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Service with a smile, and maybe new taxes
Bills would levy tariffs on services from haircuts to lawn care
 
Published Wednesday, May 22, 2013 1:39 pm
by Amanda Raymond

 

North Carolinians will pay more for hair styles, auto repairs and lawn care if a proposed tax reform bill passes.

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PHOTO/PAUL WILLIAMS III
Bernard Monroe of BB&A Community Barber Shop in Charlotte readies customer Antenor Adam for a shave on May 18. Monroe opposes the creation of new service taxes that would force customers to pay more for haircuts. “We’re going to end up passing it along to the customers,” he said.


The Tax Fairness Act before the N.C. Senate would enact a three-year plan to update the state’s tax system and the largest tax cut in history. The bill is sponsored by Senate President Pro Tempore Phil Berger (R-Rockingham), Senate Finance Committee co-chairs Bob Rucho (R-Mecklenburg) and Bill Rabon (R-Brunswick). The House has a similar version.


By closing special-interest loopholes, doing away with complicated deductions, credits and exemptions and expanding the sales tax base, personal income, corporate income and sales taxes will be reduced, according to supporters of Berger’s plan.


Reform advocates have called for tax relief to corporations by reducing their tax rates from 6.9 percent to 6 percent over three years and the business franchise tax by 10 percent. The bill would lower personal income taxes for top earners from 7.75 percent to 4.5 percent, and reduces the bite on lower earners from 6 percent to zero immediately.


Although the bill would cut the sales tax by 3.7 percent, it expands the base by levying taxes on more services. Business-to-business transactions will not be included, but 100 previously-untaxed services – like hair salons, barbers, lawyers and accountants – would.


“A tax on what people spend instead of what they earn allows everyone to know exactly what they’re paying and gives them more control over how much they pay,” Rabon said. “This is a fundamentally fair and progressive plan – the more you make, the more you spend and the more you will pay in taxes.”


Ran Coble, director of the Raleigh-based N.C. Center for Public Policy Research, disagrees.


“That’s a regressive tax on middle and lower income people. It affects them more than wealthier people,” he said. “If you’re…somebody who provides services who wasn’t taxed before on their services but is taxed now, then, in effect, you’ve got to decide whether to pass that tax on to your customers and whether it will affect your business if you do.”


Bernard Monroe, owner of BB&A Community Barber Shop in west Charlotte, said he would rather the tax system stay the same.
“To be honest with you, I don’t like it,” he said. “We’re going to end up passing it along to the customers.”


Ultimately, Monroe does not believe the tax will be harmful to his business.


“No matter if they’re taxed or not, we’ll probably get the same amount of customers,” he said. “If the haircut and the business is good, people will still come.”


Other service professionals agree.


“Just because they tax it doesn’t mean you’re going to lose business,” said Erika Morris of Phalon’s hair salon in Concord. “People are going to get their hair done regardless.”


Co-worker Lauren Brown said the people who would be the most averse to service taxes would probably be older consumers.


“They’ll probably be like, ‘Oh, you’re going to tax me, so I’m not going to give you no tip,’” she said.


Reaujah Myers of Charlotte, who frequents African braiding shops, said she would go less frequently if there was a tax.


“One hundred and sixty dollars (for braiding) is a lot by itself,” she said.


An overwhelming percentage of North Carolina voters do not like the changes the TFA would cause.


According to a recent poll conducted by Public Policy Polling and sponsored by the Young Democrats of North Carolina, 81 percent of 500 voters contacted oppose the act, includes 79 percent of Republicans.


“The people of North Carolina saw through the gimmicks of this tax reform plan and see it as the largest tax increase in North Carolina history on the middle class and working families,” said Justin Conley, YDNC’s national committee member.


The last major state tax reform in North Carolina was done in the 1930s during the Great Depression. Supporters of the plan say reform would bring the state more in line and in competition with its neighbors in the Southeastern U.S. Coble said legislators should keep in mind that what is good for some states may not necessarily be good for others. Florida, Tennessee and Texas, for instance, don’t have an income tax, but Texas (oil) and Florida (tourism) have major industries that make it possible.


“Do they create a better tax system than the one we’ve got?” he asked. “That’s a big question.”

 

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