New tax rules for sports bettors, entrepreneurs and others proposed in NC

The North Carolina state Senate on Tuesday is expected to advance  legislation proposing wide-ranging changes to the state’s tax laws.

The bill, which faces a final approval by the chamber before heading to Gov. Josh Stein,  doesn’t touch on income taxes, which are expected to be handled in the state budget, which is being negotiated. Much of what it contains are relatively niche changes — but which could still affect many people and industries — by creating new tax exemptions or stricter tax enforcement.

People who bet on sports would be affected, possibly paying more in taxes if this becomes law. It would require sports betting companies to tell the state about any bettors who made more than $2,000 — to stop people from being able to avoid listing those winnings as income.

Entrepreneurs, particularly in research-heavy fields like tech and science, could also face higher tax bills if the bill becomes law. Timber farmers who lost trees to Hurricane Helene could see new tax breaks, meanwhile, and anyone in the state whose property taxes are improperly collected would be able to more easily get a refund.

The bill also makes a number of other changes, such as rewriting the rules for calculating sales taxes due to the elimination of the penny, switching responsibility for vape store oversight from the tax department to the Alcohol Law Enforcement division and quadrupling fines against people who file frivolous tax returns, from $500 to $2,000.

Senate Bill 595 is the result of months of work between a small number of Senate and House Republicans to tweak the rules. It has faced criticism from others who say that group failed to consider the repercussions of everything they wrote into the bill.

It passed an initial Senate vote Thursday along party lines in a 28-14 vote with all Republicans in favor and all Democrats opposed.

Sen. Tom McInnis, R-Richmond, said when the bill first came up in the Senate last week that he and the others involved put “a lot of work on it, and vetted it in many, many venues” — although he also acknowledged it contained “a couple of late provisions that some of you didn't see.”

As the bill was being put up for that initial vote last week, Sen. Jay Chaudhuri, D-Wake, stood up to ask Republicans to delay and rewrite part of it. He cited a provision that he said will harm innovation and business growth, adding that what state Republican lawmakers are proposing goes directly against tax policy that Republican President Donald Trump supports.

The focus of Chaudhuri’s concern was a change to amortization rules for how companies are able to write off research and development grants on their taxes. Chaudhuri said the rules proposed will kill new companies in North Carolina by forcing them to pay taxes on income that doesn’t actually exist.

“Imagine a young tech startup receives a $1 million research grant, and spends every dollar of it on qualifying R&D in that same year,” Chaudhuri said. “Economically, the company's profit is $0. But under the current provision, as written, only $200,000 may be deducted in one year — meaning that the company owes taxes on $800,000 of income that does not actually exist.”

Big companies will be able to eat those losses, Chaudhuri said, but it could spell the death of new companies trying to get established.

Chaudhuri said Trump has pushed for tax policies taking the opposite direction at the federal level and that, more importantly, so have two of North Carolina’s neighbors in Georgia and Tennessee. Passing this into law will only help those states steal talent and business from North Carolina, Chaudhuri said.

“When you tax businesses on income that doesn't actually exist, you are not just being unfair,” he said. “You are doing exactly what conservative economists warn against. You are depleting the resources these companies need to invest in their next hire, their next breakthrough, their next contribution to the North Carolina economy.”

Republicans weren’t moved. McInnis said he and a few other lawmakers have spent a long time working on the bill, to get it to a point where House and Senate leaders have each agreed to pass it, and that he wasn’t about to risk delaying its passage now to rewrite any part of it.

“We’ll certainly take another look, but the bill before us today is one that's most important,” McInnis said. “We've been working on it long enough to have conceived and birthed a child, and sent them to child care. This bill has got a lot of moving parts that affect a lot of people in our state.”