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House | June 4, 2013 | Committee Room | Finance

Full MP3 Audio File

604 House Finance: Speaker1: I know how much you all have been waiting for this moment. I would like to call this meeting of the House of finance together and to order. I would like to thank xx. sorry Mr. Hans, Mr. Sears, Mr.Brandon and Mr. Clangford, Thank you for your endurance. I would also like to thank our pages for todayTodd Marseil, Noven xx Kevin Sizen, and Errin Walker. Thank you for what you are about to observing and we appreciate it. At this time we will take up the PCS for House bill 998. Representative Hager moves to have PCS for the House bill 998 for discussion, all in favor say aye, all opposed. Motion carried. Speaker changes: Thank you Representative Hager, that’s very kind of you, and a surprise to you, I know. Speaker changes: Representative Lewis. We will continue the discussion from the meeting from last time. Speaker changes: Mr. Chairman and ladies and gentlemen, thank you again for the chance to be here. Sorry to you, and I am sorry because that was smooth so you must want to see it. Speaker changes: We’ll try again. Speaker changes: Thank you so much for the chance to stand before you again today; I tried that line, what I thought was a very detached plan the last time we met, I’ll be glad to go in there and to whatever part of the tax plan that you’d like to discuss, I had a respect for the committee’s time, I know that many of you may have some inquiries that you’d like to pose or memos that you would like to send forward. So I’ll take the xx to what direction as to what he wants me to do. Speaker changes: We can start with the memos and then .. Representative Brawley xx Speaker changes: If I might ask you a question? Speaker changes: Proceed. Speaker changes: Personal Income Taxes . Johnny the plumber operates out of his house. And has been taking, whenever he files his taxes he takes it Tax deduction for operating the plumbing business. Under this bill, will be able to take deductions for those expenses? Speaker changes: Yes sir he will. Speaker changes: All of them? Speaker changes: To the extent that they are the same businesses, xx stuff Speaker changes: Yes sir. Speaker changes: Okay if it is Johnny the real estate agent will he be able to do the same thing and deduct his licensing expense and continuing education and all of that? Speaker changes: Yes sir. Speaker changes: And Mr. Chairman if it would make the gentleman feel a little more confident in that response perhaps you could recognize Dr. Boardman to respond to that if that would be okay with Representative Boardman. Speaker changes: But yes is the answer. Speaker changes: Dr. Boardman. Speaker changes: If you don’t mind Speaker changes: Further explanation regarding that question? Speaker changes: With respect to expenses of the so proprietors following schedule C, in that schedule all expenses are expenses would be included as part of filing the income tax and then what we might want to refer to is would want to xxx when you calculate your Federal adjusted income those business expenses would represent one of those adjustments. Speaker changes: Thank you, for information purposes and members of the committee we are going to take up the amendments on this bill, have discussion and we will vote on this bill at 9.40. One way or the other, up and down, any way Mr. if we don’t get there , we will take 4 amendments and let the appropriate committee members have some joy in hearing them on the floor. Since they are missing that is missing at this time. At this time we will take up the Howard amendment. Amendment 1 , has amendment 1 passed out? Do all members have Howard amendment? I would also like to represent, welcome our new Representative to the committee Representative Glen Martin.Welcome to the House of Finance unofficially. Speaker changes: Thanks xx Speaker changes: Absolutely ; that is unofficially welcome to the fray, we would like to have you. Speaker changes: We hope you feel that way after today. Speaker changes: Representative Howard. Speaker changes: Thank you, Mr. Chairman and this is really a simple amendment; it looks like xx with long lines but it does actually three major things . It removes the cap on the mortgage interest

deduction it removes the cap for the charitable contributions and it also allows the folks to continue to take their local property tax exemption as they have in the past. I will plead the case for the amendment. Our building industry is very fragile, we are slowly coming back and if folks really look at what makes the great state of North Carolina function, it is the building industry. When they are down, we are down. When they are up, we are up and I don't think it is in the best interest through tax reform or any other policy that we adopt that we do anything that is detrimental to that industry. It's just not the time to do it. I would ask for your support on the amendment. I realize that it has a price tag. I realize what that is and it simply means that you need to reshuffle the deck and I would ask for your support and I would be glad to answer any questions. [SPEAKER CHANGE] Representative Davis. [SPEAKER CHANGE] Thank you, Mr. Chairman. I would like to speak on the amendment please. [SPEAKER CHANGE] Yes sir. [SPEAKER CHANGE] I support this amendment. My wife is a real estate agent in Wilmington and I know we have representatives here from the real estate industry and I know how important the mortgage deduction is to people who are looking to buy a house as well as being able to deduct their local property taxes. I received a lot of emails, I talked with Representative Lewis last night about the fact that I knew there would be people here that wanted to speak on that and I would just like to relay in their behalf that I hope that everyone will consider supporting this so we can keep the building industry and real estate business thriving. Thank you. [SPEAKER CHANGE] Representative Hall. [SPEAKER CHANGE] Thank you, Mr. Chairman. Certainly we all understand how important it is that the home industry is coming back and how important property taxes and other things are to overall function of the state and the building industry is something we really need to look at as far as building North Carolina back so as we look at this I hope this amendment will be one that we can support and again find some way to keep it in the tax plan. [SPEAKER CHANGE] Thank you. Representative Lewis. [SPEAKER CHANGE] Thank you, Mr. Chairman. I'd like to speak to this. I certainly understand the importance of the mortgage interest deduction and certainly understand the right and the good that comes from various charitable contributions. We took a look at these exact scenarios as we put this House tax plan together. What I'd like for you to understand is that nearly 80% of the filers in our state take our standard deductions anyway which means they do not take the deductions that this amendment does address. I'd also like you to note that most folks in the state that take the mortgage interest deduction are in the $75,000 - $120,000 range of income and that amount, their net tax reduction is less than $400. The total cost of this amendment to the tax plan is $525 million, at least. With that, I would say that with the pressure that we are under to fund essential state services that this amendment simply goes a little bit too far and with that I would ask that the committee not support the amendment as it is sent forth. [SPEAKER CHANGE] Further questions or comments from the committee? [SPEAKER CHANGE] Representative Jones, I'm sorry. [SPEAKER CHANGE] Thank you, Mr. Chairman. I was just going to ask and this may be a question appropriate for staff and perhaps it would be. I don't know if you have the exact figure or not. It says this amendment addresses the cap on mortgage interest, on charitable deductions and local property

