Support small business through actions, not lip service

Dec 20, 2013

One of the little-discussed areas of North Carolina’s sweeping tax reform package was the impact on small business.

Previously, the first $50,000 of income for small business owners was exempt from taxation. While some, and apparently state legislators, consider the exemption an unwarranted perk, there’s another side to the story.

In essence, most small business owners are uncompensated revenue collectors for the state of North Carolina.

The state charges a sales tax on most retail items, and the responsibility of collecting that tax falls on the business where the item is purchased. And the tax better be collected properly and remitted in a timely manner. Otherwise, the unpaid tax collector (business owner) faces fines and penalties.

Then there’s the matter of income tax withholding.

Most self-employed individuals are responsible for remitting income taxes throughout the year, but it is employers in North Carolina who provide the bulk of the income tax payments to the state government.

It isn’t just income tax, either. Those who receive a weekly, biweekly or monthly paycheck understand the deductions made before they ever see a salary check.

Gregg Thompson, the North Carolina state director for the National Federation of Independent Businesses, said exempting the first $50,000 of business income from taxation will certainly hurt small business owners, even considering the lowered taxation rate that resulted from the tax reform enacted this spring.

Though the business organization supported the tax reform measure overall, Thompson fears there could be additional consequences that could have a chilling impact.

“The tax reform package — reducing the corporate and personal income tax will absolutely benefit small business, but an initial dollar amount exempt would be more beneficial to the true small business owner,” he said.  “But if revenue growth projections are not met, legislators could go back to looking at additional services to tax to make up the difference. That would be devastating to small businesses.”

At present, nearly 40 types service providers are required to collect taxes under state law, Thompson said. At one point during the tax reform discussions, legislators were toying with expanding that list to about 150. Additionally, there was talk of taxing food items (now taxed at 2 percent) at the same rate as other products, though the unpopularity of the measure likely prompted it to be abandoned.

If indeed small businesses are the backbone of our state and national economy, they ought to be treated as such. Perhaps exempting the first $50,000 of income from taxation isn’t the magic number, but certainly there should be some sort of consideration, if for no other reason than they perform the vital role of serving as an unpaid tax collector.

Legislators who extol the benefits of small business would seem more believable if they enacted measures that reflected such talk.