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House | June 25, 2015 | Committee Room | Finance

Full MP3 Audio File

Good morning if we could find our seats, better make it a chance to catch up we're right on time if it's legislative time, welcome to the house finance committee for our encore presentation of the finance and tax package from the senate, I'm chairman Jason Sine, first would like to introduce our pages and sergeant arms. Our pages today Savanna Bell from Rutherford County sponsored by Rep. Mike Hager, you're over here to my right, Lukas Godwin from Forsyth County sponsored by Rep. Julia Howard, Drue Halkman from Iredell sponsored by Rep. John Fraley, Hailley Capline from Wake County sponsored by Rep. Jason Saine, Meyth Millian from Wake County sponsored by Rep. Grier Martin, Bin Mckithen from Beaufort sponsored by Rep. Paul Tine Good morning to you all appreciate you being in the committee this week. Our house sergeant of arms are Ready Sales, Marvin Lee, Terry Mccraw Young By, Gim Run. I'm sorry we also have Bill Morris and General[sp?] Austin. Thank you. First I would like to announce that we're going to refer house bill 531 increase modified [xx] occupancy tax to the house finance subcommittee on occupancy tax. And with that we will start our presentation or discussion of the Senate Finance package on House Bill 97 which is the 2015 Appropriations Act appreciate you all being here this morning and hopefully we all have a little more room today, I know we had some crowed quartos on Tuesday. So, hope everybody gotten in the door and found the list so I still have the list, I know so forks would like to defer a little bit but from who we have left on the list on Tuesday was Rep. Hastings, Rep. Szoka, Rep. Reives, Rep. Stam, Rep. Broly representative Haynes I think we have representative Stumper, although I [xx] and we got representative Lookie, before we start chairman Brody do you have any comments? I'll say what Mr chairman I will hold for a little later. Okay thank alright first step by you so representative [xx] you are recognized Yes, Mr. Chairman if it's in order I'd like to ask the staff a quick question. It's an order. This kind of reverse back to the subject the other day when we were discussing the distribution methods, and I just wanted to verify on specific part that is relevant to my district, and that is in the distribution method would the senate plan affected all the distribution model or is that clear? Staff is resuming, go ahead. Sure Mr. Chair you are right that there have been some jurisdiction in the past for some counties in the past that to give a little background to the audience, most counties are distributing to those cities sale tax revenue either on per ca-pita bases or on the development basis but we are aware that there have been a few cases or instances in the past where most of you call the blended model in a specific session that happened past, over the past two decade and am thinking of an hands-on or just to have an agreement to have an intervention we can for this to make more city to make certain that it will not change however, the language in the bill intends to and I believe uses similar language to keep on price the car distribution between the counties and cities I think that it will fine we will confirm thank you Thank you, Rep. Hastings. Next up, made a few adjustments here, Rep. Reives. See here, everybody's in a different spot today so a little bit. He is not here.  OPK, thank you. Mr. President Stem I would like to address one thing that's not in the tax package but it's within [xx] but it's really a tax and I just want to make sure we have it on the table. [xx] briefed that the snack bar downstairs would no longer be subject to sales tax, but at the end of every year they would have to revert to the Assembly electronic percent of their revenue, everybody would recognize that as a tax increase on your omelettes. Just because the tax is embedded in the cost. Well, the Senate package raises an additional about $33 million or 36 million or whatever it is from additional lottery

of ways of accumulating lottery money, any economist would tell you that that's a tax. That is a tax, we should discuss it. Secondly, they embed spending without calling it spending, they have a reduction in availability to go to the golden slut, I mean the Golden Leaf Foundation and whether you're in favor of the Golden Leaf Foundation or not is certainly spending if you send them another 20 million. All I'm saying is you got to read that Bill very carefully and the figures on tax and spending are somewhat smoking mirrors Thank you sir. And thanks for the kickoff, I'm sure we'll have some more snarky comments making in the newspaper. So, [xx] Thank you sir. Next step Rep. Heinz. Yes sir, it'll pass. Alright, Rep. Brawley Thank you. Mr. Chairman, one of things we discussed a little bit yesterday and perhaps staff want to get in to a little bit deeper toady was the idea of market based sourcing particularly this applies to banks, and the idea is there are rules under something called the Multi State Tax Commission Guidelines where you're dealing with intangibles and in this case we're talking about investments. Currently, investments are taxed under allocations to different states by the location of the customer of the bank trading company, not the location of the person doing the trading, so someone operating let's say an investment floor, or just pick a bank, NCNB in Charlotte, well Bank of America. If they do business with someone in South Carolina currently, that transaction will be taxed in South Carolina not in North Carolina. Under the market base sourcing rules where we're shifting, we're going to say that, every transaction that's done from a trading floor in Charlotte is taxed in North Carolina, every transaction done from a trading floor in Wilson by BBNT will be taxed in North Carolina unfortunately almost  all the other states in the south east don't do the multi-state commission tax policy so those transactions would also be taxed in the other states. Bank of America delites that this would cost a 40% increase in the North Carolina income tax on their investment traded floor in North Carolina and are quite [xx] and that would be such an increased in cost that they will relocate that operation collocate with the trading flour in New York City because if you are ready for this the state of New York will begin a more favorable tax treatment to the Bank of America trading operations that North Carolina would. We would be incenting them if you will to occupy whole street and the of funniest kind of  interesting Because this is only 70 people, but the payroll on this 70 people which is commission based deserve a $25 million a year. Now, I frequently don't have a lot of sympathy for people that will make as much in a year as I will probably make in my entire life time, but I do appreciate the property taxes they pay at Mecklenburg County and the sales taxes they pay to the state of North Carolina, on their luxury items and the income taxes they pay to the state of North Carolina which we get to allocate up here for a lot of purpose state wide. And, I also don't really want to wail on the senator on this because they're trying to find ways to accurately tax all kinds of activity but what it does point out, is the wisdom of the market price, there is 120 people in the house there is 50 people in in it and the 170 of us who are not as smart as the thousands of accountants and lawyers in North North Carolina that is looking at this with a fine tooth [xx] and finding the all by ways. But this one certainly did raise a red flag like for me because the ideal of loosing those seven day hard working