this exemption. Three different things. Representative Lewis just said that the cost would be approximately 525 million at least. I was wondering if you could give us a breakdown, between those three entities, as to where the cost lies. [SPEAKER CHANGES] Mr. Chairman, could we direct that at the staff? [SPEAKER CHANGES] Absolutely. [SPEAKER CHANGES] Mr. ?? [SPEAKER CHANGES] Unfortunately, my answer is, I cannot break that down. We're reliant on statistics of income data from the IRS, and they aggregate all three of those components into one piece of data, so we can't break it down for you. [SPEAKER CHANGES] Representative Brawley of Iredell. [SPEAKER CHANGES] To comment on the amendment? [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] If I understand correctly, the state may give up 525 million dollars based on this package, but what that really means is, that the homeowners that are taking the mortgage interest deductions, and people making charitable contributions, will not have that money to pay their bills with. Is that correct? [SPEAKER CHANGES] Well, Representative Brawley, the answer to that, I think, was given by the author of the amendment in her remarks. She said it would require the deck to be reshuffled, which means, whichever pocket you want to take it from, it's going to come out. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Representative Howard. [SPEAKER CHANGES] I don't think that was the intent of my remark. It was the intent that you would need to reshuffle the projections on this new bill. This new bill is called Tax Reform. I just bring you back to the point that when people bought homes years ago, they understood that they could take off the mortgage deduction. They could also take off the property tax. Now, they're into that mortgage. They're into that debt. And then, is it in our best interest, under the guise of tax reform, that we say, "Oh, no, that's changing"? You're in the debt, you're paying the mortgage, but you are no longer going to be able to take those deductions that you've been able to take in years gone by. I think that is egregiously unfair. Somebody asked me yesterday, "Well, why don't you just start it for the new home buyers?" Well, that should put a black cloud against all of the new buyers that are out there, that are trying to start, small families trying to buy their first home. It's not a cost to the state. It's money that has been swept up to do the disguise of tax reform, of reducing personal income tax, corporate tax, all the reductions in there. It was a sweeping up of money, a place to find money. I think this is the wrong place to look for it. I again would ask that members consider this closely, when you go home, and you go to church, or you go to the grocery store, or wherever you got to go. If this provision remains in place, what you're gonna find is families, working families, trying to buy their first home, or perhaps they're already in that home, looking to you to say, "Why did you reduce, or take away, something that I was counting on to make the monthly payments?" I would ask for your support of the amendment. [SPEAKER CHANGES] Mr. Chairman, speak a second time? [SPEAKER CHANGES] Please. [SPEAKER CHANGES] Thank you. I appreciate the comments from the lady, and I apologize if I misspoke about the remarks that she made the first time that she spoke. To be clear, the response to them is that this plan cuts the percentage of income taxes that they have to pay. And in every scenario that we've run, that means they have more money left in their pocket at the end of the day. It just makes sense. The larger the base that you have to tax, the lower the rate is that you can tax. If you shrink that base, if you shrink that base, then the rate has got to go up. The money that comes out of the pockets of folks will have to go up. I would respectfully ask

