Upcoming 2016 and 2017 NC Tax Law Changes

On September 18, North Carolina Governor Pat McCrory signed the new budget into law.  There are quite a few changes that residents of NC will encounter over the next few years due to the new tax laws that were passed.  One of the more pertinent changes is that in 2017, the individual income tax rate will drop to 5.499 percent.

Most notably, there are major changes to sales tax that will impact everyone.  Effective March 1, 2016, NC will begin charging sales tax on repair, installation and maintenance services.  For example, if you have to pay for your car to be repaired or have to pay for installation of appliances, there will be sales tax included.  Contractors that do not sell anything tangible, such as pet care, will not have to charge sales tax.  Now, you will notice that the individual income tax rate does not drop until 2017, but the sales tax rate is changing in 2016, which means that you will not see the tax benefits of these changes until you file your 2017 tax return in 2018.  According to an article in the News & Observer NC budget: More sales tax in 2016, income tax cuts in 2017: “Households making more than $95,000 a year would get an average tax cut of $476, according to legislative projections.  As long as they don’t spend more than $7,000 on taxable services, they’ll see a net benefit from the tax changes.”

Some other important changes with the latest tax laws includes the return of the medical deduction for the 2015 tax year.  In 2013, the tax reform bill eliminated a lot of the itemized deductions allowed on federal returns, including medical expenses.  Also, the corporate income tax rate will drop to 4 percent for the current tax year.

While it is great that the income tax rate is dropping and the medical deduction is returning, I am concerned that the sales tax changes will have a larger impact on consumers.  We will all certainly find out over the next 2 years.