individuals out of (xx), will mean upper Carolina (xx) will lose donations, not to mention how much income tax even at a lower rates we would loose just by running people off with these people we need to encourage to come to come back. A second problem was the allocation of dividends because of the (xx) operations like investments can be part of the banking operation. They've to be completely separated. They're taxed separately and then money will transfer between the company's dividends to the extent that this transactions were considered tax free and I know I'm getting in the wits here, but traditionally because it's a tax free transaction part of the cost of generating the income are disallowed from deduction so expenses are reduced by 20% of the amount of the divided transfer, the problem of course is the company that generated the dividend paid taxes on all of the earnings that were used to generate the dividend so we are essentially double taxing the dividends and then throwing out a fifth of the expenses associated with general writing them which increases the tax liability. The senate plan is currently constituted will eliminate that 20% cap and could require all of expenses associated to be undeductable, there is also a problem with the way Intercounty interest deductions are handled and this to bank and it's a reason that is a problem for a bank if you are part of a major corporation and part of that cooperation is a bank Bank of America, Wellsfargo bank, BBNT do you go to follow citizens to borrow money for your company you just wouldn't do that you'll continue to do operations within that cooperate group but those expenses which would be recognized in expense if they we're paid to another competitor bank or not recognized when they are paid to a bank that is part of the same group now at the same time, they're the package gets a lot of praise from the bank on two issues repeat of the bank privileged tax and to the reduction of the cooperate taxes rights, know why should we care of rich fat carts in big banks do well for purely selfish reasons one of the thing that is allowed North Carolina to grow so well, is the fact that we have large banks in this state they were able to operate properly, very profitably under our state banking laws when other states where more restricted. If you will recall the ability to get a basket ball franchise in the NBA and NFL team. All of this, Carolina Hurricanes were all aided by the fact that large amount of capital could be raised quickly from money sender banks in North Carolina with second largest bank in state in the country, that access to capital at low cost helps every business no matter how small, from representative customer needs a business loan for her child care center, that loan is easier to obtain in North Carolina because of the subsidies of all the big business that is here and it is in our interest to keep this banks in North Carolina and profitable while I applause the senates willingness and the hard work they've done, and won't be sorry today because there is a lot of good in the package, but we still have to continue to work on this. Now, I know that none of the bank people were here yesterday or present today, so I wish I could ask the lady from Bank of America, they're not saying they want to move their headquarters, they're talking about abandoning North Carolina but what they, but what they are saying is something very real, that a decision made by this body can have an intimidate impact on whether or not a profitable operation that makes business sense for North Carolina decides to leave, and this is one of the things that in this process I'm glad to see we're finding now, before we find out the hard way that we've made a mistake. Thank you thank you Mr Chairman. Thank you Mr Chairman and ditto. Representative Stam and Representative Meyers In that

vein I'd like to say something good about the senate tax package, and that is the single sales factor approach, I like that part of it. Just want to throw that in while we're on a Kumbaya moment. On the sales taxing, something that was not brought, the redistribution formula, something that was not brought up Tuesday, I represent Southern Wake County which is one of the wealthiest district probably in the state. I have no problem with Wake County being a donor county to the rest of the state. We have a lot of advantages, couple of my initiatives 108 geared towards rural areas and when we consider JDIG I had a proposal to limit JDIG money in two or three counties but the sole concept of just looking at the sales tax to find out who is donor whose Donne is wrong, you have to look at all of the taxes. And if you consider income tax Mecklenburg like many of the counties which supposedly are benefiting from the sales tax formula are huge donor counties. And the sales tax formula just slightly reduces their quotelities[sp?] to the rest of the state. You just can't kill the goose that lays the golden egg and expect it to keep giving, and for that among many other reasons, I think It's just a very misguided, portion of the Senate Bill. You know, fixing so of the formulas like the adjustment that was made a few years ago for no apparent reason, maybe that's worthwhile, but not the wholesale redistribution that's embedded in the Senate Bill. Thank you Representative Stem, Representative Mile. Thank you Mr. Chairman I would like to ask two questions the first is I wanted if you could request the staff if they could review section 32.15. Okay. Mr. Tott So, this is the the franchise tax section and this section reduces the franchise tax rate from $1.50 per 100 to $1 per 1, 000, it also increases the minimum tax from $35 to $200 and it increases the maximum tax on the holding companies from 75, 000 dollars to 150, 000 dollars. In 32.15 you see a lot of language that has been struck, taken out, and you see some additional language added and what that is doing is is to simplify the calculation of the franchise tax base. It's conforming it more closely to generally accepted accounting principles, I can give you a little further detail on that if you want.  Please. So right now the franchise tax is based primarily on the difference between a companies assets and liabilities, however the same thing that is considered a liability for financial accounting purposes is not considered a liability for franchise tax purposes. This would make the provisions also eliminated number of obsolete deductions. Thank you Mr Chairman, can I ask the second question on a slightly different matter? You may Representative Martin. Section, I think it's 32.17 is a section that changes the tax imposed on machinery and large manufacturing and distribution facility, 32.17 C specifically. I wonder Mr Chairman if you might allow anyone from the public who wanted to comment on that matter to speak. That would be appropriate, is their anyone in the audience who would like to comment on that particular piece? do you have anyone in mind Representative Meyer? I thought there may be someone here who would want to, but so let me ask this then, although this may be a question for the Senate so I'll simply lay this on the table, and I wonder what the rationality is for increasing this piece of taxation in exchange for the other decreases that are in the package? Thank you sir, any other members of the committee wishing to speak, representative Martin. Thank you Mr chair, and I had a question on the same

