North Carolina’s Sales Tax Holiday will take place in 2013, though this year will most likely be its last.
The holiday, commonly known as the tax-free weekend, will take place from Friday, Aug. 2 to Sunday, Aug 4.
During the three days, which make up part of the second-busiest shopping period of the year after Christmas — back-to-school shopping — North Carolina residents are estimated to save approximately $14.7 through tax breaks, according to the N.C. Retail Merchants Association (NCRMA).
In line with the General Assembly’s work on tax reform, the State Senate passed on July 3 a plan which eliminates the Sales Tax Holiday starting next year.
In June, the state House of Representatives initially passed H.B. 998, which maintained the Sales Tax Holiday, before sending it to the Senate where the provision was stripped.
A comprehensive tax reform compromise to H.B. 998 was announced on July 15 in Raleigh by Gov. Pat McCrory and legislative leaders and does not include the Sales Tax Holiday for 2014.
In June, state Senate President Pro Tempore Phil Berger’s office was quoted in the Raleigh News & Observer saying that the elimination of the Sales Tax Holiday in the Senate plan will be offset by long-term tax relief which the bill already includes.
Following the announcement of the reform deal, a press release from the office of Rep. Robert Brawley (R-Iredell), quoted Speaker Thom Tillis (R-Mecklenburg) saying, “This plan will provide tax relief for working families throughout North Carolina and will enable businesses to create jobs for our citizens. Our state will become more competitive because of this tax reform legislation, and North Carolinians will have more dollars in their pockets.”
Brawley’s press release also announced that the reform will simplify and reduce the three-tiered income tax from a maximum of 7.75 percent and a minimum of 6 percent to a flat 5.8 percent rate in 2014 and 5.75 percent in 2015.
The corporate income tax will drop to 6 percent in 2014 and 5 percent in 2015 on a 29 percent rate reduction. If the state meets revenue targets where revenue grows with a growing economy, the rate will drop to 4 percent in 2016 and 3 percent in 2017.
H.B. 998 passed out of the House’s conference committee on July 16 and went back to the floor of the House for final approval.
Christie Burris, director of communications for the NCRMA, said no further changes could be made to the bill following its passage from the committee.
The bill on tax overhaul was given final approval by both Houses of the General Assembly on July 17. The bill has been sent to Gov. McCrory for approval.
While the NCRMA estimates that the Sales Tax Holiday saves North Carolinians an estimated $14.7 million in sales taxes over the three days, the state Department of Revenue says the same amount is lost in state tax revenue.
The NCRMA released a statement July 1, before the announcement of the reform deal, promoting the benefits of the Sales Tax Holiday.
“North Carolina’s annual Sales Tax Holiday is important to the state’s consumers and business owners, the retail market and especially to the overall economy,” said Andy Ellen, NCRMA’s president and general counsel, in the release.
“It’s a popular tax break on back-to-school necessities for hard-working families during what continue to be difficult economic times,” he said. “Shoppers enjoy the sales and savings, and retailers get a nice boost from it. It’s a win-win.”
Citing a recent study by BIGinsight, the NCRMA said 77 percent of families with school-aged children said the economy will impact their decisions when shopping for back-to-school items.
The NCRMA statement also says that stripping the tax holiday will cost the state additional revenue it in fact earns over the tax-free weekend.
It says a 2010 study conducted during Florida’s tax holiday by the Washington Economics Group found that an additional $115 million in revenue was raised during the holiday because, in addition to buying tax-free items, customers also bought items not included under the tax-free provisions. Those items were thus subject to taxation.
Additionally, NCRMA asserts that the Sales Tax Holiday spurred employment and payroll tax revenue, with retailers adding on average 8,300 hours onto their payrolls for the special weekend.
Ellen said losing the perks of the weekend also damaged competitive benefits to North Carolina business with relation to other states.
“Without this weekend, the state’s business climate will suffer significantly as our residents will travel across state lines to shop tax-free weekends in surrounding states,” he said. “The retail business community always sees a significant increase in sales on Sales Tax Holiday weekend due to the savings customers receive on specials offered by retailers, particularly on big-ticket items such as computers.”
Regarding overall tax reform, McCrory has previously said he wanted tax rates to be competitive with other states in the region. Before reform, North Carolina’s top rate and corporate rate were the highest in the Southeast.
Also, the NCRMA press release says the Sales Tax Holiday is the only time every year retailers are not at a competitive disadvantage to online-only retailers, which are not required to collect taxes.
“This weekend is a great shot in the arm for retailers — both independents and chains — who are the largest private employers in North Carolina,” Ellen said.
Burris said the reforms will be reviewed in 2014 by the General Assembly’s Revenue Laws Study Committee, and if the removal of the Sales Tax Holiday appears to be an issue, it will be addressed at that time.
Following the announcement of the tax deal, Burris said NCRMA will be sending out further information about the Sales Tax Holiday.
“We’re also encouraging people to reach out to their legislators to let them know how much the sales tax holiday means to them,” she said. “It’s something we’ve gotten a lot of feedback on.”
The NCRMA is a non-profit trade association which represents 25,000 stores and 75 percent of North Carolina’s retail volume before the General Assembly.