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Raleigh, North Carolina
June 22, 2007
Deal or No Deal?
Budget negotiations heated up and then flamed out this week. Early in the week, it appeared that House and Senate leaders were getting close to reaching agreement on a number of issues that would solidify a budget deal. Numerous proposals have been shuffled back and forth about the impending sunset of ¼ percent of sales tax and how to relieve county governments of their share of the Medicaid burden. With the June 30 end of the fiscal year looming, negotiations broke down yesterday and legislators put Raleigh in their rear-view mirror, leaving staff to begin drafting various forms of continuing resolutions to keep state government operating. While Appropriations Chairs have been looking under the proverbial couch cushion for loose change for some time, yesterday they turned over the right cushion and found an extra another $256 million over figures from mid-April, according to legislative economist David Crotts. The increase means a state surplus should exceed $1.3 billion for the fiscal year ending June 30. The recurring amount of this $256 million is $119.7 million, meaning one-time money that can't be counted on in future years made up $136 million of the total.
Please read through the following issues that hit the legislative fan and get back to us with your feedback.
Sales Tax – Will it stay or will it go? NCRMA Works on hold-harmless provision
Pharmacy Cut – Progress continues
Tax Appeal Reform – Clears Senate Finance Committee and headed to Senate Floor
Tax on Wire Transfers – Legislation appears dead for session
Bottle Bill – Pulled from Senate Commerce Committee agenda – end-around thwarted
Health Inspection Fee Increases – NCRMA tells bill sponsors “No Middle Ground”
Rebate Redemption – Clears House and back to Senate for concurrence
Mandatory Combined Reporting – Keeping North Carolina competitive
Alcohol Consumption on property/Employer liability – Met with Law Enforcement this week
Organized Retail Theft Bill – Movement expected on revised bills next week
Merchants Discount – Bill moves out of House Commerce – fiscal note weighing it down
Pervious Pavement – NCRMA works with House Leadership to get this issue off the table
Energy Standards – Senate Environment takes a first look at renewable energy
1. Sales Tax – Will It Stay or Will It Go?
This week, numerous members of the press and legislators alike approached us to ask us that infamous question of “how many days do your members need to change their cash registers?” Unless the General Assembly takes some action, ¼ percent of the state sales and use tax is slated to expire at the close of the state fiscal year on June 30. The State Senate has dug their heels in and is adamant that it is time for this “temporary tax” that was put in place in 2001 to end while the House would like to extend the ¼ percent and the $280 million-odd that come with it every year. It is a high-stakes game of chicken with retailers caught squarely in the middle and left confused on whether or not to begin the process to change their POS systems. When we talk to Senate Leadership they tell us “tell your members that the tax is rolling off so they better change their registers.” When we talk to House Leadership they tell us “not so fast – we're going to end up keeping that tax.” It is likely that this issue will not be officially resolved until late next week which may be too late to for retailers to implement the necessary changes.
Since the sales and use tax is actually a privilege license tax levied on the retailer, we continue to maintain that as a retailer you are probably better off over-collecting the sales tax and remitting the over-collected amount to the state. If a retailer under-collects sales tax, the retailer is liable for the amount under-collected. If the retailer over-collects sales tax, it would appear that you would not have any liability, provided you remit these funds to the Department of Revenue.
NCRMA recognizes the importance of this issue and began working on language to protect retailers. NCRMA met with Senate and House Leadership and staff this week to include language in the continuing resolution that would hold retailers harmless for the under-collection or over-collection of sales and use tax from July 1 to July 15 as long as the retailer was acting in good faith to come into compliance with collecting the proper amount of tax.
2. Pharmacy Cuts: NCRMA Working Hard to Hold the Line
NCRMA and the Association of Community Pharmacists again doggedly pursued Appropriations Chairs and their staff this week trying to stave off drastic cuts to Medicaid reimbursement to Pharmacists as proposed in the Senate budget. Earlier this year, NCRMA and the Association of Community Pharmacists undid a $10 million cut in the House Budget only to watch the Senate's Budget reduce Medicaid reimbursement from AWP-10% to AWP-15%. Since the item was in controversy, it is up to both the House and Senate Conferees to determine our destiny. This proposed cut takes $17.8 million in state dollars out of the cash registers of Pharmacists the first year ($54 million when federal matching dollars are taken into consideration. Appropriations Chairs and Subcommittee Chairs have continued their long days and late hours all week and kept NCRMA by their side.
