the bill and a majority of Democrats voting against it. I voted for the bill.
When the bill moves to the Senate, the issue will likely be whether the privilege license tax should be immediately repealed or whether the tax changes should gradually move toward weaning local governments from this tax by creating a higher cap on the tax, for example $100 for small businesses, $250 for medium sized businesses, and $500 for large businesses, or by extending the time for a complete repeal of the tax.
While the House worked on the tax bill, the Senate began its work on revisions to the biennial budget and on a regulatory reform bill, SB734 (Regulatory Reform Act of 2014). The Senate also completed work on an energy bill, SB786 (Energy Modernization Act), which mostly deals with the issues of hydraulic fracturing or “fracking” and offshore drilling for natural gas and oil. Those bills will move to the House today.