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NDBA SPONSORED BANK TAX REDUCTION PASSES

Posted on 4/22/2011

NDBA SPONSORED BANK TAX REDUCTION PASSES ALONG WITH TAX RELIEF FOR PROPERTY, INDIVIDUALS AND CORPORATIONS - GRAND TOTAL: $490 MILLION

On Friday, both the House and Senate adopted the conference committee report for H.B. 1047, a legislative management sponsored bill to continue property tax relief, combined with significant tax cuts for banks, individuals, and corporations. The legislation now heads to the Governor for his signature.

Democrats objected to combining separate tax reduction bills into one package and argued that North Dakota's income tax rates are low enough, while Republicans supported the whole package, arguing that government needs have been funded, excess revenues should be returned to taxpayers and reducing business taxes will put North Dakota in "the sunshine" and further improve the business climate to the benefit of all state residents. Despite the pre-vote arguments, in both the House and Senate there were extremely strong, bipartisan votes in favor of the bill. For the 2011 tax year and beyond, taxes will change as follows:

Financial Institution Tax

Reduces the tax from 7% to 6.5% and provides the entire reduction to be taken from the state "share" of the tax. The reduction is $2.125 million over the biennium.

Corporation Tax

Corporate tax rates are reduced across the board by about 19%. There will be three rate brackets. Taxable income up to $25,000 will be taxed at 1.68%, from $25,001 to $50,000 will be taxed at 4.23% and taxable income above $50,000 will be taxed at 5.15%. The changes are expected to reduce corporate taxes by $25 million over the biennium.

Individual Income Tax

Individual income tax rates are reduced across the board by 17.9%. In five brackets, rates will range from 1.51% for incomes below $ 34,500 to 3.99% for incomes over $379,150, for a $120 million reduction over the biennium.

Property Tax Relief

Property tax relief in the form of a "buy down" of mill levies that fund K-12 education at the local level is funded at $341,790,000. The amount of relief for each school district depends on the mill levy of that school district in the base year, 2008. School districts that have lost taxable valuation are protected from reduced buy down grants, while those with substantially increased valuations see their grants capped at a 7.7 % increase, the statewide average for property valuation increases since the base year.

Permanent Reductions

The bill does not include any sunset provision; future tax increases will require legislative action. The Senate had included a sunset provision when it passed income tax reductions earlier in the session.

Interim Studies

The new law requires a mandatory interim study for property tax reform and sustainability of state funded property tax relief in the form of the mill levy buy down grants and recommends interim studies of the financial institution tax and corporate tax structure. If this second study is selected for action, it will include consideration of including financial institutions within the corporate tax structure, apportionment factor revisions and the impact of federal legislation on state corporate income taxes.



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