So far, we have made amazing process. After the House initially went the wrong direction and move somewhat towards the Senate with an offer of AWP-12% we were able to get the Senate Health and Human Service Conferees to move back to AWP-11%. Late on Tuesday evening, we were successful in pushing the House back to AWP-11.25%. NCRMA and the Association of Community Pharmacists then kept working with Senators Bill Purcell (D-Scotland) and Doug Berger (D-Franklin) and Representatives Bob England (D-Rutherford), Jeff Barnhart (R-Cabarrus) and William Brisson (D-Bladen) to try and get all the way back to AWP-10%. Yes, we have made amazing progress but we will not quit until we restore all of the Pharmacist reimbursement.
3. Tax Appeal Reform
SB 242: Senator Dan Clodfelter (D-Mecklenburg)
http://www.ncga.state.nc.us/Sessions/2007/Bills/Senate/HTML/S242v2.html
On Wednesday, the Senate Finance Committee approved the Committee Substitute for Senate Bill 242 over the strenuous objection of Secretary of Revenue Norris Tolson. This legislation would essentially treat a tax appeal like every other appeal against a state agency. In 1999, the General Assembly recognized that the deck was stacked against citizens that challenged Executive Branch agencies and changed the law to require all appeals to go to an unbiased administrative law judge. Tax appeals against the Department of Revenue were exempted from this new procedure in the 1999 legislation. Senate Bill 242 would allow a taxpayer to first go through informal negotiations with the Department of Revenue over tax disputes before proceeding to a formal contested case proceeding before an administrative law judge. In the Committee discussion, Senator Clodfelter highlighted the facts that this bill provided additional due process to taxpayers and that two recent studies ranked North Carolina either last or at the bottom of the heap for tax administration. Secretary Tolson attempted to dispute Senator Clodfelter's arguments and tried to play up the fact that in his opinion, SB 242 would cost the State a large amount of money and would only benefit large taxpayers.
Senate Bill 242 will likely be on the Senate Floor on Tuesday where it should pass with little discussion and then will head to the House. NCRMA has been an active participant in a coalition of businesses and associations pushing for fairness in tax appeals and appeared before the Democrat House Business Caucus earlier this month to begin gaining approval in the House.
4. Immigrant Wire Transfer Taxes
HB 598: Representative George Cleveland (R-Onslow)
http://www.ncga.state.nc.us/Sessions/2007/Bills/House/HTML/H598v1.html
Last week, we updated you on HB 598 that requires a retailer to make a determination as to whether or not a person is an unauthorized alien. If a person does not possess the appropriate documentation to prove that they are an authorized citizen, the retailer would then be required to apply a 5% excise tax on wire transfers conducted through companies like Western Union . Violations would result in a Class 1 misdemeanor. Banks, credit unions and government would be exempt from the proposed law.
This bill was heard, but not voted on, in the Committee meeting held last Tuesday. Since there was no vote, the bill still sits in the House Judiciary II Committee. Representative Cleveland continues to ask us if we can work this issue out and even proposed to us to change his bill to tax all wire transfers and allow a person to receive an income tax refund for taxes paid on wire transfers. From the information we have received as recently as yesterday afternoon, the bill will not return for a vote. However, we will continue to track this issue.
5. Bottle Bill
SB 215: Senator Doug Berger (D-Franklin)
http://www.ncleg.net/Sessions/2007/Bills/Senate/HTML/S215v1.html
SB 215, “Litter Reduction Act of 2007” (the bottle tax bill) was scheduled to be heard next Tuesday, June 19, at 11:00. Previously, all indications were that this bill was dead for this year and it is uncertain at this point whether a vote will be taken on Tuesday. Late Monday evening, the bill was officially pulled from the Senate Commerce agenda. However, that did not stop Senator Berger from trying to move the issue: yesterday in the Senate Judiciary II Committee, Senator Berger offered an amendment to another bill concerning litter that would authorize a study of the virtues of a bottle bill in North Carolina . NCRMA entered the room just as Berger was beginning his discussions. Senators John Kerr (D-Wayne), Don East (R-Surry) and Tom Apodaca (R-Henderson) loudly and emphatically squashed Berger's idea and Berger withdrew his amendment.
Berger's version of the bottle bill is based on the California bottle bill but has many more complexities and moving parts. SB 215 imposes a 10¢ deposit per container which would put North Carolina on the map with one of the most expensive bottle deposits/taxes in the country and a very cumbersome system to collect bottles which would inevitably hurt the recycling programs already in place in North Carolina .
