State tax package advances in House; $562 million bill to extend levies, boost others gets 1st OK

Charlotte Observer
Sharif Durhams

The state House passed a $562 million tax package Wednesday that supporters described as the "minimum" they will need to pay for vital state services. They plan to say how they would spend the money next week.

The state House passed a $562 million tax package Wednesday that supporters described as the "minimum" they will need to pay for vital state services. They plan to say how they would spend the money next week.

Members approved the plan by a party-line vote of 63-55, with Democrats supporting it and Republicans calling the taxes excessive. The approval gives House budget writers about $17 billion to look to spend in the budget that would go into effect July 1. This year's budget is about $15.9 billion.

The Democrat-led Senate and Democratic Gov. Mike Easley would have to agree. They're hoping to hash out an agreement by the end of June, but the House included a provision to let the state keep spending money until the end of July.

The plan would continue to impose two temporary taxes on sales and income that were supposed to expire this year. It also boosts taxes on several other items -- such as candy, phone service, satellite and cable television, extended warranties and service contracts.

House Democrats who control the chamber left open the question of whether they would push for other tax increases -- such as a boost to the levy on cigarettes -- that could help them avoid cuts in state health spending or meet the state's obligation to put more money into failing schools.

"There are greater needs than we've provided for today," said House Speaker Jim Black, D-Mecklenburg, who normally puts tax packages to a vote only if he knows they will pass. "I got the revenue I could get today," he said.

It's also uncertain whether the Senate or Easley will back the tax plan. Both supported reducing the current 8.25 percent tax to 7.75 percent for couples' income above $200,000. Lawmakers raised the income tax four years ago, in the midst of the state's economic downturn. House members voted to keep that higher tax.

Lawmakers also raised the state sales tax by a half-cent in 2001, and Republicans on Wednesday accused Democrats of continuing the taxes while ignoring potential cuts and other ways of paying for state services.

Rep. Joe Kiser, R-Lincoln, the chamber's minority-party leader, said he would sell oceanfront property in the mountain town of Boone to anyone who believes it's not a tax increase.

The boost in taxes on candy, satellite and cable television, warranties and some other products are part of a multistate agreement that would make it easier for North Carolina to tax Internet purchases.

Many of those items have special tax rates in North Carolina, and under the agreement, special rates aren't allowed. The items had to go to the standard sales tax rate of 7 percent (7.5 percent in Mecklenburg) or not be taxed at all.

Kiser said the tax on warranties would open the state to taxing a number of services that aren't taxed now. Goods usually fall under the state's sales tax, but services, such as hiring a lawyer, gardener or barber, generally do not.

"Eventually you'll be paying 7 percent (tax) for a haircut, and I don't think you want to do that," Kiser said.

The vote signaled a departure from the past two years, when Democrats, who held almost half of the chamber's 120 seats, shared power with a dozen or so Republicans and worked together on budgets.

Budget bills that included similar taxes received 77 supporters in 2003 and 91 in 2004, as opposed to the 63 backers on Wednesday.

The only Republican who backed the tax plan, Rep. Debbie Clary, R-Cleveland, said later that she accidentally hit the wrong button. She plans to vote against the plan today in the second of two required votes.

How They Voted

House Bill 1630 raises $562 million for the state budget by extending a higher-than-normal state sales tax and top income tax bracket for two more years and boosting some smaller taxes.


Adopted 63-55. After voting again today, the House sends the bill to the Senate.


Yes: Democrats Martha Alexander, Jim Black, Becky Carney, Pete Cunningham, Beverly Earle and Drew Saunders

No: Republicans Jim Gulley, Ed McMahan, John Rhodes and Doug Vinson

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