Single
Sales Factor
Position: North Carolina’s formula for apportioning
corporate income and franchise taxes should be based solely on
destination-sales (Single Sales Factor) to remove the penalty
multistate corporations now incur when they increase property
investments and/or payroll in North Carolina. Not only would this
encourage investment and job retention and creation by existing and
new businesses, but it would spur exports. If legislation is not
enacted for single sales factor, the double weighted formula should
not be repealed.
Explanation: From the 1950’s North Carolina has used the
three-factor formula for levying income and franchise taxes on
multi-state corporations doing business in the state. The three factors are (1) the
proportion of a company’s sales in the state (destinations-sales),
(2) the proportion of its total payroll paid in North Carolina, and
(3) the value of its property in the state as a percentage of its
total property.
Prior to 1989, each of
the three factors carried equal weights. Since 1989, North Carolina has
double-weighted the sales factor, so that the sales proportion is
counted twice in the apportionment formula, while property and payroll
are only counted once.
Since 1989, 17 other
states have double-weighted the sales factor, including Georgia, South
Carolina and Tennessee. As
of the end of 1997, 25 states weight the sales factor by 50% with the
property and payroll factors each weighted 25%. The sales factor is being
weighted more than 50% in nine* states, none of which are in the
Southeast.
A single-sales factor
formula would entirely remove the payroll and property factors from
the apportionment formula. This would eliminate the tax penalty now
incurred when a corporation decides to increase its North Carolina
property investment and payroll relative to other states.
Adopting the
single-sales factor here would give North Carolina a competitive edge
in the Southeast in attracting and retaining investment and jobs of
multi-state corporations. It would ameliorate the fact that North
Carolina has a higher corporate income tax rate than its neighboring
states in addition to a separately-imposed franchise tax which does
not exist in Virginia and which is 50% higher than South Carolina’s
rate.
A single-sales factor
would advance further the reasons for NCCBI’s past support of double
weighting, viz:
- It would benefit companies that have
a significant portion of their plants and payroll in North Carolina
but sell into the nationwide market.
-
It
would encourage multi-state manufacturers and distributors to invest
in our state, and it is an incentive for such companies that are
already here to expand their present investments.
* Illinois,
Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Ohio
& Texas
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Continue N.C. Budget Reform
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Contingent Fee Audits
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Defining "Doing Business" In North
Carolina
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Property Tax Exemptions For Construction In
Progress And Product Samples
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Machinery Tax And Sales Tax
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Change The Net Economic Loss (Nel) Carryover
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Remove Credit Balances From The Definition Of
Unclaimed Property
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Remove Inventories From Franchise Tax Base
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Sales Tax Discount
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Proposed Model Unclaimed Property Act
Allow an R&D Credit for the Actual Amount
of N.C. Expenditure
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