Berger has been very optimistic regarding the potential for this bill to pass with new House leadership and with Representative Lucy Allen (D-Franklin) chairing the House Environment committee. NCRMA is part of a very good coalition of business groups and individual companies opposed to the 10¢ per container forced deposit proposal that are preparing for Tuesday committee hearing.
6. Health Inspection Fees
HB 1363: Representatives Melanie Goodwin (D-Richmond) and Carolyn Justice (R-Pender)
http://www.ncleg.net/Sessions/2007/Bills/House/HTML/H1363v1.html
Representative Goodwin filed this bill on behalf of her local health inspector who contended that the current fee structure does not support local health departments in their efforts to administer the inspections. Currently, an annual $50 administrative fee is paid by affected retailers to the state for health inspections. None is paid directly to the counties. The state reallocates 2/3rds of that $50 fee back to the counties. This bill would allow every one of the 100 North Carolina counties to set their own fees for health inspections. No specific dollar amounts or fee limitations were outlined in the legislation, which could instigate excessive county-by-county fees that could vary across the state.
This week, NCRMA and the NC Restaurant and Lodging Association informed Representatives Goodwin and Justice that we did not believe that there was any middle ground in this debate and that we would both oppose the authorization of local inspection fees. The bill is in House Finance but has not been scheduled for another committee hearing at this time.
7. Rebate Redemption Deadlines
SB 1055: Senator Richard Stevens (R-Wake)
http://www.ncleg.net/Sessions/2007/Bills/Senate/HTML/S1055v2.html
SB 1055 was birthed after Senator Stevens received a complaint from a constituent that had purchased a product that did not allow the customer to apply for a rebate for four years. After working many hours with Senator Stevens, NCRMA was able to get the following changes made to the bill:
Rebates must be paid within 60 days of the receipt of a completed rebate form (original bill set the time at 30 days from postmark.)
The legislation does not apply to rebates of $5 or less. (started from $0 in the original bill)
The legislation does not apply to a retailer for a rebate offered by a manufacturer and vice versa. (not in the original bill)
This week the bill cleared the House Judiciary II Committee and the House Floor and will be on the Senate Floor on Monday evening for a concurrence vote. Senator Stevens has been very clear that he did not want to do anything to discourage the offering of rebates in North Carolina but that he also believed that bad actors needed to be addressed. Also, committee discussion initially headed in the wrong direction this week with some committee members expressing rebate frustration and asking about mandating instant rebates at the cash register. Stevens immediately shut that discussion down from the podium.
8. Mandatory Unitary Combined Reporting
http://www.ncleg.net/Sessions/2007/Bills/House/HTML/H462v1.html
A coalition including the N.C. Association of Educators, AARP of North Carolina and the State Employees Association of North Carolina urged the Senate Finance Committee this week to approve mandatory unitary combined reporting. North Carolinians for Fair and Adequate State Taxes they say the proposal would close loopholes that allow big companies to avoid big tax bills.
Currently, only 18 states require unitary combined reporting. None of North Carolina 's neighboring states and no states in the Southeast require it. Florida adopted the practice over 20 years ago but quickly repealed it because of the negative impact on jobs.
NCRMA, the NC Chamber, and 34 additional companies and organizations have organized to oppose the adoption of mandatory unitary combined reporting as reflected in SB244/HB462. Requiring corporate taxpayers to file their income tax return using the new mandatory combined reporting will create an uncertain environment for both the taxpayer and North Carolina as to the final tax liability and would increase administrative and compliance costs. Most importantly, however, it causes a major setback in the state's efforts to attract and retain new jobs and investments in North Carolina . This bill has not been scheduled for committee but stay tuned…
9. Alcohol Consumption – Employee/Agent Liability on Property
HB 1751: Representative Marilyn Avila (R-Wake)
http://www.ncleg.net/Sessions/2007/Bills/House/HTML/H1751v2.html
Representative Avila introduced this bill to address some problems the Wake County ABC is having with off-premises establishments. This bill adds employees or agents of an ABC permittee in the statute's prohibition against allowing consumption of the beverages on the permittee's premises, when the permit only authorizes the sale of beverages to be consumed off the permittee's premises (the statute currently applies only to the permittee). This is effective Dec. 1, 2007, for offenses committed on and after that date.
NCRMA met this week with the Chief of the Wake County ABC Law Enforcement to discuss the bill and made some progress in trying to reach a compromise that will allow Law Enforcement to shut down bad actors and allow legitimate retailers to continue to operate their stores.
