NC Tax Policy Changes and Economic Development

Historically, NC has been a manufacturing intensive state and the tax code was built around that framework. In recent years, NC has lost a large extent of the manufacturing segment to overseas. However, it is worth noting that some high-tech manufacturing segments and industries are showing strength. As the state likes to publicize, NC has experienced substantial growth in the service and technology (whether Information Technology or Life Sciences) industries. It is worth noting as background information that both the corporate and individual income tax rate currently fall around 7%.

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Invest in Urban Living

“. . . urban living was far from dead. Instead, the American economy began to reinvent itself in cities, as they became cleaner, greener, safer, more prosperous, more fun.”
–Kevin Baker; October 6, 2012 in the New York Times

Quick. Name your top ten suburbs in the United States. Now name your top ten cities. While your list of the top ten cities may be different from mine, at least you have one. My point is Mr. Baker’s quote accurately suggests the innovation and energy of today’s cities may be leading a recovery for the American economy and the American entrepreneurial spirit. Too grandiose of an idea for our Port City? Maybe not.

A walk around downtown at almost any time of day or night suggests that urban Wilmington may be reinventing itself to meet today’s challenges. The Port City is cleaner, greener, safer, more prosperous, and more fun for more people than ever before. New businesses who consider Wilmington want a thriving downtown so let’s take a look at what we have to offer.

8:55am Thursday morning: Cars surge into the parking decks from Front and Market Street along with the well-dressed lawyer or banker who walks next to the more casually dressed Cape Fear Community College student. Chances are the commute for both the business professional and the college student was a lot shorter and a lot greener than a trip from a far reaching suburb to a distant office park. In fact some of the college kids are having fun on a skateboard as they go to class.

Coffee shops are filled with students, artists, and business people either getting a cup to go or sitting at tables with their lap tops open and cell phones pressed to their ears. Many are using the coffee shop as a de facto office and cutting their overhead costs.

12:17pm Friday afternoon: Brightly dressed tourists stroll up and down the River Walk and then fill downtown’s restaurants for a leisurely lunch before they take a ride on a carriage or a Segway through the historic district. And while tourism helps downtown trade to prosper, tables filed with men and women enjoying the “power lunch” suggest work is going on alongside the vacationers who come to the Port City. In fact, walking from work to have lunch with your colleague across the hall or a potential client from down the street is part of the energy that helps give downtown Wilmington a buzz (it’s not just the coffee shops on every corner).

7pm Friday evening: The weekend has begun and the energy from the business lunches has given way to the energy of artists, theatre goers, music, and more good eats. Galleries are open and the wine is flowing as locals and tourists of all ages mingle in the many art spaces downtown. Music from Downtown Sundown along the river front confirms that the weekend has started and the restaurants are again doing a brisk business from locals and tourists alike.

11:30pm still Friday night: Improvements to the lighting and sidewalks on northern Front Street illuminate just how much fun everyone is having. The crowds are watched over by mounted police and show that urban Wilmington is prosperous after 5pm.

Can urban Wilmington be even cleaner, greener, and more prosperous? Of course. Investments in better streets, a riverfront park with green space, and greater infrastructure improvements will help bring the intellectual capital to downtown that generates new businesses, more money, and more tax revenue for a more prosperous Wilmington.

So support your city. Invest in downtown, enjoy yourself, and invest in the future of Wilmington.

Coworx opens third Wilmington location

Coworx opens third Wilmington location.

From the Wilmington Business Journal:

A Wilmington-based flex office space leader is opening new digs in the heart of the Port City.

Coworx officials on Wednesday opened its newest location in Barclay Commons, 2512 Independence Blvd. in Suite 202, according to a news release. Coworx at Barcaly Commons is currently taking reservations, and has rented 25 percent of the location’s private office suites.

NC Needs Tax Reform, But Don’t Screw With Our Quality of Life

Reflections on the 2012 NC Summit on Tax Policy Reform Options and Economic Growth

By Lloyd Smith
Board Secretary, Cape Fear Economic Development Council, Inc.

On July 24, 2012, I participated as an invited panelist before members of the NC legislature and legislative staff involved in tax policy, speaking on behalf of entrepreneurs, business owners and job creators. Tax reform is long overdue in our state, and it looks like a group of legislators will be taking it on. The event was billed as the “NC Summit on Tax Policy Reform Options and Economic Growth” and was organized by Dr. Brent Lane of the UNC Center for Competitive Economies at the Kenan Institute at UNC Chapel Hill.