That this Committee at this time not approve this amendment. [SPEAKER CHANGES] Mr. Chairman, I would move for the adoption of the amendment. [SPEAKER CHANGES] Thank you, Representative Howard. Any further discussion from Members of the Committee? If not, you heard the motion from Representative Howard to adopt the Amendment Number 1. All in favor say aye. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All opposed. [SPEAKER CHANGES] No. [SPEAKER CHANGES] The motion carried. Amendment Number 1 is adopted, thank you. Representative Blust? [SPEAKER CHANGES] I just have an inquiry of the Chair from your earlier remarks at this bill would be voted on at 9:40. I’m assuming no one knew that that’s. [SPEAKER CHANGES] 9:40. [SPEAKER CHANGES] That’s coming from on high. [SPEAKER CHANGES] That’s coming from no one but ?? here. [SPEAKER CHANGES] I implore that we have at least an additional day, if not two on a bill of this magnitude that has probably the biggest issue beside the budget that the General Assembly is going to take up. That this is going to require some very thoughtful deliberation and time to really think things through and soak things up and if you have amendments to prepare, good amendments and I’ve got 2 that really need some tweaking. And I just think something of this magnitude for the state needs additional time. More than an hour and fifteen minutes in this Committee meeting and I know Thursday is was presented for about an hour so that’s 2 hours and 15 minutes for a bill that is of great import. [SPEAKER CHANGES] Representative Blust, I understand your concerns. But if you also will note, the majority of the body is not here because half of the body, or this is less than half of the body so the Appropriation Committee members are missing the debate so will would be helpful on the full floor that the entire body hear this debate and so that is another reason that why we’re going to move this onto the floor so we’re going to have thorough debate with the full body. So I’d say get your amendments ready if they’re not ready to be heard here and have them ready for the floor. Representative Luebke. [SPEAKER CHANGES] Thank you, Mr. Chairman. With respect, I want to agree with Representative Blust. [SPEAKER CHANGES] I understand. [SPEAKER CHANGES] Let me just point out that last time it wasn’t an hour. It was less than an hour because we spent a whole lot of time on the Interlock bill and if we have time, listen to the tape. We had less than an hour on this bill. This is, as Representative Lewis has said, the most major change to our tax code in decades. It is truly Mr. Chairman, I truly have asked you to let the Committee hear all our amendments. Have our debate, and if we don’t finish by 9:50 that we meet whenever you and the other Chair, Senor Chair Howard wish to meet. And let me stress also one other thing if I might and why I just, again with respect disagree with your analysis that we should move the amendments to ?? onto the floor. It is entirely possible, and as the cliché goes, above your pay grade and again, no disrespect . [SPEAKER CHANGES] None taken, it’s above yours as well. [SPEAKER CHANGES] Mr. Chairman, you know I’m about 100 feet in the cellar. [SPEAKER CHANGES] But you have served in this station before and yes Representative, we are wasting time discussing the bill but let’s continue. [SPEAKER CHANGES] No, let me get to my last point, because I have been in the Chair. It is entirely possible that a decision will be made by the Speaker or just below his level, to put this into the budget and not to bring it to the floor. We don’t know that. I can assure you that in 2009 that’s exactly what the Democratic majority did. We heard the tax bill and it went into the budget. That might happen here too and it’s totally then, just impossible for those of us who have other amendments in this committee to be heard. And I respectfully ask you to not vote today if indeed we aren’t finished at 9:50. Thank you. [SPEAKER CHANGES] Representative Tine. [SPEAKER CHANGES] Thank you, Mr. Chairman. I understand the concerns about the bill but I’m going to offer an amendment and if you would go ahead and pass that out. And as it’s coming out, I’m concerned about the cumbersomeness of the services tax and how that would occur when certain pieces are put in and other pieces are not. Say for plumbing we discussed it in a meeting the other day that if you put a toiler in yes there was a sales tax, if you put a washer in to fix something there wasn’t on the services. So there’s a little bit of cumbersomeness that I’m concerned about. I’m concerned about the shifts when we’ve lowered some of the tax rates to the middle class. But this amendment.

takes care of one of my concerns, which is the corporate income tax rate. From what I understand from different businesses, we really haven't lowered it to a point that makes it as attractive as we'd like, to bring some folks in. What this one would do, and I sought to be revenue neutral, in regards to it. It would implement the 7.75 for a million dollars over, again, so that highest income tax rate. So, from zero to a million it would still be the flat 5.9. Anything a million or over would be 7.75. On the back you can see what the corporate income tax would lower to. 4.9 in the first year, down to 3.8, to try to make it more attractive for corporations to come here. So, that's the explanation. I'm prepared to answer questions. Thank you. [SPEAKER CHANGES] Questions, comments from the committee. [SPEAKER CHANGES] Mr. Chair [SPEAKER CHANGES] Representative Lewis. [SPEAKER CHANGES] Thank you. I would commend Representative Tine for his attempt to lower our corporate tax rate. The concern that I would express, is as Representative Tine and the members in this room know, many of the business entities in our state are structured in such a way... For example an S Corp, or an LLC, or LLP, or what not, to where the income from the business, all of it, whether or not it truly is realized- cash, profit, or not. All of it flows through the personal income tax side. They don't actually pay a corporate rate. As such, this would in fact, I believe, be a tax increase on many, many of the businesses in our state. I know when you look at an amount like a million, it seems like a lot. And I can assure you for me it is a lot. But, if the gentleman's intent is to spur business growth, I don't think raising the tax on the most popular form of our small businesses is the way to go. So I would ask that you vote against the amendment. [SPEAKER CHANGES] Representative Tine. [SPEAKER CHANGES] Thank you, and thank you to the bill sponsor. My point is, is when we lowered some of these rates, you started and you brought in the electricity, and... we let the earned income tax credit go and the services was increased, the percentage of the salary paid for those lower income folks is actually increasing the percentage of it. My idea is then, to the percentage of the income, not the actual percent. So if I'm a high wage earner and I spend less of my money on services, less of my total money then I don't have as high a percentage of my income, is what I'm saying. If we're trying to lower our corporate rate, and really get it down to a rate that is going to attract business then we should spread that cost of that particular initiative across all income folks and make it a more fair and broad base. And I would like to request the ayes and no's please. [SPEAKER CHANGES] Representative Starnes. [SPEAKER CHANGES] Let me ask a question of Representative Tine. I assume someone on the staff has run the numbers, that if you tax over a million dollars at these rates, then you are able to drop the corporate income tax, to these lower rates on the back page. The numbers are there to sustain the amendment. [SPEAKER CHANGES] Yes, it's a revenue neutral amendment. And just a clarification, the 7.75 is the way it exists now. So it's not a tax increase from where we currently are. It's actually keeping it at the same level. [SPEAKER CHANGES] Representative Blust. [SPEAKER CHANGES] I going to oppose the amendment. I think Representative Lewis hit it exactly right. There are many entities, there are many businesses that are taxed at the personal rate through flow through accounting and this would not make it any more attractive for this businesses to be