topic on the mail machinery taxes and we had some other legislation that passed the house and how does this compare with that now are there any other changes to who qualifies for this tax. I understand that some companies would just state the regular sales tax, if you can just review that provision and who that applies to I'd appreciate that. Okay, thank you. Staff. The Senate Bill does not expand who is eligible for the 1% $80 cap in articles 5F the house budget I believe in House bill passed by the house would have expanded who is allowed to pay the 1% 80 under article 5 as opposed to the full state and local sales tax rate on that machinery under the regular sales tax, so the house would have expanded the people, the universe of who article 5F would have applied to the Senate did not. Representative Martin for a follow up Okay so those companies who are not in the exemption who are paying the regular sales tax is there no cap on that. So in the Senate version of the tax, the cab goes form $80 to $500 and it's based in the same rate but for other companies that aren't listed they are made don't have any cap at all, is that correct at the same rate? Yes Ma'am if there is anybody paying under the sales tax statute there is no cap Thank you, Representative Lucas I apologize I skipped you and I didn't intend to so. You're recognized. Thank you Mr. Chairman I wanted to ask about a small part of the Senate package but is nonetheless far important to small businesses and constituent and that is in my district and probably state wide and that is on page 491 on the bill, there is reference first of all to a general sales tax that would be on veterinary services and I just wanted to confirm that that is on all veterinary services, pet services and including spraying and nurturing of pets. And can I ask that [xx] Yeah yes she may [xx] some one have an answer Yes sir, it is an all veterinary services and there are no exemptions. Follow up Yes sir I'm wondering they're also at the top of page 491 there's reference to repair services, maintenance services and and the question is whether they supplies to all mobils. So, that I take my car to the other side, am I going to start paying on label for this. Yes sir. There's a difination on page 49 on repair, maintenance and repair services and that's services on touchable personal property which would include, all of my bills. Just to speak on that. If I understand that and I guess this may be for Mr with just it looks like on repair services that we go to the next fiscal year which is 2016 and 2017 by combining the state and local sales tax that this will be almost $220 million is that correct taking state and the local taxes Step here right now. Dennis Canada from first Colombia let me ask and clarify the question are you looking just at the inflation repairmen and fine? I just that part of it. Yeah, I'm looking at the chart and just wanted to confirm I'm reading it correctly. It looks like rounds to 216 millions. I'm not that great at public math, so when I add the 152 and the 64 I think you do get somewhere around 116, 118 million. 216, 218 The installation and repairing, Just so everyone knows what you're looking at. We're looking at the one page summary of the tax packet from last time, looks like this. So in the bottom on the left inside, insulation maybe 4 lines from the bottom, insulation repair meaning, tangible reasonal property for 1617 you have $152, 000, 000 and then the local embarked [xx] go over to the right of the page. The local embarked to $64, 000, 000, so you're also correct something like 216, 000, 000. So we will be bringing that much and from the other repair services and then on the [xx] impaired again I think I got it right but that from the four First let's create 16/17 that's 45 million in state taxes and 19 million in law taxes so, 64, 000, 000. I think my arithmetic's right

there again Representative Luke, yeah I trust your math, but I didn't hear the question well she is lonely on the veterinary and pet-care services. 2014 56.9 million. Again not that kind of policy maths your idea is correct take the man in the left side to state amount, take the man on the right which is the local Thanks guys I just wanted to confirm with you that I was reading correctly. Sure. Mr. Chairman, members I am very concerned that the senate bill at the tax on the labor allow any services at the hour pair shop and related repairs and then on vet services and pet services. I have a lot of concerns particularly on the issue of that the services for the veterinarian anything related to pets that even now days taste that fall the fall sales at rate and I think that is really a bad idea from the state point of fairness. We have here in this bill and some have been inherited from the trigger in that is already in the existing registration but we have major major taxes for corporates interest and on something that affects the middle class that affects especially the small businesses we are going to correct this and add to the charges that they have to make to their customers this seems not so bad when it goes to comparison to other benefits that we have if you look on the previous page of the bill we continue to have gaps on both so that on [xx] that representative Wanner[sp?] raised a couple of weeks ago that is tax on its full rate but a yard is not an airplane is not this are are just things that seems we are unfair to the middle class and to the average citizens and to the small businesses and I wish hope that we on the house side will not include those kinds of sales taxes on Auto-repair etcetera and veterinarian pet services, that seems the same very unfair to include those in the package so I hope our compromise with the senate will not include those things Thank you representative Rookie and again that is our intent is to discuss in our committee what our compromise might look at so I appreciate your comments, [xx] comments representative Penilton, I'll get to you just shortly. Representative Penilton is not a member of the committee but we've invited all members of the house to come so representative Penilton recognizing you representative Luis and representative Hamilton Thank you Mr. Chairman, I agree with what representative Luke is saying but what isn't making any sense to me is if you're going to tax all professional corporations and associations then this would make sense. If you're going to do almost about 18 of them attorneys and then just the architects and engineers, they all have to pay this tax of an upper post back for the same reason, so if we're going to do what we should do it's an all professional corporation Thanks sir and thank you for being with us on the committee today. Representative Luis. Thank you Mr. Chair I'll to, with your permission pose a few inquire the staff just to gain a little bit of understanding of what senator Durham was referring to. Regarding veterinary services. Is it not true that goods, tangible items like flea control that are sold by the veterinaries are already taxed under State Sales Tax. So, the veterinarians are already collecting and remitting sales tax on the goods that they sell Steff. Yes Representative Lewis, that would be true. May I ask an additional question? You may. Is it not also true that all the repair shops are required to already collect and remit tax on the parts that they attach during the repair and that those parts are also taxed on the full state sales tax rate? Yes sir. May I ask another question? You may. Is it not relatively, and I'm not asking you to comment on the policy wisdom or error of the past but is it not fairly accurate to say that with the first version of Houston[sp?] 998 which is often refers to Tax Reform Bill which I can see that not everyone in this room support hope supported many for the same reasons that they