According to Dr. Lane:

The North Carolina General Assembly is considering changes to the State’s tax policies as part of a comprehensive economic revitalization plan. Numerous options have been identified by prior tax reform efforts in North Carolina and other states. To date these efforts have achieved few results.

North Carolina’s leaders face contentious decisions over a broad range of factors that affect the economic well-being of our citizens. Tax policy is one arena in which all parties acknowledge opportunities to improve economic competitiveness. Despite differences on specific changes, the long term nature of the current economic downturn has renewed urgency to successfully address this issue.

During the summit economic experts, legislators, and leaders of growing companies will discuss 1) the economic imperative for changing North Carolina’s current tax policies, 2) tax reform options and their economic ramifications; and 3) the inevitable challenges facing the tax reform process. The goal of this summit to begin forging a consensus for tax reform that supports economic and income growth.

I provided the following perspective on tax reform and my perspective on the need for it and the best way to approach it, based on my experience doing business in NC

According to the 2012 State Business Tax Climate Index “State lawmakers are always mindful of their states’ business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform….Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate.” Reference is made here to the incentives that were provided to Dell computer to build a plant that closed only a couple of years later.

By the Tax Foundation metric, NC ranks 44th among states in 2012, improved only slightly from 2011. This low rating may be behind calls for wide-ranging tax repeals in the state. NC ranks among 50 states below (a low rank is presumably better).

  • Overall Rank 44
  • Corporate tax rank 29
  • Individual income tax rank 43
  • Sales Tax Rank 47
  • Unemployment Insurance Rank 7
  • Property Tax Rank 35

So where do we get our taxes:

Sources of NC Tax (compared to WA)

  • Property 25.7% (WA 30%)
  • General Sales 23.3% (WA 45.7%)
  • Individual Income 30.2% (WA 0%)
  • Corporate Income 2.8% (WA 0%)
  • Other Taxes 18.0% (WA 24.3%)

The Kaufmann Foundation, a non-profit think-tank supporting entrepreneurship and its high-growth job creation potential published a treatise entitled “Rules for growth: Promoting Innovation and Growth Through Legal Reform. A collection of essays promoting innovation and growth through legal reform”. Its message can be summarized briefly as, “Move away from taxes on income that penalize risk-taking, innovation, and employment while shifting toward a more consumption-based tax system that encourages saving that funds investment. The fundamental difference between income taxation and consumption taxation is that consumption taxation provides more favorable treatment of capital accumulation. Unlike consumption taxation, income taxation imposes a penalty on saving.”

My own perspective:

When locating in NC, tax rate was not a major consideration for us.
Ratings of entrepreneur-friendliness and quality of life/place were most important, as were:

  • Clean air, water and a post-industrial economy
  • Airport, hospital and university
  • Low cost of living (relative to where we were living at the time)
  • Reasonably good schools
  • A thriving historic district
  • Vibrant arts scene
  • Ethnic diversity

Thus, I would caution you not to sacrifice education or the environment in the process of cutting expenditures and reducing taxes. NC’s low rating for tax climate by the Tax Foundation and other indices belies the fact that we are consistently ranked by Forbes, Money and other publications among Best Places for Business and Careers, Best Place to Start a Business, etc. If low taxes are all that is needed to create a good business climate, then why aren’t we all running our operations in Wyoming, South Dakota, Nevada or Alaska?

By way of specific thoughts based on my experience doing business throughout the country, NC is behind the curve on adjustments to nexus criteria to hold foreign corporations responsible for sales tax collection and remittance when they sell into NC. An adjustment in nexus criteria and a streamlined registration, collection and remittance process for foreign corporations along with a new reporting requirement for out of state purchases by NC corporations could result in revenue from internet / catalog sales otherwise not taxed. This is not a tax increase – it is improved enforcement. By increasing collections, sales and income tax rates might remain neutral.

In summary, high-growth entrepreneurs from all regions of the state agreed that tax rates are not now and have never been a significant concern for them. None of us started or grew our businesses by taking advantage of tax breaks or incentives, and we are not about to start now. We agreed that quality of life variables are the main concern we faced in choosing a location to start our businesses. Not surprisingly, the things we all agreed matter most to us and prospective employees are good schools, clean air / water, affordability of housing / food, accessibility and quality of arts, etc.

In reforming the tax system, we asked that the legislature improve efficiency, broaden the base, reduce rates where possible, but first and foremost – don’t screw up the quality of the business environment that brought us here, keeps us here and has helped us grow our businesses.