In North Carolina that’s the ultimate goal of the bill is to make North Carolina more attractive place for business and for people. [SPEAKER CHANGES] Thank you. Representative Collins. [SPEAKER CHANGES] I agree with Representative Lewis’ statements about the majority of our businesses, especially majority of businesses that are hiring people even during the recession being passed through entities. I have a question for staff. I guess it’s Dr. Borden/g. I’ve always heard that the billion or so dollars that we collect in corporate income tax every year, that the great bulk of that is paid by just a handful of companies. I was wondering if he could either corroborate that or disabuse me of that notion? [SPEAKER CHANGES] Dr. Borden/g. [SPEAKER CHANGES] The, about one point two, one point three billion dollars of corporate income tax 65%, 75% of that is gonna be paid by your 400 largest corporations. [SPEAKER CHANGES] Representative Luebke. [SPEAKER CHANGES] Thank you Mr. Chairman. I am speaking in support of the amendment for two reasons. First of all I have heard for so many years the importance of dropping the corporate rate and I’m pleased that we Democrats are dropping the corporate rate lower than what Representative Lewis has done in the Republican tax bill. So that’s great. The second part of it is, it's important to understand how few tax filers make more than one million dollars. I have checked this with staff. It is less than one half of one percent. Less than one half of one percent. So this is asking those who make, in the category of less than one half of one percent to keep their tax rate at seven point seven five. That seems imminently read, reasonable. I don’t know how many people in this state that feel a lot of sympathy for millionaires. We’re in touch with the people in this state when we support the Tine amendment. Thank you members. [SPEAKER CHANGES] Representative Tine? [SPEAKER CHANGES] I, I move for adoption of the amendment. [SPEAKER CHANGES] Thank you. Representative Warren? [SPEAKER CHANGES] Thank you Mr. Chair. I just wanted to speak on the amendment. I, I’m not in favor of it. And maybe from a little different premise than some of the other points that were mentioned. And it goes back to the motivation behind the, the amendment. I don’t believe it’s absolutely essential that we have the lowest corporate income tax in the area or in the country in order to attract business here. It overlooks the fact that North Carolina also offers other attributes that are conducive to conducting good business and business growth such as our rail, planes, water and so forth. I, I, I think that what Representative Lewis has put forth gives us a competitive edge without necessarily having to sacrifice anything on, on, in terms of corporate rate. So I, I’d stand against the amendment. [SPEAKER CHANGES] Thank you. Representative Brawley of Mecklenburg. [SPEAKER CHANGES] Thank you Mr. Chairman. I was looking at this and I was thinking if you have a cursory knowledge of non-competitive game theory, what we’re really gonna do is take a lot of businesses that are pass-through entities and turn them into C corps where they’ll pay the lower rate. But I, I’m really enjoying the rhetoric here because we’ve decided that we want to tax individual’s high income families more so we can give tax breaks to Bank of America and Exxon. It seems to me like that’s just a, it’s kind of a silly political game. And we have a tax plan [CROSSTALK] modeling. Unfortunately true. But I think this is more of a specious amendment and just a, it’s just a political game. Let’s don’t waste time on this. [SPEAKER CHANGES] Thank you. Representative Moore? [SPEAKER CHANGES] I just, the gentleman from Durham wanted to make it partisan and I just [SPEAKER CHANGES] Oh, dear. [SPEAKER CHANGES] thought it interesting when he was in charge he never met a tax increase he didn’t like. [SPEAKER CHANGES] Pandora’s box. [CROSSTALK] But the, but I would point out exactly what Representative Brawley said. And that is that, the effect of this amendment to tax families, to tax individuals to give breaks to large corporations. I, I can think no worse amendment. Thank you. [SPEAKER CHANGES] Any further questions from the committee? You’ve heard the motion. Oh, excuse me. Representative Hall, I’m sorry. [SPEAKER CHANGES] Thank you Mr. Chairman. And, and just to comment again folks changed their status of their business or the, the type of business they have based on what this tax policy is. We all know that. That’s why a lot of people immigrated to other types of business forms. And I think this is a sincere attempt to try to make an improvement to the bill and, and I hope the committee members will support it. [SPEAKER CHANGES] Thank you Representative Hall. Representative Jones. [SPEAKER CHANGES] Thank you Mr. Chairman. This is a question perhaps staff would like to address. I would just like to know since part of the purpose of our bill is

House Finance: 604: Speaker 1: Make our state more competitive for jobs in the economy . We are looking out at all the surrounding space, Virginia, South Carolina, Tennessee, Georgia, so forth and so forth; if any of those states have 7.74 cash rate Speaker changes: Miss Avery . Speaker changes: The highest and looking at the personal income tax the highest tax rate in our surrounding states, we are at 7.75, South Carolina goes from zero to 7%, Georgia up to 6, and Virginia up to 5.75. On a corporate schedule our rate is 6.9%, South Carolina at 5, Georgia 6, Tennessee at 6.5 and Virginia at 6. Speaker changes: Representative Collins: To me the biggest problem with the amendment is that if those of us in this room as Representative Brawley just mentioned anybody can figure out in 10 minutes that all you have to do to beat this tax, if you are a million dollar tax payers and corporates it is not going to take people, CPAs very long to figure this out. Because of the past bill and it is now going to corporates will have a hold on our budget has to come back and figure how you feel. Speaker changes: Thank you and any further questions or comments from the committee. You will hold the motion from Representative Tine to the counter for amendment. The clerk will record the vote. Speaker changes: Mr. Chairman, then it will require our 25% of the members to sustain the cover for the Speaker changes: We do. Speaker changes: I would ask you to request Speaker changes: Have already. I cannot accept questions, we are already into the vote. Speaker changes: Right. Speaker changes: The clerk will record the vote. Speaker changes: Representative xx Alexander. Speaker changes: Aye. Speaker changes: Representative Alexander has voted aye. Blust? Speaker changes: No. Speaker changes: Blust, no. Speaker changes: R. Brawley? Speaker changes: No. Speaker changes: Representative Bill Brawley? Speaker changes: No. Speaker changes: Bill Brawley, no. Representative Blur? Representative Carney? Carney? Speaker changes: Yes. Speaker changes: Representative Collins? Collins, no. Representative Chatham? Representative Davis? Davis, no .Rep. Dollar? Representative Hager? Speaker changes: No. Speaker changes: Rep. Hall? Speaker changes:Yes. Speaker changes:. Rep. Hamilton? Speaker changes: Yes. Speaker changes: Rep. Haynes? Representative Harrison? Harrison, no . Rep. Holley? Holley, yes. Rep. Howard? Howard, no. Rep. Johnson? Rep. Jones? Jones, no. Rep. Jordan? Jordan , no. Rep. Lewis? Lewis, no. Rep. Leubke? Leubke yes .Rep. McManus? McManus, yes. . Rep. Moffitt? Moffitt, no. Rep. R.Moore? R.Moore, yes. Rep. T. Moore? T. Moore, no. Rep.Greer, I.. Oh. Pardon me. Speaker changes: I am not aware of anything that makes me eligible to vote, but if not vote were it would be aye, Speaker changes: It’s the thought that counts. Thank you. It is always the thought that counts.. Thank you. We appreciate it more than you know. Speaker changes: Rep. Samuelson? Speaker changes: Samuelson no. Rep. Schaffer? Schaffer, no . Rep. Stam? Stam, no. Rep. Starnes? Starnes, no. Rep. Stone? Stone, Rep. Tine? Tine, yes. Rep. Waddell? Waddell, yes. Rep. Warren? Warren, no. Rep. Wells? Wells, no. Rep. Setzer? Setzer. Speaker changes: No. Speaker changes: The Tine amendment failed 20 to 10.Thank you. Representative Hager?

