The N.C. House voted 61-49 Thursday to approve Senate Bill 578, which reduces the state’s corporate tax rate and makes the state’s film production industry more financially attractive.
The bill returns to the Senate, which voted 32-18 for the bill Oct. 24.
The House version removed language that would make it a binding obligation of the state to providing funding for an awarded film grant, “and is not subject to state funds being appropriated by the General Assembly.”
The Senate chose to accept the House change by a 29-19 vote.
The placement of film grants into SB578 appears to be aimed at getting Democrats on board with the controversial Republican-backed corporate franchise tax-rate cut.
Democratic Gov. Roy Cooper has cited his opposition to another phase of corporate tax-rate cuts, along with the lack of Medicaid expansion and lower public-school teacher raises than he prefers, as reasons for his veto of the Republican state budget compromise on June 28.
“By moving forward with legislative proposals, like the franchise tax cut that failed in House Finance but was revived by leadership late last night, legislative leaders have once again demonstrated their priority is big business, not everyday North Carolinians,” said Rick Glazier, executive director of N.C. Justice Center and a former Democratic legislator.
“Bucking their prior stance against subsidizing the film industry, they moved to allow large film and television production companies to receive even more lucrative grants.”
House Finance committee co-chairwoman Rep. Julia Howard, R-Davie, said she found that film-grant section “egregious” and agreed with the committee chairs’ decision to remove it.
There were two amendments filed that would have split the bill into two portions: one stripping the film-grant language from the bill; and the other allowing for separate votes on the corporate franchise tax-rate cut and the film grants.
The amendment removing the film-grants language failed by a 106-4 vote. A legislative maneuver approved by the House along party lines did not allow for a vote on splitting the bill.
Rep. Larry Pittman, R-Cabarrus, used a Halloween metaphor to support his amendment to remove the film grant language. Pittman strongly opposes the use of incentives, including film grants.
Pittman referred to the film grants and the film production companies as “a coven of vampires.”
He said SB578 “doesn’t increase the blood supply (for the coven), but spreads it out. If you add more vampires, you make the coven bigger.”
“Once you have more blood supply, (the vampires) will demand more blood.”
The decision to not allow a vote on the amendment that would have split the bill drew a stern response from House Minority leader Darren Jackson of Wake County.
“We’re spinning our wheels (on this bill) when we know we will be right back,” given a potential Cooper veto, he said.
Lower spending for films
SB578 takes language in the Republican state budget for the film-grants program.
Both bills would lower the amount of money a film production company would need to spend to receive state film and entertainment grant money.
The amount would reduce expenditures from $3 million to $1.5 million for a feature film, as well as from $1 million to $500,000 for a made-for-television movie.
For a television series, the requirement drops from $1 million to $500,000 per episode. A commercial production would remain at $250,000.
No more than $7 million in grants can be provided to a feature-length film, as well as no more than $15 million for a single season of a television series, and no more than $250,000 for a commercial for theatrical or television viewing or on-line distribution.
“I’m pleased that the minimum threshold was lowered,” Rebecca Clark, executive director for the Piedmont Triad Film Commission, said in June. “Hopefully, this will enable N.C. to recruit more, smaller budget films across the entire state, including the Piedmont Triad.”
Franchise tax-rate cuts
The franchise-tax proposal would reduce the tax by one-third by 2021, which opponents say will cost the state more than $1 billion in lost tax revenue.
The placement of the franchise-tax cut means the bill faces a likely veto from Cooper, analysts say.
However, with three Democratic senators, including Sen. Paul Lowe of Forsyth County, voting for the bill on third reading, Cooper may not have the 21 votes to sustain a veto in the Senate.
The House will need the support of at least seven House Democrats to override a veto.
Republican supporters claim franchise taxes “are essentially duplicative property taxes on business,” and also claim that cutting the franchise tax will lead to more business investment and job creation — which has been disputed by several Democrats during bill debate.
The bill would reduce the franchise tax from $1.50 per $1,000 in corporations’ net assets worth to $1 per $1,000 by 2021. The Senate budget proposal reduces the tax rate to 96 cents by 2021.
The office of Senate leader Phil Berger, R-Rockingham, said North Carolina is one of 16 states with a franchise tax. Berger officials said the franchise tax “discourages in-state investment and the accumulation of assets, such as new plants or equipment.”
According to a legislative staff paper, the bill would reduce state franchise-tax revenue by $101.9 million in year one and by a combined $1.12 billion over five fiscal years. The bill also would introduce a cap of $150,000 on tax liability and eliminate the 55% of appraised value base for taxes.
“When our state has a climate that encourages businesses to invest not just in their operations, but also in their people and the communities they serve, we all win,” said Gary Salamido, the president and chief executive of NC Chamber.