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Friday Fax – Legislative Update
With the first day of summer arriving and the state fiscal year a week away, the proverbial heat is on legislators on Jones Street . House and Senate Leadership continuously huddled both in the back corner office of 612 where the Budget is constructed and over breakfast at the Governor's Mansion with Governor Easley.
Pressure is mounting to either finalize a Budget or pass a continuing resolution. While many are holding out a slight glimpse of hope that a Budget can be approved by June 30 th , most are resigned to the fact that we will probably need a continuing resolution while Budget negotiations continue. The big concern is that the House and Senate will pass a continuing resolution authorizing the continuation of state government for 30 more days and then retreat to their respective corners and wait 25 days to begin this maddening process all over again.
With the hope that things could get worked out with the Budget comes increased pressure to get critical pieces of legislation moving through the process just in case the unthinkable becomes reality. The pace began to pick up a bit this week and issues of importance to retailers - methamphetamines, wine tasting, alcohol permitting, split case fees, pharmacy quality assurance and indecent exposure began to resurface.
Next week is lining up to be a very interesting time in the North Carolina General Assembly.
June 24, 2005
1) Budget Talks Begin
2) Sales Tax Update
3) Methamphetamine Issue in Negotiation
4) Split Case Fee Reversal Clears Committee
5) Flashing Bill Headed to the House Floor
6) Tobacco Tax Update
7) Sales Tax Holiday Just Around the Corner
1) Budget Talks Begin -- The Senate and the House began running down two paths this week in order to avoid a shutdown of State government on July 1, 2005.
Both the House and the Senate have passed a continuing resolution extending the state budget by thirty days. Where the two bills differ is that the House extends the half-cent sales tax for an additional two years while the Senate makes the half-cent sales tax permanent and allows the higher personal income tax rate to sunset on June 30, 2005. This may turn into a high stakes game of chicken as some form of this bill needs to be approved by June 30 th and would need to be voted on the House and Senate Floor on two separate days in order to meet constitutional guidelines.
On the other track are continued budget negotiations between the House and the Senate. Appropriations Subcommittees began meeting on Wednesday and met on both Thursday and Friday. Subcommittees will return to Raleigh earlier than usual next week for mid-afternoon meetings on Monday. The big issue that must be resolved before Budget writers can begin resolving differences is just how much money there is to spend. The Senate Budget was predicated on spending $16.8 billion in 2005-2006 and $17.4 billion in 2006-2007 while the House Budget was predicated on spending $17.2 billion in funds in 2005-2006 and $17.8 billion in 2006-2007. The State did get a bit of good news on Thursday when fiscal analysts determined that the State would finish the 2004-05 fiscal year with a surplus of $650 million, or $123 million more than projected just a few weeks ago. Unfortunately, about two-thirds of this surplus is derived from windfalls that cannot be counted on to generate next year, but an additional $117 million in recurring revenues will be available for next year's budget.
There are also a number of issues swirling around the Senate and House agreeing on a Budget plan. Among them is whether or not to include a lottery in the Budget and whether to increase the tobacco tax by $0.25 per pack or $0.35 per pack.
While both the House and the Senate Budget contain the necessary provisions for North Carolina remaining in compliance with the Streamlined Sales Tax Agreement, NCRMA still has its work cut out for it on a number of fronts. Specifically, NCRMA is working to convince the Senate to take the House position on not reducing pharmacy reimbursement under the Medicaid program. The House Budget did not include a reduction while the Senate proposed a 1% reduction costing North Carolina pharmacies $1.5 million ($4.5 million when federal and county matching funds are included) in 2005-2006 and $3.8 million ($11.4 million when federal and county matching funds are included) 2006-2007.
2) Sales Tax Update -- A half-cent of North Carolina's 4.5% state sales and use tax is slated to expire on July 1, 2005. However, both the North Carolina House and Senate have approved separate bills further extending this tax. The Senate proposal would make this tax permanent while the House proposal extends the additional half-cent for another two years (July 1, 2007).
Just two years ago, retailers were under the same pressure as to whether they should begin the process of reprogramming their cash registers to reflect the tax expiring or whether to not reprogram their cash registers. Just as we did two years ago to prevent mass confusion and expense, we have had several discussions with Senate and House leadership and legislative staff about this issue. While it is far from a "done-deal" every indication we have is that the half-cent state sales tax will be continued for at least another two years and you should plan accordingly. The combined state and local rate will remain at 7% for every county but Mecklenburg which will remain at 7.5%. The Department of Revenue is prohibited from alerting you to this issue until a bill is passed and signed by the Governor.
NCRMA met this week with Legislative Leadership to discuss whether retailers would need amnesty language in a continuing resolution and subsequently the Budget. We have received assurances from Legislative Leadership and the Department of Revenue that if for some reason the half-cent sales tax did expire and merchants overcharged the consumer that there would be no liability to the retailer because retailers are permitted to overtax just not under tax as long as the tax is remitted to the Department of Revenue.