Thank Mr. Chairman, if you're ready for an amendment, I'd love to send forth an amendment. [SPEAKER CHANGES] We can't wait, do members have the amendment? Committee will stand at ease until the Hager Amendment is passed out. [SPEAKER CHANGES] Mr. Chairman, I want commend you on your enthusiasm. [SPEAKER CHANGES] I know, absolutely. This is not the first time I've been here. And I'd like to thank you all for your kind endurance. Do all members have a copy of the Hager Amendment? Representative Hager, please explain your amendment. [SPEAKER CHANGES] Thank you, Mr. Chairman. This amendment would actually end the film tax credit by the end of the year. It would save, I'm going to go in the opposite way, if we had done this last year, it would have saved the state 69, almost 70 million dollars, of which we could have applied back into -- 'cause that is, if you guys remember, that is a refund credit, it's not just a tax credit. So basically a check that we cut for every 4 dollars spent, we remand back, the way the formula works ??. And I'll give you a good example, on Iron Man 3, their total spending was 81 million dollars. And that number is kind of phenomenal because there with a 20 million dollar refund cap, if you spend 80 million dollars, you get the cap. So I kind of find that a little suspicious. In 2012, we spent 69 million dollars on this tax credit and this is money that could have went to things like giving our state troopers a raise. The average state trooper makes 36,000 dollars a year. We could have retained some teacher's assistants. We could have put some money back into the education system. This, I akin this a lot to our house being on fire but we don't want to bother the neighbors because we told them we don't want to bother them. And we've got to fix the situation. ?? Let me give you some good examples, numerous studies through Connecticut, New Mexico, Pennsylvania, Arizona, Michigan, Massachusetts that showed how much we actually return back in money from every dollar spent. Connecticut Dept. of Commerce and Economics says it's 7 cents for every dollar spent in revenue on the film tax credit. New Mexico puts it at 14 cents, Pennsylvania Legislative Study puts it at 13 cents per dollar spent, Arizona puts it at 28 cents, Michigan puts it at 11 cents, and Massachusetts puts it at 13 cents for every dollar spent. Now, Iron Man 3 claims that they've put $8.99 for every dollar spent. We've got numerous, numerous states that claim a lot less than that. Mr. Chairman, I ask for the amendment passage. [SPEAKER CHANGES] Thank you. Representative Hamilton? [SPEAKER CHANGES] Thank you, Mr, Chairman. I didn't bring my very thick file on the benefits of film into committee this morning, because I was not prepared to argue this today. But just off the cuff, in 2012 alone, film and television production spent over 121 million dollars in North Carolina and put over 10,000 people to work, directly related to the film industry. This is not to say that that number, that 10000 person number does not include all the spin-off number business that benefited from the presence of the industry in the state: lighting companies, companies selling wood products, restaurants, bars, any other number of facilities where those secondary and tertiary expenditures are made with the money that was being brought into the state. In 2012, we project that statewide, the presence of film brought more than 350 million dollars to the state. So, this is all in a two year period: 2011 and 2012.