are questioning this is the day that we did in that Bill contemplate taxing of services if they were, so she aided with administering staff that was already taxed like the outer repair that the gentleman from down will vote it. Yes sir that the house 998 the way the house passed it did in spend the sale tax based to clues, repairs and maintenance services. Thank you Mrs Chairman, may I continue just to get a little better grasp than what the gentleman from [xx] said You may. Thank you Mr Chairman. Over on page 486 he begins to talk about the extraction of the standard deduction which is another way of saying the 0% income tax bracket for the State. And, while obviously there are four different ways to file your taxes, and in fact the bill not only raising the standard deduction or the amount of money that can run the state before it's taxed, it actually does that twice or three times so just to make out math easier, we'll just take a look at page 486 on line six, I believe it is where it talks about file and jointly and you see that the standard deduction or the amount of money that you can earn in the State before it's taxed would be for a married [xx] would increase 15k to say 175 Using the same math I think the Representative the gentleman from Durham was that would mean that a family could earn $2500 more before it's taxed and I believe the tax rate is 5.75%. So I guess to inquire the staff and I didn't see which one math [xx] ago, is my math correct just to ball part this thing. If you're raising the standard deduction $2500  at 5.7% that is about 100 and 443 bucks that you save in taxes, is that fair? Staff. That's correct. May I ask? You may sir So, if we assume that the 143 is correct and we assume that the average sales tax rate I'm going to switch gear slightly there. The average sales tax for [xx] is 6.75% if you include the most counties part. Would I be correct to say that, you would, that an individual, we need to spend $2118 more, before their income tax saving was used up? Staff. Yeah, both scenarios you gave equals to 143, Yes sir that's correct. Mr. Chairman just one quick remark the sorry to stay on this  so long. You're recognized sir. I think when we review tax policy we have to look at the total implication. It is easy to poke holes in one part if you don't consider all parts, I think there have been some legitimate concerns that have been raised this morning, frankly some of the concepts I wanted to ask our chairman Broholi[sp?] about a few things but he's so small I couldn't even follow what he said, about half what he said, but to who point of trying to protect and empower the working families of the state I think there's some good things in this bill that we seriously need to consider. Thank you sir. Next up is Representative Hamilton, Representative Stam, Representative Hastings, and at some point this morning we do want to give the public that is here in the audience a chance to comment as well, but Representative Hamilton you are recognized. Thank you Mr. Chairman. My questions were along what seeing on regional breakings as well but more related to the impact on the hospitals the reduction overtime their sales tax return their status I didn't know if there is anybody here from our hospitals that may want to comment on that I do have Mr. Hearn[sp] from the Hospital Association on the list, if

you would Is it appropriate at this time? It is appropriate Thank you Mr. Chairman good morning kerry hosd[sp?] from hospital association to reapite the question thank you Mr chairman essentially am looking that try to understand the former implication for the basically I will just say elimination of those rebites[s? P]to our local hospitals and what the overall implication that would be and then I have a question for staf[sp?] Mr chairman thank you representative Hamilton and Mr chair John kerihen[sp?] from the hospital association and I believe you are for two days elimination because for hospitals when you take it down to a million dollar cab on our the sales tax refund it is issue that is in elimination we spend a lot of money every year, buying supplies to treat our patients and this provision kind of confuses me because at one time it seeks to help the rural counties with the sales tax redistribution, at the other time it will really harm those counties ability to receive healthcare because rural healthcare is dependent a lot on this sales tax rebate for several reasons. One of them is because if you look at their bottom line, the difference that this refund makes is often what the difference between black and red for those that are able to even operate in the block, and so we're looking at taking hospitals that are barely making it to taking them to hospitals that wont be able to make it, and so the question is for those communities what do we do? Do we eliminate services which means we have to lay people and staff providing valuable things for our communities, or do we close the hospital, and for the hospitals who are currently struggling and relying on the larger systems to support them, the question for those larger systems is can we continue supporting those rural hospitals? And then the other one is for those who need help from it, the systems are in negotiations right now to join the department, will those systems then be able to complete that transaction. So, the effect on our rural communities and the ability for them to receive really good rural healthcare that our rural hospitals provide will really be impacted if not completely destroyed if this provision is allowed to continue. Representative Hamilton. Thank you, and thank you Mr. Hana[sp?], appreciate that answer. And to staff. Mr. Hana[sp?], if you would stay close to the podium, I'm anticipating another question for you. Go ahead. Thank you, for staffs if these initiatives to expand the base were not become laws what impact does that have on the overall plan as picked before us today, I mean what's the revenue impact really make things more difficult for the county who are already adversely impacted by the redistribution,  sir I have done  with CISCO research, the impact for the state is $40 million in eight years beginning in 2016-17 and then as the cap is lowered you will have an additional $40 million each year so by year five it will be 160 million, the local portion of that is about 40% thank you. Representative Felony would you have a question regarding hospital that you raised for help about that time, go ahead, well we got Mr. Hanes is supporting yes, you are welcome. Representative Felon if you would speak in the microphone for the folks listening on plain, on bean can hear. OK, this will work. I understand someone like White Made, I don't know if this is exact but I understand that they would look with this new taxation that they would have to do away with 600 employees and if you pro rate the other hospitals I don't know how are they going to be able to treat their patients if they start firing people like that and this also affects private collage and universities I think does it okay go ahead. Mr. [xx] The private colleges are here but it does infect infect excuse me impacts all hospitals all non profits but when you look at the cost of health care a large chunk of that is employees. We have a very skilled workforce and to get a skilled workforce we have to pay them a wave that's is sustainable to their lives and frankly to pay off a lot of student loans for a lot of us, and so when you look at reducing what the hospitals get by this one provision will impact us by about we estimate $300 million and as inflation

continues to happen it will get even worse. So LakeMed may be 600 employees but if you look at at least 60% of that as employees, that's a lot of people that are going to be without job. Our hospitals will not sacrifice quality. They my have to eliminate a service, they would eliminate a service before they sacrifice the quality to the patient, and when you eliminate services that's when people get laid off. Thank sir, thanks for your commentary. Is this regarding hospitals? Why you are here please? Thank you Mr. Cody, Representative Cunningham unto your left, the reason I'm going to bring this up is you all do a lot of support, CMC does a lot of support for smaller hospitals in the smaller counties. Do we know what that impact is going to be on the status on the smaller hospitals like Amson County, that CMC takes care of, I think that back to my earlier statement a lot of our rural hospital depended upon the the urban hospitals and the arguments that you see is that CMC can absorb it but can they really and the question is what can they may not do and in order to maintain the quality of service in ensure that they are going to consider the services they are able to provide to those outlined communities and instance of really good example because if you look at the amount  there refund that year it happened to be almost they spent on innocent and spend on Davidson and those are money loosing facilities but they are needed in communities they resume carrying in, is any from (xx) would like to address us as well there is here please close the podium and state your name [xx] intended the house to fully explore the implications of this financing tax package. I know this is luberious[sp?] and I know that some folks are going to do something but I think we owe to the citizens of the state to continue to explore the essence we know there'a a lot of folks in the audience who want to speak, ma'am if you'd please state your name and who we are listening your comments please a month in the capital  health care  system and chalrles[sp?] but we have facilities from murphy[sp?] all the way to new hanna[sp} we provide a lot support for a lot of communities that other wise wont have access to certain services and Mr. Handis[sp?] is correct that forty of million dollars is just north of what is cost as to built the state its first inpatient psychiatric hospital and from the health care and wage bar which many of you know is a very challenge community for health care services our board would probably have a different decision about whether they would do that again if the $45 million cap was reduced or eliminated thank you mum Representative Heistein had a point of clarification that he wanted, yes, I just want and clarify I am a little bit confused and of course I supported Representative Lewis; efforts on 998 but I did want to clarify something. I've had trouble on this taxing on services issue seeing how that would ultimately affect had one at real estate closing which I know this is not directly related but there are other issues that come to play if we start a broad based tax on services and I need to clarify this because, I sent an email to the staff the other day and mentioned the fact that we have not technically passed a new tax on services since 2011, that was at least what I was told and what my understanding was and of course then this gets sent to contractual law only once when we are talking about the tax on the services then we have to contemplate the service contracts and not the actual service itself. In other words you can have a contract that was never, the obligations were never carried out. So that's not really technically a direct tax on services as I think as we contemplated it as we discussed taxes on services not just in 2011 but before then. So I just wanted to clarify and make it clear and make sure I understand about it. I'm not here to argue about it but it appears that we did not enact in 1998 a broad based tax on any particular service but it was more focused on service contracts and so I just wanted to clarify that. Thank you chairman Hastings. Mr. Chairman. Yes sir.