3) Methamphetamine Issue in Negotiation -- NCRMA lobbied the House Judiciary IV Committee this week to encourage the members of this Committee to enact reasonable restrictions on cold medicine containing pseudoephedrine rather than restrict consumer access to these products by going too far, too fast. Senate Bill 686 - Meth. Lab Prevention Act of 2005 - would limit the sale of these products to behind a pharmacy counter and being sold by a pharmacist.
Most of the Committee members have consistently told us that they recognize the importance of this issue as well the emotional issues that surround the problem and that they want to support more reasonable measures.
On Wednesday, NCRMA met with Representative Phil Haire, the Attorney General's staff and the SBI to discuss the proposed bill. After an hour and a half the two sides agreed to take a proposal back to their respective sides to see if some agreement could be reached. There will be a follow-up meeting on this issue and the proposal on Monday at 4:15 p.m.
On good thing did happen this week. House Bill 1345 which contains much more reasonable restrictions that Senate Bill 686 was moved into the Judiciary IV so that both bills could be discussed in the Committee on Tuesday at 10:00 a.m. There will be no vote on Tuesday. Each bill sponsor will be given 15 minutes to discuss their version of the bill, followed by an explanation from a representative from the Oklahoma Attorney General's Office.
4) Split Case Fee Reversal Clears Committee -- On Tuesday, the House ABC Committee approved House Bill 1429 - Wine Shipper Fee - which now includes a provision to reverse the opinion letter issued by the ABC Commission to require wine wholesalers to charge retailers a fee to split a case of wine. The ABC Commission's decision would have cost North Carolina retailers millions of dollars each year and would have had a detrimental effect on small wineries. The same provision has been passed by the Senate in a separate bill (SB 828) but it appears that the House plans on moving their bill to address this issue. House Bill 1429 will be on the House floor for a vote on Monday evening with a third reading on Tuesday.
5) Flashing Bill Headed to the House Floor -- On Thursday, the House Judiciary II Committee passed Senate Bill 776 - Amend Indecent Exposure Law. This bill was introduced by Senator John Snow (D-Cherokee) at the request of NCRMA and would clarify North Carolina law to make it a crime to expose one's self in a public place to another regardless of the gender of the victim. Additionally, the bill would create a new Class H felony for someone over the age of 18 years of age to expose themselves to someone under16 years of age in a public place for the purposes of sexual gratification. This bill is meant to address a series of incidents in Charlotte area stores where male children were being flashed by men and district attorneys had no ability to prosecute due to a loophole in North Carolina law. The bill now moves to the House floor.
6) Tobacco Tax Update -- It appears highly likely that there will be an increase in the excise tax on tobacco this year. North Carolina currently has the lowest tax in the United States on cigarettes at $0.05 per pack. Both the House and the Senate have approved separate measures to increase the tax on tobacco by different amounts effective July 1, 2005. The House approved an increase of $0.25 per pack of cigarettes from $0.05 to $0.30 per pack while the Senate has approved an increase of $0.35 per pack of cigarettes from $0.05 to $0.40 per pack.
The political reality is that it does not appear that the increases in the tobacco tax will be approved by July 1, 2005. This is because the House cannot pass an increase in the tobacco tax unless the tax is passed in the Budget and we appear to be a long way from approving a Budget. The House has some conservatives Democrats that have said that a $0.25 increase per pack of cigarettes is the most they can vote for and only if this increase is included in the Budget. On the other hand, while the Senate could approve a separate bill increasing the tax rather than in the Budget, there are several Senators that made their vote on the Senate Budget contingent upon a minimum $0.35 increase in the tax per pack of cigarettes which is more than the House feels it can get passed. NCRMA is pursuing amnesty language for retailers that will be affected by this change in tax that could literally become effective overnight.
House Version - Tobacco Tax Rate Changes - Effective July 1, 2005.
- Amends GS 105-113.5 to increase cigarette tax from 5 cents to 30 cents a pack
- Amends GS 105-113.35(a) to increase tax on other tobacco products from 2% to 6%, except retains 2% rate on cigars
- Deletes provisions in the Senate Version that would have capped at $12,500 the discount for cigarette and tobacco products distributors.
Senate Version - Tobacco Tax Rate Changes - Effective July 1, 2005
- Amends GS 105-113.5 to increase cigarette tax from 5 cents to 40 cents a pack
- Amends G.S. 105-113.35(a) to increase the tobacco products tax from 2% to 4% of the cost price
- Caps at $12,500 a year the discount for cigarette and tobacco products distributors.
7) Sales Tax Holiday Just Around the Corner -- North Carolina will again hold its Sales Tax Holiday. This year the dates are from August 5 th - 7 th, 2005. NCRMA has worked closely with the North Carolina Department of Revenue to prepare handy materials, including a poster containing a list of taxed and non-taxed items to place at your registers to help employees and customers identify tax-free items. Please call NCRMA at 1.800.662.7211 to obtain copies of these free-to-members posters to help ensure the weekend runs smoothly for your store, your employees and your customers. Or visit Sales Tax Holiday page on our website.
‘TIL NEXT WEEK
Fran Preston
Andy Ellen
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