...which just coincides with the adoption of the most current film incentive. Up until that point, millions of dollars had been spent in the State. I believe over the last 30 years the film industry has spent in excess of $5 billion in the State of North Carolina. But once we adopted the current law in 2010 and put it into place in 2011, we saw those expenditures in North Carolina from film go up exponentially. Many people have benefited. We're not talking about the Robert Downey Jr.'s, we're not talking about Claire Dane, who many of you got to see on set yesterday. We're talking about the plumbers, the electricians, the carpenters, the make-up artists, the people that are in the trades that are affiliated with the film industry throughout the country and around the world. A film production or a television production is not put together by one person. It is done behind the scenes. Ninety-five percent of these jobs are trade related jobs. They are good paying jobs and this is a clean, green industry for the State of North Carolina. It provides uncounted dollars in tourism and marketing for the State and I urge you strongly to please not support this amendment. [SPEAKER CHANGES] Representative Davis. [SPEAKER CHANGES] Thank you, Mr. Chairman. I like Representative Helm to, was not aware of this amendment was going to be presented so I don't have my rather thick file on the movie industry either. But if I could be allowed to make a few comments. It was my impression when I got elected to this office and Governor McCrory was elected Governor that he wanted to do everything that he could to make this business friendly and to have industry come to North Carolina so we could get the much needed jobs that we need for our economy. I can't think of a better, clean industry for this State to have than the movie industry. Any representative who is in this room that represents a district where filming has occurred knows the huge financial impact that the movie industry has made from the areas that they represent. As Representative Hamilton stated, you're talking about thousands upon thousands of permanent jobs, even more so with part time jobs. You're talking about the trickle down effect that these people that have these jobs have earned this income, they buy cars, they buy houses, they buy groceries. They go out in the community and spend money and they help to invest in our State and also to make our economy thrive. The bottom line, and believe me, I was on the film commission in Wilmington and I got to know the movie industry. I got to know how it works. I got to know the importance of the incentives. You want to kill the movie industry? If you want to see everybody move out of Wilmington and everywhere else where filming is going on now and never come back, then simply get rid of the incentives. It's that short and it's that sweet and it's that to the point. So you want to get rid of the jobs? You want to get rid of the economy? Then get rid of the incentives. So I please ask you to seriously, seriously consider this amendment. With all due respect to my friend, Representative Hager, but to vote against it and keep this movie industry in North Carolina so we can keep the jobs, we can keep or economy growing. Thank you, Mr. Chairman. [SPEAKER CHANGES] Thank you, Representative Davis. Representative Hall. [SPEAKER CHANGES] Thank you, Mr. Chairman, and of course, I want to give all due respect to everybody who worked on the bill and whoever the amendment sponsor is, Representative Hager, but at the same time, as we know we're trying to move forward, be a more competitive State and this industry, of course, has the hallmarks of all of the type of things we want industry coming to this State to have. Representative Hager cited a lot of statistics from other States who've done their studies. We haven't completed our comprehensive study to make a determination and I certainly think we've seen jobs leaving just on the thought that this might happen. So I'd ask folks please vote against this amendment. Let's try to keep the film industry here and make it more of a partner here in North Carolina. [SPEAKER CHANGES] Thank you. Representative Stam. [SPEAKER CHANGES] Thank you. I do support this one amendment. The bill, as a whole, is a work of art, but it has this little smudge on it that we need to take care of. The movie industry is all about illusion and fiction and the reality is that we had an analysis that was just handed to me by Mr. Tark, but done by Dr. Patrick McCue and I've actually sent it to most of you. This is from our own staff that says, and I'm only going to read you two sentences from this, but it's about the 2011 tax year where we had $30 million in credits. Listen to this, two sentences. It's supported by 10 pages of text, but here are two sentences you have to understand. "Under the most plausible assumptions, the film credit likely attracted 55 to 70 new jobs to North Carolina in 2011. The film credited created 290 to 350 fewer jobs than would have been created...

through an across the board tax reduction of the same magnitude. I rest my case. [SPEAKER CHANGES] Mister Chair. [SPEAKER CHANGES] Representative Lewis. [SPEAKER CHANGES] Thank you. It’s always very hard to stand up and oppose something that’s sent forth by one of your friends. I wanted to offer a slightly different take. I don’t think we’re prepared this morning to really argue the merits or the bad side of the film tax credit. When this bill was sent forth, what I attempted to do was to let the credit, let this credit, that has been used by folks. It, the bill, did not address this at all so there’s been business plans made and what not that contemplate this being in place. So, my thought was we would be, with that in mind, and you’ve got to assume that that’s a fact that we would be better off if it was going to expire to let the expiration occur in 2015 when it’s set to occur now. So, I would have to oppose this amendment at this time. [SPEAKER CHANGES] Representative Samuelson [SPEAKER CHANGES] Thank you Mister Chair. Actually, the bill’s ?? have pretty much said what I was thinking, which is, and this a problem we’ve had on a number of things, if we’ve told people we have a tax credit, we’ve given an expiration date, people have made investments, have put in contracts -- one of the things I heard last week were the number of people who said, and I’m not a huge fan of this whole thing but I’ve been learning a lot about it, and the number of people who said that the presence, it may not have brought new jobs but it saved the jobs they had. It saved these companies that were doing transportation, that were doing lighting, that were doing things I’d never thought of being associated with the film industry and it saved their jobs in a time when the economy was down. There had been contracts set on the current expiration date. We need to leave the current expiration date in place and not cut those contracts short in the middle of contracts that have already been signed and are underway. I know of one company, for instance, in Charlotte that has already leased the building, a lot of square footage, based on the current termination of the contract. [SPEAKER CHANGES] Thank you. Representative Rodney Moore. [SPEAKER CHANGES] Thank you Mister Chair. I just want to echo some of the sediments that’s been made around the table, especially I’m just going to cut it. Unlike Representative Davis, I’m going to cut it, cut quick and straight to the point. The film credits have been a advantage for North Carolina in attracting different projects in the film industry. There’s a lot of activity. Of course, you have to understand I’m from Wilmington, North Carolina. It’s where I grew up. I remember when the De Laurentiis came in and put the studio there and I know the economic impact that the film industry has had on the lives of people, not only in Wilmington, but also in the district that I represent now in Charlotte, North Carolina, as far as the filming of Homeland, some other things. And I actually took a tour with Representative Samuelson last Friday and as she said, this is not about the production. This is about the ancillary and the supportive industries that this film credit supports and it’s been a help and it saved a lot of the jobs that could have been catastrophic because there could have been catastrophic losses because of the recession. So I ask that you not only just defeat this amendment, you know I have great respect for my friend Representative Hager, but let’s defeat this amendment and let it sunset where it is now but we also need to have some help to debate going forward about how we attract the film industry and keep our competitive advantage in this industry going forward. So, thank you. [SPEAKER CHANGES] Thank you. Representative Carney. [SPEAKER CHANGES] Thank you Mister Chairman. It’s all been said but I want to point out that I think most people in North Carolina think that maybe in this building up here that the film industry is in Wilmington. It did start there but it grew and that should be a testament to why it’s important to keep this industry growing in North Carolina. It has spread across the state. Our City Council had, at the beginning of their legislative request from us, and we removed it. And that was to extend the film tax credit even farther.

