North Carolina Scores Poorly On Tax Administration:           State Chamber Is On Top Of It

The North Carolina Chamber heard its customers loud and clear when they told us that tax policy in our state is in need of serious attention and improvement. (We heard from members of our state Chamber at a series of meetings held across the state in the fall, as well as from business owners who participated in our first annual CEO poll in December.) Recent tax policy studies only validate this top-of-mind concern of North Carolina business owners, and lend a sense of urgency and purpose to our state Chamber's advocacy efforts this legislative session to improve tax policy in North Carolina.

Tax policies and structure matter to businesses as they affect location decisions, job creation and retention, and the long-term health of a state's economy. As efficient tax policies are imperative to a state's economic development success, our state Chamber has placed tax policy improvements to make North Carolina more competitive at the forefront of our legislative agenda. Two recent studies in particular serve as convincing evidence for the case of needed tax policy change in North Carolina: 1) 2007 Council on State Taxation Study: The Best and Worst of State Tax Administration, and 2) CFO Magazine's 2007 State Tax Survey.

North Carolina Gets D- on National Tax Administration Scorecard;
Fares Poorly in CFO Magazine Survey on Tax Fairness, Predictability

2007 Council on State Taxation (COST) Study:
The Best and Worst of State Tax Administration

In a national study based on an objective straightforward look at state statutes, North Carolina received the lowest grade when it comes to fairness and predictability related to tax policy. The 2007 COST tax administration scorecard ranks states on their treatment of issues that impact the fairness and effectiveness of their tax systems (tax rules, administration, and appeals). Clearly, states that have poor administrative rules, ineffective appeal systems, and are perceived as less fair will be at a competitive disadvantage when it comes to attracting, retaining and creating jobs.

The 2007 COST study on tax administration reveals significant challenges faced by North Carolina businesses every day. North Carolina received a "D-" on the scorecard - the lowest grade given. The grade comes from an evaluation of North Carolina based on the state's "treatment of procedural elements and the presence of an independent appeals process." In other words, when it comes to tax policy does North Carolina have: (1) even-handed statutes of limitations; (2) equalized interest rates; (3) adequate time to file a protest; (4) a due date for corporate income tax returns at least 30 days beyond the federal due date, and (5) an automatic extension of the state return due date based on the federal extension. Further, how independent is our state's tax appeals process?

Here's what the study had to stay about North Carolina, in part: "These three states (North Carolina, Pennsylvania and Illinois) lack statutory independence in their appeals process and were thus ranked among the worst on this issue in the COST Scorecard. Taxpayer attitude regarding the environment in these two jurisdictions will only be improved once true statutory reform is accomplished."

Click here to access the Scorecard:
http://www.statetax.org/COSTHome.cfm

CFO State Tax Survey

This year's edition of CFO Magazine's state tax survey underscores the confusion among tax practitioners around the issues of tax fairness and predictability. According to an article that accompanied the 2007 survey in January, the biggest headaches for business tax experts now include "inconsistently in treatment, the limited knowledge of state officials of the changes in the laws that they enforce, and dealing with the state's aggressiveness in obtaining additional revenue."

The 2007 CFO survey ranked North Carolina poorly in several areas, including fourth "most aggressive" in stance on asserting nexus positions for corporate income tax over corporations with only an economic presence in a state, and sixth "most aggressive" in additional tax as a result of issues such as "forced combinations" for businesses.

Click here to access the CFO Survey:
http://www.cfo.com/article.cfm/8465478/c_8483311?f=singlepage

Listening to Our Members, Working for Solutions

The North Carolina Chamber is advocating for tax policy changes in our state at the direction of our members. After consulting with businesses of all sizes, one message emerged: Taxes are a major economic concern. Opportunities to improve North Carolina's competitive position relative to business taxes are evident in numerous studies on our state's tax policies ands structure. With clear direction from our customers, our state Chamber will continue its advocacy work to identify and implement solutions that stand to improve our tax rules, appeals process and the overall fairness of our tax system.

Work groups comprised of state Chamber members guide our advocacy efforts to improve tax policy in our state. Additionally, we are building a strong coalition of allied groups with the common goal of making sure that North Carolina is - in fact - the best state in America in which to do business. Ranking at the bottom of scorecards and lists derived from national studies of our tax statutes and administration makes it clear that there are indeed important areas in which we need to improve as a state.

Our state Chamber has already received indications from the State Senate leadership that the Senate understands these kinds of tax system challenges and is ready to work with the North Carolina business community to overcome them. We look forward to working with both the Senate and House to make sure that North Carolina's rankings and grades when it comes to tax administration, fairness and predictability match our strong reputation.