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Friday Fax – Legislative Update
A High Stakes Game of "Chicken" was how most observers of the North Carolina General Assembly described the activity this week. The end of the fiscal year and the sunsetting of both a half-cent sales tax as well as the higher rate of personal income tax for high-income earners was staring legislators squarely in the face and neither the Senate nor the House seemed ready to blink without obtaining concessions from the other body. After long evenings of negotiations, the Senate and House forged a compromise to keep state government operating with only nine hours to spare.
July 1, 2005
1) Half-Cent Sales Tax Remains - For Now
2) Budget Talks Continue
3) Methamphetamine Issue Heads to Subcommittee
4) Split Case Fee Reversal Clears House
5) Flashing Bill Passes House
6) Tobacco Tax Update
7) Sales Tax Holiday Just Around the Corner
1) Half-Cent Sales Tax Remains - For Now -- Around Thursday at noon, the Senate and the House reached a temporary agreement to extend the additional half-cent sales tax until such time as the State Budget is approved but no later than December 31, 2005. The half-cent sales tax was temporarily implemented in 2001 at a time when North Carolina was in a downward economic spiral. The tax was set to expire on July 1, 2003 but was extended for an additional two years. The House initially proposed another two year extension of the half-cent sales tax. The Senate proposed making the additional half-cent a permanent tax while allowing the increase in personal income tax for high wage earners to sunset. With the July 1, 2005 sunset of these taxes baring down on the House and the Senate, the Legislative Black Caucus flexed its muscle and threatened to allow the half-cent sales tax to expire altogether if the sales tax was not lowered to help lower income individuals as well as high income tax payers. With just a 63-57 margin, House Speaker Jim Black was forced to try and reach some resolution.
A number of scenarios were floated all week including an incremental ratcheting of the sales tax. NCRMA was repeatedly summoned to meet with House and Senate leadership about the logistics and timing of reducing the sales tax. NCRMA received its last call at 10:30 a.m. on Thursday to inform us that a deal had in fact been reached and let us review the final language.
The Senate and the House agreed to extend the half-cent sales tax until such time as the effective date of the Budget but not later than December 31, 2005. It is our understanding that there will likely be a reduction of the combined state and local sales tax to 6.9% (7.4% in Mecklenburg County ). NCRMA huddled with Senate and House Leadership yesterday to explain that merchants needed thirty days notice of a change in sales tax rates in order to ensure cash registers were properly programmed. Additionally, NCRMA has requested that amnesty language be inserted into the State Budget relieving merchants of liability - both civil and from the state - for improper collection of sales tax for a period of time. We are to begin drafting this provision today.
The drop in the sales tax rate would be coupled with a reduction in the personal income tax rate for the highest earners from 8.25% to 7.75%. The drop in these two taxes would result in a reduction in state revenues of approximately $120 million thereby wiping out the $117 million in additional revenues that we reported the state had collected this year.
2) Budget Talks Continue -- While most of the attention this week was focused on the continuing resolution, the House and Senate Appropriations Chairs continued to huddle in the back room corners of Room 612 trying to cobble a budget together. The big issue that still must be resolved before Budget writers can begin resolving major 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. Compounding this determination is that the reductions in the sales and income tax that are likely to occur in the coming weeks will likely wipe out the $117 million in additional revenue that we reported to you last week. Luckily, Appropriations Subcommittees had been meeting all week with target budget amounts that did not include the $117 million. However, there was some hope that some of the proposed cuts would be restored in Room 612 by the Appropriations Chairs using these additional funds.
There are still 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. Speaker Black reiterated yesterday in the media that it will be difficult for the House to pass a lottery in a form other than the way in which it was passed earlier this year. Governor Easley would like the lottery to be a piece of the State Budget. Speaker Black suggested this week that the Governor should start lobbying some individual legislators if the Governor wished for the lottery to be included in the State Budget.
The Health and Human Services Appropriations Subcommittee tentatively agreed this week to adopt the Senate position and reduced Medicaid reimbursement paid to pharmacists by 1% to AWP-11%. It appears that NCRMA will have to get this cut reversed at the Full Appropriations Chair level. This 1% reduction would cost 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) in 2006-2007.
3) Methamphetamine Issue Heads to Subcommittee -- The House Judiciary IV Committee met Tuesday to discuss House Bill 1345/Senate Bill 686 dealing with methamphetamines. Senate Bill 686 (Bill Sponsors Walter Dalton and John Snow) is similar to the Oklahoma model and would make cold medicine containing pseudoephedrine a Schedule V Controlled Substance meaning that cold medicine (except for liquids and gels) would only be sold by a pharmacy from behind a pharmacy counter by a pharmacist. House Bill 1345 (Bill Sponsors Phil Haire and Lorene Coates) would implement a more reasonable approach similar to Georgia 's law. NCRMA had met on Tuesday evening with the Attorney General's Staff and Representative Phil Haire (the sponsor of HB 1345) for a second time with the idea that we might come to some compromise between the two bills. Unfortunately, the Attorney General's Office has drawn a line in the sand and refused to negotiate. The District Attorneys and the Sheriffs have been out in full force the past two days - even making a visit to the House Republican Caucus.
Along with two pharmaceutical manufacturers, and Mark Gregory of Kerr Drug and Teross Young of Food Lion we worked the members of this committee very hard and were able to garner the support for sending the bill to a subcommittee. At Tuesday's hearing, Senator Dalton presented Senate Bill 686 and was followed by Senator Snow, Attorney General Roy Cooper, a volunteer firefighter who was severely injured responding to a fire at a methamphetamine lab and the head of the Tennessee State Bureau of Investigation. Representative Haire and Representative Coates then presented their bill saying that North Carolina should enact reasonable restrictions. Representative Joe Kiser suggested that pseudoephedrine products in tablet form should be banned entirely.
At the end of the Committee Hearing, the Committee Chairwoman Jennifer Weiss appointed a subcommittee comprised of:
Rep. Rick Glazier (D-Cumberland) Chair
Rep. Grier Martin (D-Wake)
Rep. Karen Ray (R-Iredell)
Rep. Carolyn Justus (R-Henderson)
Rep. Elaine Parmon (D-Forsyth)
The Subcommittee held their first meeting at 11:00 a.m. on Thursday morning to discuss their future meeting schedule. There is going to be an uphill fight to get a reasonable bill. Although Representative Rick Glazier (D-Cumberland) encouraged the two parties to continue negotiations to try and reach some form of compromise, the Attorney General does not seem willing to budge on this issue to find middle ground.
4) Split Case Fee Reversal Clears House -- On Wednesday, by a vote of 104-14 the House approved House Bill 1429, "Wine Shipper Fee." House Bill 1429, introduced by Representative Pryor Gibson (D-Anson), 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 bill has been referred to the Senate Commerce Committee with a second referral to the Senate Finance Committee.
Without this legislation, North Carolina retailers could be forced to pay millions of dollars for a service that the retailer is prohibited from providing for themselves.
5) Flashing Bill Passes House -- On Thursday, the House approved Senate Bill 776 - Amend Indecent Exposure Law - by a vote of 113-0. This bill will go back to the Senate for concurrence. We anticipate that the Senate will concur with the minor technical change the House made.
Senate Bill 776 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 younger than 16 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 maile children were being flashed by men and district attorneys had no ability to prosecute due to a loophole in North Carolina law. Representative Jim Harrell (D-Surry) carried the bill on 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.
House Version -- Tobacco Tax Rate Changes
- 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
- 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 5th - 7th, 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. Visit the Sales Tax Holiday page on our website for more information.
‘TIL NEXT WEEK
Fran Preston
Andy Ellen
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