May I speak to that? You may but please [xx] comments, I've allowed you a good long time to speak earlier so if you would keep it short. Thirty seconds, the comments that I made were based on the House version of 1998 and now the ultimate conference report that was passed Okay, thank you sir. Thank you chairman Lewis, alright Rep. Stam Very briefly, back to the sales tax refund issue we were discussing about hospitals, I can argue the house position at breakfast and the senate position at lunch and enjoy and enjoy arguing against whatever lobbyist and assumed there'll be some compromise at some point. I would like to suggest something no matter where the comprise is that there's a new [xx] that should be put in there and that is to prevent attacks on a spikes so if a non profit would ordinarily be under the cap and get their full refunds just because it happened to Abel building project in one year shouldn't make him subject to, to not getting the refund so, have some kind of three or five year averaging look back or what not, and have asked the staff to prepare technical language and I'll get that to the chairs when I get it. Thanks sir. Representative Hager. Thank you Mr. Chairman, just my my question and answer on the hospital issue. I was just pondering with seatmate here that the reason, is the reason that attorneys aren't taxed because there's no value in the product. Thank you. I bring this right back to where we started. Representative Bradford Thank you Mr. Chairman. So, this may be stating the obvious, but I'm going through this We do that a lot here Maybe yes we do, I sit right in. Going through the document, this large spreadsheet which I realize is intended have to be a policy document, not necessarily a budget document. You know, I was just trying to do some analysis and if you're from Alamance Avery, Buncombe, Cabarrus, Carteret, Catawba, Cherokee,    Durham, [xx] [xx] [xx] [xx] [xx] [xx] [xx] [xx] [xx] new handover wait in [xx] I would encourage you to pay attention especially people who are leasing a home. The assumption that the policy document here at the spreadsheet has made is that sales tax growth is that we're living in a vacuum in a 3.5% flat-line across from now to 2020, the challenges if you're a county though I just named is projected to have a growth rate greater than 3.5% you're in a lot more trouble than this policy document really even suggests and I can assure you that I'm form Mecklenburg county and I would imagine that all of you unless you're pulling for the home team to not be growing which I can't imagine any of you pulling your home teams not to grow, this situation is going to get drastically worse for the counties that I named would encourage anybody from one of those counties to go back to your county boards and ask them for a projected growth rate of what your counties do so you can then come back to this policy document and see where your county is going to stand, because this document is telling me stands to loose $12 million in the year when this program is fully informed but if I use the real growth number that I've been provided by Mecklenburg county it rose from $12 million were the lose is to almost $60 million worth of loses and folks now we are here to cut taxes and do a lot of things but a vote for this budget at least in my view is really going to turn out to be monster increase for the people back in my county because we got to report this all because this going to be a whole to the we going to figure out a way so make up for this and that just means that a good work in people of you county we are going to bare the burden like it or not, and wile I have all the respect in the world for what the senator is trying to do and I am sure it is good starting point in negociation some point I still want to encourage every body to look at this numbers very very closely because we not taking into consideration all the others subsidies that this two or three counties can provide and education to transportation to tear one and tear twos, so there is a lot of bigger picture here globally than just the sales tax redistribution and I think if you really looked at all the subsidies that tear threes are providing the tear ones and the tear twos across everything I think you will see that is not a dispair that we may think so if you are one from one of this counties I will encourage you