It's growing across the state. If we support this amendment, with all due respect to the amendment sponsor, but if we support it, right now, what has been happening with the growth here is going to South Carolina. They're already waiting to see what we're gonna do here, and industries is looking there. But it's growing, why stop it? Thank you. [SPEAKER CHANGES] Representative Collins. [SPEAKER CHANGES] Well, I represent the people in Nash and Franklin counties and as far as I know, we're not doing any films there but I want to go back to comment that Representative Stam made. I don't know why the taxpayers in the counties that I represent was high in employment should have to subsidize people down in Wilmington or Charlotte or wherever else the movies are, are, are playing. It seems like to me a, a, a reallocation of money away from poor areas to other areas. Some of those jobs that would be created that Representative Stam was talking about by overall tax reduction costs across the board would be in my district. They would be in every district. They would be spread across the state. I keep hearing that well, we've got so many jobs in this industry that the state is, that the taxpayers are paying for, whether solar, solar energy or film or whatever else, and my thoughts are this. You're gonna create jobs in any industry that the taxpayers pay for. We're just deciding which businesses are gonna prosper and which ones are not here in North Carolina rather than out there in the private sector where the, where the market should drive what, what prospers and what doesn't. I get sick of millionaires telling us that we've got to prop them up with taxpayer dollars or they're gonna leave, whether sports franchises or entertainers or anybody else. People that are providing absolutely nothing that we have to have for the functioning of our state. They're not like teachers or doctors or lawyers that we have to have. We could do without professional athletes and do without special entertainers and have a great society. So, I get really weary of millionaires in adjunct industries that we really don't really have to have telling us that without taxpayer dollars, they're gonna leave and go somewhere else. I say let them go. [SPEAKER CHANGES] Thank you. Representative Davis. [SPEAKER CHANGES] Thank you mister Chairman. Just to, couple of closing comments. With all due respect sir, it's not about the movie industry leaving if we don't have incentives. It's about the movie industry not coming if we don't have incentives. One thing I will say, the movie industry is watching North Carolina and the attitude that North Carolina has towards the movie industry. These people don't do these things fly by night, they do these things years in advance. They go scout locations. They look at the economy. They look at what's there as far as accessories to be able to do the filming. They look at the workforce. They look at all of these things, and they make a huge investment for years in order to plan to come eventually to the state. And there's very much concern, because I've had phone calls from film people in California. I've talked to them when they come to Raleigh, as others have in the House. They are looking at this because it sends a bad message to the movie industry. We're talking about ending the film incentives, and they're not gonna come here if they don't feel like we've got a positive climate for the movie industry because they're not gonna invest all that time and effort beforehand before they finally do come here. And, and, and one last point. I just can't emphasize enough. That, that report, with all due respect Representative Stam is not an accurate report and it's based on some faulty information and to think for one minute that Iron Man 3 only created fifty jobs? Come on, it's like Representative Samuelson said, a lot of those jobs are being protected by the movie industry. We're not talking about the big movie stars that make millions of dollars. We're talking about the people that build the stages. They go out there and do the grunt work. And I know people, when the movie industry wasn't doing so well in Wilmington they had to travel to Louisiana and these other states to get a job to support their family. But thank goodness, they still love Wilmington, they stayed there, and thank goodness the movie industry came back and they're able to still live there. But I'm, I kid you not, you take away the incentives, it's gone, and then you can look at all these jobs we could have had but don't have, and look at what it does to our economy. Thank you. [SPEAKER CHANGES] Thank you. Representative Will Brawley of Mecklenburg. [SPEAKER CHANGES] Thank you mister Chairman. Questions either for sponsors or staff. As I understand, first this is already slated to expire at the end of 2015. [SPEAKER CHANGES] That is correct. [SPEAKER CHANGES] And there are, are there a raft of other tax credits that are scheduled to expire 2014, 2015, 2016 approximately how many of those are there? [SPEAKER CHANGES] There is, I don't have them right in front of me, I'm thinking there's probably ten to fifteen that are set to expire in 2014, and there's a couple or three set to expire in 2015, and another couple in 2016. [SPEAKER CHANGES] Question for the amendment sponsor, why are we just doing this one and not doing all of them? [SPEAKER CHANGES] Mister Chair? [SPEAKER CHANGES] Representative Hager.

