Retroactive Tax Increases

Those not concerned about paying income tax or whose sole interest is in getting an income tax "refund" (loaning the government part of their earnings interest free for a year) probably should skip this post. Others, particularly those that live in North Carolina, may be interested to learn that the state just approved a retroactive income tax increase last month. Yes, retroactive.

It is identified as a "surtax". The relevant section of Senate Bill 202 is 27A.1(a) and reads as follows (emphasis added):

PART XXVIIA. TAX CHANGES
CORPORATE AND INDIVIDUAL INCOME TAX SURTAX
SECTION 27A.1.(a) Part 1 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-130.3B. Income tax surtax.
(a) Surtax. – An income tax surtax is imposed on a taxpayer equal to three percent (3%) of the tax payable by the taxpayer under G.S. 105-130.3 for the taxable year. This tax is in addition to the tax imposed by G.S. 105-130.3 and is due at the time prescribed in
G.S. 105-130.17 for filing a corporate income tax return.
(b) Sunset. – This section expires for taxable years

Note that this bill was signed into law on August 7, 2009 (scroll to the bottom of the list of actions). Retroactive over seven prior months of tax planning, now invalidated. Governor Perdue was sworn into office on January 10, 2009 (scroll to the bottom of the media releases). Retroactive nine days earlier than even the Governor's taking of office.

The surtax affects corporations and what the press would term "high income" individuals. Regardless of if this particular action has immediate personal application or not, every taxpayer should consider what principle is being demonstrated by issuing retroactive tax increases. Here are just two.

1. Is tax planning is useless? Any scheduled planning, giving or investing based on the tax rates at the start of the year are certainly now reduced in effectiveness. Businesses planning investments in the state will surely take this into consideration in the future.


2. What guidelines exist, or should exist, regarding enactment of retroactive laws? The paying of taxes has a clean yearly boundary due to the payment cycle. If the discussion was over issuance of licenses or permits what would the boundaries be?

FWIW - this is not an indictment of Governor Perdue or any political party. It is however of politicians and politics in general. It is an amazing display of the politics of power and money, this time at the state level. Be careful of the change you vote for. It can change the future - and the past.