NC Budget and Tax Center

Despite growing revenue shortfall, state lawmakers pursue more tax cuts for corporations

State lawmakers have introduced House Bill 117 (HB 117) that pushes for more tax cuts that benefit corporations, even as the state faces an ongoing revenue shortfall resulting from the tax plan passed in 2013.

State lawmakers would like to change an arcane tax provision that determines the amount of state income taxes paid by corporations. The state’s current tax system uses a formula that considers a corporation’s property, payroll, and sales in North Carolina. However, the tax change – referred to as single sales factor (SSF) apportionment formula – would only consider the sales component for certain corporations.

Proponents of this tax change claim that it will boost capital investment in the state and create more jobs. However, as BTC has highlighted before, this claim is not supported by real-world evidence. What will happen, however, is a further reduction in revenue available for public investments and services that businesses depend and rely on.

Here’s a quick recap on why North Carolina should not shift to a SSF apportionment formula:

  • SSF is not an effective economic development tool and is unlikely to spur economic growth and job creation, a common claim by proponents. Of the eight states that had a SSF formula in effect from 2003 to 2012, six were below the average of all states in retaining manufacturing jobs.
  • SSF will not benefit North Carolina businesses with little or no out-of-state sales, putting them at a competitive disadvantage. SSF disregards a corporation’s in-state property holdings and payroll size in determining taxes, and therefore disproportionately favors corporations with a high quantity of out-of-state sales. This means that smaller North Carolina firms are less likely to benefit from this tax change while their significantly larger, multistate competitors will.
  • If some corporations pay less, other North Carolinians will end up paying more. State lawmakers are required to produce a balanced budget, which means that a reduction in revenue as a result of shifting to a SSF will have to be made up with either a tax increase on other businesses or individuals or with a cut to state services – or some combination of both.
  • SSF will further reduce revenue for public investments that promote economic growth. Reduced revenue from this tax change would deepen the state’s precarious fiscal picture, which entails a projected revenue shortfall of $271 million for the current fiscal year.

Instead of providing more tax cuts to profitable corporations, a better approach is to close existing tax loopholes that give preferential treatment to certain businesses at the expense of others. Instead of asking low- and middle-income taxpayers to shoulder more of the responsibility for funding public investments and services that we all enjoy and rely on, state lawmakers should ensure that profitable corporations pay their fair share. This approach would support a vision of a fairer tax system that works for all and would make the Tar Heel state more business-friendly by creating a more level playing field for all businesses.

8 Comments


  1. LayintheSmakDown

    February 27, 2015 at 9:44 pm

    Uhh, there is no revenue shortfall. It is just a forecasting/estimation error. You see, there is no way to exactly forecast true revenues, but the fact that they are within what 1.3% of forecasted confiscations were is actually quite good. The variance is just a drop in the bucket in the big picture.

    And you guys want to expand medicaid…and we dont even have enough for how the state runs now without screeching and whining on this site (but nowhere else).

  2. ML

    February 28, 2015 at 1:49 pm

    Federal gov’t picks up the tab there, you know that. And if you believe in voodoo economics like you profess then by the time the fed stops funding our government will have plenty of funding. So your concern reveals your own distrust of supply-side.

    Furthermore, arguing that a shortfall is an an estimation error is really just a distinction without a difference. When your estimate is more than what the actual number is, that is a shortfall.

  3. LayintheSmakDown

    February 28, 2015 at 7:52 pm

    Well that is even worse, the Feds are pretty much borrowing every dollar they spend bringing debt from $10 trillion to $18 trillion in six years. Just think about that….we have pretty much doubled the debt that took us what 230 years to amass. The state shortfall of only 1.3% is outstanding when you compare to that number.

  4. ML

    March 1, 2015 at 11:16 am

    Me need to worry chicken little, the sky is not falling. We’ve always had debts and surpluses. The economy goes in ebbs and flows. As such the gov’t revenue goes up and down. Coming off of 4-6years of recession and 35 years of voodoo/supply-side economics of course the debt will rise. However the deficit has steadily been lowered by Obama.

    Your concern is valid but unnecessary.

  5. ML

    March 1, 2015 at 11:16 am

    “No* need to worry…”

  6. LayintheSmakDown

    March 2, 2015 at 2:15 pm

    Yes a debt an a bit of deficit spending can be handled, but doubling the debt in such a short period is asking for trouble. When the sky actually does fall, be sure to think of who you heard it from first. And the voodo that Clinton and co put in place was no match for this amount of debt. You can’t tell me it is a good thing to go from 9.5 trillion to 18+ trillion in 6 years. The recession was nowhere near that bad to justify that kind of spending, and we have supposedly been going like gangbusters with the Obamaconomy, why keep the faucet going?

  7. ML

    March 2, 2015 at 11:39 pm

    Reagan implemented voodoo economics. H.W. Bush called it that when he went up against Reagan in the primary.

    You forget the recession was in full swing during most of that period. Only the Great Depression has been worse. There is no doubt that without the actions taken by the government to spend and pump currency into the economy were necessary to keep the country afloat. While a lot of that could be attributed to clinton’s favors to Wall Street but both Dems and repubs got a taste. And currently only progressives like warren and sanders.

  8. ML

    March 2, 2015 at 11:41 pm

    are the only politicians speaking truth about the power of Wall Street and its strangle hold the American through propaganda and misinformation in support of supply side economics.

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