Key facts:
• Over the past year the focus of North Carolina’s Joint Legislative Committee on Tax Reform has been almost exclusively on whether to expand North Carolina’s sales tax to include services.
• Sound principles of tax reform suggest that North Carolina’s sales tax base should be broadened in some areas and narrowed in others.
• The focus should be on whether the tax base is what economists call neutral, and whether the tax conforms with the principles of justice, rooted in a respect for liberty and freedom of choice.
• In North Carolina, both business-to-consumer and business-to-business sales are taxed.
• Sound principles of taxation argue that both goods and services be taxed but taxed only once and in a manner obvious to the taxpayer. Sales taxes on all business-to-business sales should therefore be abolished.
• Some goods and services in NC are taxed at extraordinary rates. While the sales tax rate in North Carolina is 5.75% (plus 2% or more additional in most localities), movies and other entertainment, alcoholic beverages, tobacco products, hotel rooms, and rental cars are all taxed at higher rates. In a free society, the tax system should not be used to punish activities that are disfavored by the politicians or to reward activities that the politicians consider virtuous.
• At a combined average state and local rate of 7.98 percent, North Carolina’s sales tax rate is virtually tied with Tennessee’s rate of 8 percent as the highest in the Southeast.