10. Organized Retail Theft
SB 1270: Senator John Snow (D-Cherokee)
HB 1379: Representative Van Braxton (D-Lenoir)
http://www.ncga.state.nc.us/Sessions/2007/Bills/Senate/HTML/S1270v2.html
http://www.ncga.state.nc.us/Sessions/2007/Bills/House/HTML/H1379v1.html
NCRMA has been working with Senator Snow to revamp the language to SB 1270 to remove most of the cost associated with the bill. As originally introduced, SB 1270 had a minimum fiscal impact of $36 million and a maximum fiscal impact of $150 million due to increased prison beds. NCRMA has narrowed the focus on reducing the felony larceny threshold from $1,000 to $500 by applying this new threshold to those who steal from a merchant and when two or more people are involved in the larceny. The remainder of the original bill (theft through exit doors, removal of bar codes, theft of infant formula, etc.) remains in the bill. We anticipate a quick hearing on SB 1270 in the Senate Appropriations Committee sometime next week and then the bill will head to the Senate floor.
Over in the House, we have met with Representative Braxton and Representative Rick Glazier (D-Cumberland), the Chair of the House Judiciary II Subcommittee, to iron out any problems that they foresaw with HB 1379. It is likely that Representative Glazier will get the full subcommittee together the first week of July to review the revised draft. Once we can get SB 1270 out of the Senate it is likely that the House Subcommittee changes could be rolled into SB 1270 and sent back to the Senate for concurrence.
11. Merchants Discount
HB 1991: Representatives Harold Brubaker (R-Randolph), Tim Moore (R-Cleveland), Curtis Blackwood (R-Union) and Cary Allred (R-Alamance)
http://www.ncga.state.nc.us/Sessions/2007/Bills/House/HTML/H1991v1.html
On Wednesday, the House Commerce Committee approved HB 1991 that would phase-in the Merchants Discount that was repealed in the 1980s. The bill would pay retailers 1% of the sales tax collected in 2007, 2% of the sales tax collected in 2008 and 3% of the sales tax collected in 2009. The initial fiscal note is $14 million in 2007 and dramatically increases to well in excess of $100 million in later years. The bill is now headed to the House Finance Committee where the fiscal note will likely put the brakes on this legislation due to the cost to the state and spending priorities. Many in the General Assembly leadership and staff have frowned on this legislation due to the cost to the state. The movement of the North Carolina General Assembly to the center or left of center makes the passage of this legislation unlikely. Nevertheless, along with NFIB and the North Carolina Restaurant Association, NCRMA spoke in favor of HB 1991 in the House Commerce Committee and pointed out the cost to collect and remit sales and use tax as well as to program and reprogram POS systems.
12. Pervious Pavement Requirements
NCRMA continued meeting with House Leadership concerning a special provision contained in the Senate Budget which would require at least 20% of the area used for vehicular parking being composed of pervious materials. This provision was inserted into the Senate Budget at the request of Senate President Pro Tem Marc Basnight (D-Dare). NCRMA has distributed a lengthy (three pages) list of concerns with this provision both to Senator Basnight's staff and to House Leadership and conferees in an attempt to get this issue dropped from Budget negotiations. One thing going in our favor is the fact that Speaker of the House Joe Hackney (D-Orange) has said continually that there would be no special provisions in the Budget and we are encouraging House Leadership to stick to their guns on this point. NCRMA is working closely with the North Carolina Homebuilders Association and the North Carolina Restaurant Association to get this issue pulled from consideration.
13. Energy Standards
SB 3: Senator Charlie Albertson (D-Duplin)
http://www.ncga.state.nc.us/Sessions/2007/Bills/House/HTML/H1991v1.html
Yesterday, the Senate Environment Committee conducted its first hearing on Senate Bill 3. The Committee Substitute discussed yesterday is the result of over 12 meetings of a 100 plus person working group representing utility, industrial, commercial and environmental interests. Under this legislation renewable fuels and energy efficiency efforts would have to make up 12.5% of North Carolina electricity companies' energy portfolios by 2021. To implement this move towards renewable energy, residential, commercial and industrial customers would be required to pay increased charges per month. Commercial users would be capped at $50 per month per location while industrial customers such as manufacturers would be capped at $500 per location. NCRMA and some of its member companies have expressed the need for commercial users such as retailers to be treated similarly to industrial users. The Environment Committee will take this bill up again on Tuesday.
Thank you for allowing us to continue to represent the retail perspective before the North Carolina General Assembly since 1902.
Until next week...
Fran Preston (franp@ncrma.org)
Andy Ellen (andye@ncrma.org)
Elizabeth Dalton (elizabethd@ncrma.org)
Lindsey Kueffner (lindseyk@ncrma.org)
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