to to look at your gross free it applied where it is and if you think your account is on a deficit where the new situation makes it slightly better, but I just think from a majority of us it is not going to be the case thanks for listening. Thanks sir. Representative Collins Just wanted to again for a conference sake just to point out something that I disagree with it as far as the tax deduction because am not against grouping most of the taxes with actions together and putting that $20, 000 care point. I think we have the charity table contributions outer there and leave them unlimited here is my reason I used to wonder why a federal government will give a dollar for dollar taxed deduction charitable contributions until I got the financial services business in 1992 and started reading a lot of financial materials and one of the things I found out pretty early on is that federal government sounds general accounting office a demo study that showed, that it takes four several tax dollars to do what charitable groups can do with $1 so they're losing at most 40 cents, which is the highest federal tax that we have on a dollar not to spend $4, that's a 10 to one return now I would like to thank the North Carolina maybe we are a little more visioned in federal government but I don't think we are 10 times more visioned by the federal governed by the stretched by the imagination I think we are cut by those [xx] so speak to limit the chair what deduction on regard to continue to have that thank you sir will agree as the member of the committee just a quick note. I think the point has been made over and over again by many by now it's across the state that they do a much better job with the money that they receive. Representative. Stenburg. Thank you very much Mr. Chairman and Represenattive. Stem mentioned the we don't want to kill the golden goose. Well to act on and pick up on where Rep. Bradford left off looking at the real numbers in Dulan county and [xx] their counting real numbers under the real plan, their county would be down 47% in four years at current tax 16 % in four years. Now the usual counting is generated over $. 1, 000, 000, 000 of revenue every year, then what will happen as a result that I had in my view is that obviously the counties is going to have to try to make up the revenue some way, the last revenue, and that's going to result in higher property taxes. taxes were already high over there but higher property taxes to make up for that shortage, the other thing is all of the business much of the business that's done over there is in promotion, promoting the area and we are going to have higher taxes on advertising services and other tangible property which is really putting them in a very honourly situation and has That relate to veterinary services I think we offered especially Mr. Chairman you and I probably think of veterinary services terms of dogs and cats and domestic animals when a very large portion of what veterinary needs to do is with the agriculture community and agriculture as we all know is the number one industry in the state and this is effectively a tax increase on our number one industry so just accommodation of comments thank for indulging me Mr. chairman. Thank representative Stam Burger chairman prerogative Mr [xx] something we discussed yesterday about market sourcing, we were looking at that particularly within regards to the banking industry and someone in our committee chairman had asked you about accurate estimates on market sourcing and what that look like and the question was could we get some type of physical note on that and why is that difficult to even get type of projection could you answer that for me? Sure so it's a totally different falling methodology then you currently use today. Which means we don't have data based on the stash returns to analyze it. The best way for us to do an estimate would probably have copies do a pro-former filling for one year based on what there trash returnables looked like market based sourcing instead of a coaster pro-formance based sourcing. So, we don't have a specific estimate. We would expect that would have a new Somewhat positive impact

but we cannot specifically quantify without having data. Thank you sir. I just want to point that out as we continue the topic here. Representative Gibman Thank you Mr. Chair, I would like to comment a little bit about the sales hetri distribution, we've heard a lot about losses from major metropolitan areas and I understand that and I see the dilemma but there is a kind of argument here, that this is an attempt to address a very real situation in rural counties where we don't have the resources to provide basic services for our citizens and our property tax rates, they're already, as I look that Mecklenburg is like 57 cents. Richmond County 94, I think. Scotland County is north of a dollar. So they have no way to impose higher property taxes on our citizens, and as mom-and-pop stores in rural areas have closed and our own citizens have going to a rally in Charlotte, places like that to spend their money. Our sales tax revenue has declined so we have to address some way out of that situation because we can't fund our schools, Richmond County spends $900 per child locally on schools. I think the state average is 2200, Richmond County cannot afford to provide $2200. Our county commissioners don't have resources to construct schools and constitution of North Carolina says that the state will provide an equal education for every child in the state, and I think this Leandro lawsuit suggests that the state hasn't been doing that so there is a problem here the Senate budget is attempting to address, and I'm not saying this is the way it's got to be, but we need to discuss it and if not this rider should be some other way, so I think that's something that really needs to be reconsidered. Thank you, sir. I appreciate your commentary. Representative Fisher Thank you, Mr. Chair, and I appreciate you indulgence of those of us who are not members of finance that you are kind enough to call upon. Just on the heals of Representative Bradfrod's comments and Representative Steinburg's comments. I just want to be sure that the Chair recognized I know that my mayor of Asheville is here and could give some real live numbers and comments to sort of backup the statements that we've heard earlier so it is my hope that you will call upon the mayor at some point during this session. Thank you Over here, Mr. Chair that would be an order and [xx] we kind of merge things here. Is the mayor here? Yes she is. I you would mayor you're on the list but as you brought it up I'd be glad to give you. If you keep your comments two minutes because we are up against the clock Mr. Chair thank you very much for recognizing me. Thank you Representative Fisher members of the committee it is my honor to speak to you today. I'm here with other mayors, I think that mayor Greenbelt is here as well, our finance structure of our city and our representative from my chamber of commerce. Very briefly, the sales tax redistribution numbers that you all have are conservative [xx] obviously harm Beckham County greatly. But what I want to talk you you about is how it will harm those people that live in the rural counties around Beckham County. And that's because 42% of the people that come to work everyday in Beckham County don't live in Beckham county, they live in Yancey County, Madison County, Rockdell County, Henderson County, Rutherford County, Haywood County, they live all around Beckham county and they are counting on Beckham County to provide a platform for robust economy for infrastructure improvements, for packing debts, for roads, for an opportunity to come to a job everyday so that they can go home and live in the county they live in and support their family. I want you to also to know that for every dollar collected in Asheville, every dollar of sales tax collected in Asheville, Asheville get 4.3%, let me say that again, every dollar collected in Asheville Asheville gets 4.3%. So we are fighting over a pretty small pie, but these harms our ability to get a good bond rating to borrow, to provide for infrastructure improvements that are greatly needed