Session 55: Speaker 1: Thank you Representative Brawley because this is one of the more unusual and this actually is a check that we cut from our state coffers where tax payer money actually flows in a bank transfer or check to the entity itself and this is money that we could be using to fund other folks xx like teachers, teachers’ assistants, so it is immediate pay back. Representative Brawley. Speaker changes: Representative Starnes. Speaker changes: Thank you. I want to be clear on something. I thought it in last week’s meeting when we had a discussion and I asked a question on the other tax credits that were set to expire or were they built or was the revenue they will generate moved into the Tax proposal and your answer was Speaker changes: Yes. Speaker changes: But in this bill it was not built into that. So basically to represent Brawley’s point those other tax credits are set to expire but their revenue is built in to the assumptions that we could lower the tax rates. The xx tax credit was not built into that assumptions so if it expires it would generate, it would free up revenue that could be used to lower the rates further. Speaker changes: Representative Hamilton. Speaker changes: Thank you Mr. Chairman, one more follow up comment. First I would like to, xxxxxxxx Second way, this industry is not eligible for other tax credits that are currently enjoyed by all other corporations across the state , they don’t have depreciation, they can’t do those write-offs that a traditional corporation can do; because they are not set up as traditional corporation which is why the tax credit is structured differently. The state of North Carolina has the toughest stand on it in the Unites States for its view and approval and auditing of the tax credit. The production must come, it must spend all of its money , it must close it books; the books must be audited by the state department of revenue and everything be closed down and approved before any money is returned to the entity to the corporation. And so at the end of the day it’s always a net gain to the state of North Carolina in terms of sales tax revenues and other secondary and tertiary benefits to the state. But the amount that the production spends in the state always exceeds what is returned to them after the production is closed and the books have been audited by the state department of revenue and approved for other payment. Speaker changes: Further questions or comments? the committee. Representative Hager. Speaker changes: Thank you Mr. Chairman, there’s some we talked about earlier. I think it’s Representative Hall that said if this the type of jobs we won’t. Speaker changes: Well I agree with it if other folks have anything to say and if you pay me to come into the state and live, start on a job and you pay somebody else to come into this xx the type of jobs you want. Speaker changes: What we have decided here guys is do we want to continue to spend money this way attract folks in here, we have to pay to come or do we want to put that money into loan and we are rate starred ?? citizens, do we want to put that money into giving our High way patrol who make $ 36,000 a year? Your own Interstate 4 A.M. in the morning, would you stop somebody you don’t have $36,000 a year. For this money we could give them at least as part of a raise or this money we could work on teachers’ assistants, but tp apy for folks to come in here work part time Speaker changes: As Representative Stam said we have spent $ 350000 million in 2011- 2012, if you have that as a hundred seventy five million what we spend, $ 70 million in 2012, get that $175 million .. Speaker changes: if the numbers are right. There is no stay there’s no numbers I have seen from anybody that says this actually a winner for North Carolina. There’s five or six, I think Seven states have made these studies; and it just doesn’t work out. Speaker changes: Sure. It may feel good, it may look good to say I am xx but the number does not prove out it’s a good thing for North Carolina. Speaker changes: Representative Jones. Speaker changes: Thank you Mr. Chairman, sometimes I think we feel guilty , perhaps debating the wrong issue. The issue here is not whether you write the Movie industry or not. I think the issue is this; the right way for us to do this is to North Carolina and it is really effective; some people say it really is. If any person in this room , represented a particular x or particular business..

Change Speaker:review wheel and we decided it was to have everybody any other certain amount of money you will get all the money to represent Hager and that he or his business or his industry go out and create jobs with it. I would like to think that he would come back to us and referred that, yes, Leah. we got some business, and we got to talking with a question. I think we have to ask is not only that question MEP could eat it working, but how many people are noticing on working in Manhattan had to get out of many good to represent Tiger and I think the same principle applies here. I think we also have access to the question, visit Lowell government to pick winners and losers because us basically what we thought we could say the limited target a particular industry is an industry that the subject. why can some people think that this is a good opportunity for us, but a lot of energies that create jobs as well so that you set up a permanent sanity and yet more ascended this particular one thrives. I'd also like to suggest that this debate is not a change when is great is that those of us that were here last session that was already set to expire was extended for another year and then continue to happen to continue to incentivize our members. if you go to go out and campaign that time. this is something that I'll probably don't know the General assembly and a minimum heart, try to extend these tax credits to my particular industry. my particular area applications have to decide is this is the right thing and there's nothing to Hagerman, it is a good one, and for all those reasons Change Speaker: as you all that we all campaign work to do, things are better for the betterment of our districts in the state and that being said, you know, the motion on the floor from Representative Hager took for the adoption of his amendment, all in favor say I all opposed will Change Speaker: him missing him up on the eyes, nose, and that Change Speaker:there had not been a sustainment that Colin Ogden sustained that I think you cannot determine so we're going to call it a nice Change Speaker:clinical Karl Rove represented Alexander. Alexander, no representative laws lost. yes, representative, or broadly are roly yes, Representative B Brawley, the Brawley. yes, the president of power representative quality quality, no representative Collins Collins, yes, representative problem Representative Davis Davis, no representative dollar representative Hager Hager, yes, represented the whole, all no representative Hamilton Hamilton, no representative hangings representative artist or artists or yes representative Holly. Holly know Representative Howard Howard. yes, represent Johnson, Representative Jones. Jones yes, Representative Jordan, Jordan yes Representative Lewis, Lewis know Representative Luedtke Luedtke. yes, Representative McManus McManus, no representative Moffat Moffat, yes, representative or more more more know representative Timor Timor, no representative symbols and you know Representative Shafer Shafer, yes, Representative Setser Setser, no representative Sam yes Sam, yes, but instead of Starnes Starnes, yes, Representative Stallman, representative time tied no representative Waddell Waddell, no representative war in one yes, represented in Wells. Wells know it is a

[SPEAKER CHANGES] The amendment has, the verdict of this amendment is 15-15, so the amendment fails. Representative Stam. [SPEAKER CHANGES] I’d like to make a motion that the amendment to committee substitute to be given a favorable report, unfavorable, to the original bill. [SPEAKER CHANGES] Members you heard the motion on the floor. All in favor say aye. All opposed. Motion carries. This meeting is adjourned. [SPEAKER CHANGES] Mr. Chairman.