NC Senate OKs new tax rules for sports bettors, entrepreneurs and others

The North Carolina state Senate on Tuesday passed legislation that could usher-in wide-ranging changes to the state’s tax laws if later approved by Gov. Josh Stein. 

The Senate voted 27-18 to pass Senate Bill 595, which would create new tax exemptions or stricter tax enforcement in several niche areas that affect many people and industries. For instance, people who bet on sports would be affected, possibly paying more in taxes if this becomes law. It would require sports betting companies to comply with federal law by telling the state about any bettors who made more than $2,000. 

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.”

Medicaid fraud bill advances 

The Senate also approved a bill to help North Carolina catch more Medicaid fraud. House Bill 34, which passed the chamber unanimously, goes back to the House for consideration. 

The proposal incorporates policies endorsed by the state Department of Health and Human Service. It clarifies the information healthcare providers must send to regulators for oversight purposes. It also cracks down on autism therapies that Republican lawmakers allege to be riddled with fraud.

Lawmakers hope increased fraud detection will save tens of millions of dollars annually as inflation, tax cuts and a growing population strain the state budget. 

Most Medicaid funding comes from the federal government, but the state still spends billions annually to cover 3 million North Carolinians. New federal work requirements could soon remove tens of thousands of North Carolinians from the Medicaid rolls, reducing costs. Lawmakers hope fraud detection will spur additional savings. 

Attorney General Jeff Jackson and DHHS Secretary Dev Sangvai have testified to lawmakers on their efforts to prevent Medicaid fraud or recoup lost money. They asked lawmakers for resources to beef up their efforts. The bill doesn’t include new spending for those requests, and it’s unclear if they’ll be addressed in the forthcoming state budget. 

Protecting farmland 

Lawmakers are also moving forward with a bill that would ban adversaries of the United States from buying farmland and property near military installations across the state. The Senate voted 42-3 to pass House Bill 133, which would ban “adversarial foreign governments” and state-controlled enterprises from purchasing, leasing or holding controlling interests in agricultural land statewide or property within 50 miles of military installations.

The bill defines adversarial foreign governments as any governments on the federal list tied to International Traffic in Arms Regulations, which includes countries such as China, Russia, Iran, North Korea, Cuba and Venezuela. Military installations named in the bill include Fort Bragg, Marine Corps Base Camp Lejeune, Seymour Johnson Air Force Base, Marine Corps Air Station Cherry Point and other military and National Guard facilities.

An earlier version of the bill passed unanimously in the House last year — but failed to get a vote in the Senate. Sen. Bob Brinson, R-Craven, said he has worked with bill sponsors to address lingering concerns about the legislation. A previous version of the bill would’ve banned foreign adversaries from buying land within 75 miles of a military base.

The bill needs approval from the House before it can go to Stein’s desk.