to support a regional economy. So, I know I'm preaching to the choir to some of you here and I heard your comments, I was one of the listeners at home Tuesday, and I appreciated very much your comments, and Representative Bradford this broader understanding of the impact to a regional economy is something that needs to be considered into making this the stations. Thank you for an opportunity to address you today. Thank you madam. Members of committee if you will indulge me will be it's real, do want to get some public commentary here, so I got you on my list but I so that folks will be signed up. Someone to use this sum today, is anyone here from the private colleges, I know that's something that was subtracted ethic among members if you would state your name, you have two minutes but feel some on the impact of this package. If you've pressed that button right there, thank you. Thank you Mr. Chairman, I'm Hope Williams with North Carolina Independent Colleges and University, there are 36 heavy non profit leave a large comprehensive in research institutions in our great state and all of them are very concerned about the proposal to face down the sales touch refunds and to limit shareable contributions. As you know because we are private institution the state does not fund our operational or capital cost the you do our sister public institutions. That means we're heavily dependent on the tunable contributions and sales touch refunds to fund programs, construction, and institutional financial aid so that means that a limit on the charitable contributions and eliminations are faced down at the sales touch refunds while many colleges will have to reconsider whether they can start new programs whether they will have t either delay building facilities for programs or perhaps reduce in size, significantly those facilities because the purchase of material is such a major part of the cost of that building, they also have to consider how they will be able to conceive how they will be able to compete for North Carolina students to be able to help them attend college. We have 66, 000 employees among our colleges that combined larger than our larger private employer and that's a big economic impact of $14.2 billion that's important because just as you want to encourage new industry and keep the industry we have in North Carolina, so two, we want to keep our North Carolina student here and you may not be aware that other states are now offering in-state tuition at their public institutions to our North Carolina students to try to get them to go there because they know where students graduate from college also means they're more likely to stay and live and work and contribute to the economy. And we need these funds to help us compete with the federal funds that are available for our students. The state funds that's use are generously providing financial aid. To have institutional funds to help provide and compete for these students to keep them in North Carolina. So we ask that you maintain the charitable contribution limit at the charitable contributions availability without limits and also that you maintain the sales tax refund as it is now, thank you. Thank you. Members of the committee in consultation with Chairman Brolly, We'll continue to 10 o'clock. It also looks like, and again with the number of folks in the audience that have approached us as chairs of Finance Committee and approached various members, on Tuesday we'll continue this discussions if you're not here today and some of you I know have travelled and this is important to you, we do want to hear from you and we do want to fully explore the impact of this proposal so with that in mind we will continue on, I did have, I promised a few folks so that can speak and we have Cary Councilwoman Lina Hi in the audience, ma'am if you please for two minutes. State your name. Actually my name is Jennifer Robinson and I'm a Councilwoman from Cary and I'm also representing the North Carolina League of Municipalities which represents the interests of citizens that live in over 540 cities in North Carolina. Our cities do not come to the legislature this session to ask for an appropriation, instead what we're asking from you all is the opportunity to have the authority for options to raise our own revenue to meet the needs of our citizens. As you know cities are a very powerful engine in our state for building our economy and we partner with the state to do this. The league has proposed various options for raising revenue for our cities, these options include the ability to have a municipal only tax, and we thank chairman Saine for being a primary sponsor of that bill. Also the authority to define commercial property and residential property differently for tax purposes, another would be a privileged licence tax with reasonable gaps and also changes that update and provide flexibility and property taxes.

I just want to point out to you that cities are struggling after recession, we're recovering slower than private sector, in addition to that with the changes an inefficient laws, we're not growing our tax base by outward growth, and the previous licence tax repeal which affects cities by about $62 million starting next week, it's very substantial to our cities, as a response to that, we are many of us are looking to raise our property taxes to accommodate the needs that we have, we're also cutting essential services and delaying infrastructure improvements. In the cities and towns, need to remain competitive, we, as the same way that economic engine for the state, we need to compete with other cities and other states and around the globe, and we do that by providing the best quality of life that we can for the corporate citizens here and that, my time is up? It is. Thank you very much for your time. Thank you, and I know folks would like to talk more and we appreciate that, and we will continue the conversation. Going back to some of the members Representative Pendleton I'll have you, then I'll have Representative Cunningham, Representative Hamilton and Representative Goodman. And I do want to state, Representative Brawley, Chairman Brawley Yes sir there was a comment made earlier about the tax rate in Mecklenburg county and I thought it sounded awfully low, It's not 52 cents, it's 82 cents Thank you Sir, big difference. Representative Piddleton Well I've got two questions Mr. Chairman. One of them is just a comment when talking about the property tax rate out in rural areas being so high, and it's true it is high, but the cost of housing versus the large urban county's is usually about half the cost of the house so the tax of being about. But I wanted to pick up on what representative Collin said is charitable giving is just a good thing for state governments a good thing for everybody and I know I'm also a also a financial consultant like him and in my years I have taught clients in to giving away probably $200 million to charities when they weren't even inclined to do it by showing them different ways of what it was worth to them tax wise so that is something I think should be unlimited. The other is the medical deductions and the home mortgage interest and I believe they should probably have a cap of about $50, 000 to $60, 000. If you go when a nurse an average nursing home right now is about $5, 000 a month at 60, 000 a year so it ought to be at least $60, 000 so that people can write that off. Indeed really is affecting our senior citizens and there kids, thanks. Thank you, Rep. Cunningham Thank you Mr. Chair. I'm kind of going to follow the [xx] Rep. Pendleton medical deductions and on page 488. This a question for staff because the deduction is $10, 000 per person which will be 20, 000 person if we merry. Correct? So, if we are gong to have the medical deduction in the 20, 000 cap if I payed off fifty 50, 000 dollars in medical expenses what would that percentage rate be and if it is a percentage rate? Because if it is not a percentage and their they just said based on their appropriate percentage sir, someone like to address that. I will give this shot so medical expenses under fair law [xx] most be with they said 10% of the adjusted [xx] see will determine the amount as the double for the federal level and I think this bill has a gap of $ 20, 000 on the hospital [xx] deductions of which the hospital federal deductions would be part of that. Thank you, representative Hervaton.  Thank you Mr chairman, just on a couple of things I want to build on representative well is it looking at this from a tax rate stand point is really not the right way to do it it's what the average taxes that are paid and properties that are higher values generates higher yields in their tax bills and even if it's being taxed at a lower rate so, but specifically

