Update: Legislation about Sales Tax Rebate in NC to Be Decided Soon

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June 25, 2015; News & Observer (Raleigh, NC)

Earlier this year, an NPQ newswire reported on nonprofit organizations in North Carolina fighting to maintain the state tax rebate they enjoy. Legislation was being proposed for the upcoming state budget that would severely limit the amount that could be claimed in the program. In 2014, a similar plan was explored by the legislature with attempts made to either remove the rebate altogether or significantly lower it. As NPQ reported, the budget bill was passed with a rebate cap in place, but at a level that caused little or no damage to the budget of nonprofit organizations. Now, according to a report in the News & Observer, the rebate is back on the table for discussion.

North Carolina requires all nonprofit organizations to pay sales tax on items that are considered “tangible personal property.” Certain tax-exempt nonprofits that use such tangible personal property to assist in carrying out their mission are allowed to apply to the state for a rebate of those sales taxes. These rebates are only available to certain tax-exempt organizations such as hospitals, educational institutions, many faith-based organizations, and some group homes for older adults. The rebates are offered twice a year.

Currently eligible tax-exempt organizations are allowed to claim rebates of sales taxes paid up to $45 million. In the budget currently being considered, that could be reduced to $1 million, which would obviously have a significant impact. The argument by proponents of the cap is that the rebates are creating an unfair competitive environment: Nonprofit hospitals do not have to pay property tax and they are eligible for the rebate while for-profit hospitals in the same community have to pay both taxes. Advocates in favor of maintaining the higher cap suggest that the reduction could cause crippling damage to hospitals in rural and impoverished communities.

In the same proposed budget is a provision that would reduce the itemized personal income tax deduction at $20,000, including charitable contributions. Proponents of this provision argue that it affects as few as 1.5 percent of the population and these people are rich enough that their contributions are not driven by tax deductibility. One Republican legislator who is also a wealth management professional says that in fact he has personally encouraged significant gifts from his clients by demonstrating the positive tax implications of such a donation.

The deadline to pass the budget is Tuesday, June 30th, and it is almost certain that a deal will not be reached in time. As recently as last Thursday, a deal to extend the current budget for a limited time could not be passed either, although there has been precedent for that in recent years. A vote to keep the government running beyond Tuesday and allowing for time to consider proposals such as the cap on the state tax rebate is possible in the next day or two.—Rob Meiksins