I would like to talk about the chart again and how it affects the a New Hanover County and specifically Wilmington which is the largest city that I represent, the Wilmington growth rate and this is a very conservative growth rate over the last five years it's average and then we even shaved it a little more off the top just to in the spirit of being conservative but our growth rate is really been more like 8.5% so the exposure to Wilmington and the loss of revenues to Wilmington results in $33 million cumulatively so I wanted to just make sure that my fellow representative s from Mecklenburg County and other places that are adversely impacted by this we are not really seeing the true impact and based on the spreed sheet here because it's all being looked at 3.5% growth so their my be counties in this list who look at this stage like they are benefiting but if you taken the consideration a true and actual growth rate number my guess is we would see more than just 16 counties adversely affected by this policy I caution us to take this into great consideration because we've not considered the job loss that will happen in this communities if these resources are taken away and we began to eliminate things like the hospital sales tax re-bay. We will lose jobs there and that's the laws of state income tax revenue as well as buying power which lowers sales tax revenue. So this is wrong headed I think we are trying to fix something that we've broken over the last several years by eliminating things like under role center and taking money out of Golden league it's been mentioned earlier today and how we distribute transportation dollars that have limited the amount of money that can go to rural communities. So I just feel it's important to the public to understand and that taking this kind of action to undo what we've undone is the wrong direction for North Carolina. Thank you, Rep. Hamilton Representative Goodman, we've got about seven minutes left in the committee today. Thank you, Mr. Chair. Before I start, Chairman Brawley, I'm sorry, you can't always trust Google but is still a difference here and on the point on property values, property values are low where we are because income is low. If you look at the income in Richmond County compared to Wake there's this considerable difference. So if people made more money rates would be higher there, but the thing I wanted to ask staff is on another subject. Is there any provision here that would keep large non-profits from dividing their entities so that none of them hit that cap, and if there's not, I have a brother-in-law that's a tax lawyer. I want wanted to let him know because he can make a lot of money dividing these things up. So just a question for staff. No there is not anything in the bill to address how corporations organize or their size or anything such as that. Just a quick follow up. Follow up. So that would be incentive for a large non-profit to try and take a look at that and do some dividing getting rid of some of that tax liability you might have under this new provision. Thank you, sir. Mayor Thomas, if your still here, if you would you're represented very well because your representative came up and said, I want my mayor to speak. So credit to Rep. Martin and you may be our last comment, but you are recognized, sir, for two minutes Yes sir. Thank you Mr. Chair and also committee members for allowing me to speak about sales tax redistribution. I am the mayor of Greenville, North Carolina. It's a growing community of about 90, 000 residents, and if you look at the charts provided for you related to sales tax redistribution. It projects Granville as a net gainer in those charts. If that was the case you might wonder why as mayor I would be [xx] today, and as alluded to by Representative Bradford and Representative Steinburg we believe, based on real world numbers that both our region and Greenville would actually lose under this proposal. Green has projected to see our population continue to grow by 7% by 2020, putting us over hundred thousand residents, our county sales tax revenue has grown over the past four years by over 4.6% and this year is projected to grow by 12%, that is significantly larger than the 3.5 number which is being turn around. So in real world numbers we're very concerned about a moving target and how that could potentially impact us as opposed to what's in front of you. We know in a modern economy 2015 there is no individual, city or county economy. We're integrated regionally and we believe in that.

We work in the East, I work with Kingston lucky Mill Wilson neighboring city quite East we work together to recruit jobs, someone works in Caste and lives in Green bell or lives in Vanceboro is getting trained in another town around us we know no counties or city boundaries we are in this thing together, so we believe I collectively we had to go back and look at this as a stand of a rural community born in one stop right town of Vanceboro North Carolina my family is all there I believe there is some things we need to do this is just not the best method Mr. chairman and committee members, and we will be glad to be a part of help to create a good solution thank you. Thank you Mr. Meron we appreciate you being here, so I have Representattive Cony for a quick statement and then Rep. Lucky for an announcement before adjourn so Rep. Cornet. Thank you Mr. Chairman and thank you for allowing a couple minute here I wasn't going to speak I was going to save my comments because we all know this is an ongoing discussion with no real answers I don't think insight from a whole list approach we've been discussing the whole issue of tax reforms since I've been here and I'm in seventh term we've made a stab at moving forward in that direction and I think it's a good thing. I think the discussion we were talking about it should be broken out into two separate entities, and we are in here debating issues today on policy discussion n the finance committee, we are not able to talk about real numbers in here, we are wrapping everybody and I compares turn 3.5% when we are hearing indeed from different parts of the state, they are different numbers from every county the two parts that we need to break it out and have real serious continuing discussion on is sales tax redistribution, should not be on this budget and then we need to have a serious conversation about broadening the base and lowering other taxes when it comes to incomes taxes and corporate taxes. We're taking a starve at it in here and there and when you know that you pick those few groups to say, okay, this year we''re going to tax you their service watch out until years are going to come back to you. We have the discussion before up here about, maybe just take that sharp knife makes a clean wound stab and taxing our services, and then looking at a true lowering of other taxes, how do we come out of that end? I think it's an important discussion but I do think we have to have another serious discussion, and what this particular budget as presented to me is another dilemma. We are pidgin counties against counties, that's wrong. we have started years ago and we need to continue to move forward with the regionalism discussion. We have eliminated a regional partnerships that we're working. Did they have problems, yeah, but they were working. They needed growth. We needed to work on those, but they were expanding upon that base of what you've heard the mayor say here that, core of urban centers to those tentacles that reach out to the rounding rural counties. And another thing I don't think we have to take time enough to think about Mr. Chairman I'm going to wrap up and that is, from our perspective and the urban counties. You haven't gone into the rural counties and talked to those local officials. We talk about the property tax rate, and in this counties it's just about the revenue source they have. So we've been hiding our local governments in these areas, but when you go into these rural counties they're hurting and they do look to the rest of us Today they were proving but when you look their corrections right on their property taxes and then go look at the one counties, we're up about 98% in Mecklenburg[sp?] I'm not sure what that number is, but you can go to Hertford[sp?] County or other counties near collection rate is turned around 65 or 70%, think about that. So we have to have this serious discussions and we've got to talk about this more and more from a holistic approach and the regionalism approach is what we need to get back to you for all standards and all of those initiatives that have been in place we come back we eliminate what is place now what are we going to move forward with we cannot move forward with this redistribution formula I believe it is a disaster for I will be unable to work together as North Carolinians we can't do this that we can be a better and is one of the Chairman said it earlier they are bright among in this day dealing with this fiscal numbers that we need

to put in the room and takes the politics aside this is serious business, thank you Mr. Chair Thank you Rep. Carney, resident Lukey[sp?] for an announcement. Thank you Mr. Chairman and this is important announcement for Democratic members of this committee. The co-chairs of our finance group have asked you to join us at eleven o'clock in our normal meeting room, room 1425 for discussion. Please all Democratic house members be there eleven o'clock. Thank you very much. Chairman Hastings, you want to make a quick comment since we're not voting today. I guess we're technically in it within our rules but we do need to wrap it up so be quick. I just wanted to respond because we've had a couple of comments made about the changes to the rules and what a lot of people are failing to recognize is county's like mine were excluded from real center help until we made the change and now both of my county's are one of, two of the 100 included counties instead of one of the 85 excluded counties. So, I think we made a positive move on the rules that have changed. Thank you sir, one last announcement from you chair. Bring cleaning materials to finance next week, next Tuesday. If you're in the audience, we do appreciate you being here. We appreciate indulgence in knowing that we've a lot of work to do here but we're appreciative of you being here. We do stand adjourned.