A BILL TO BE ENTITLED
AN ACT to increase the sales tax by a penny, reduce the corporate income tax rate by one percent, increase the personal exemption for personal income tax, give state employees and teachers a two percent pay raise, and provide additional funds for EDUCATION.
The General Assembly of North Carolina enacts:

part I.  increase sales and use tax by one percent
SECTION 1.(a)  The introductory language of G.S. 105‑164.4(a) reads as rewritten:
"(a)	A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is five and three‑quarters percent (5.75%)."
SECTION 1.(b)  G.S. 105‑l64.44F(a) reads as rewritten:
"(a)	Amount. – The Secretary must distribute part of the taxes imposed by G.S. 105‑164.4(a)(4c) on telecommunications service and ancillary service. The Secretary must make the distribution within 75 days after the end of each calendar quarter. The amount the Secretary must distribute is the following percentages of the net proceeds of the taxes collected during the quarter:
(1)	Sixteen and thirty‑six hundredths percent (16.36%) minus two million six hundred twenty thousand nine hundred forty‑eight dollars ($2,620,948), must be distributed to cities in accordance with this section. The deduction is one‑fourth of the annual amount by which the distribution to cities of the gross receipts franchise tax on telephone companies, imposed by former G.S. 105‑20, was required to be reduced beginning in fiscal year 1995‑96 as a result of the "freeze deduction."
(2)	Six and seventy‑four hundredths percent (6.74%) must be distributed to counties and cities as provided in G.S. 105‑164.44I."
SECTION 1.(c)  G.S. 105‑164.44I(a) reads as rewritten:
"(a)	Distribution. – The Secretary must distribute to the counties and cities part of the taxes imposed by G.S. 105‑164.4(a)(4c) on telecommunications service and G.S. 105‑164.4(a)(6) on video programming service. The Secretary must make the distribution within 75 days after the end of each calendar quarter. The amount the Secretary must distribute is the sum of the revenue listed in this subsection. The Secretary must distribute two million dollars ($2,000,000) of this amount in accordance with subsection (b) of this section and the remainder in accordance with subsections (c) and (d) of this section. The revenue to be distributed under this section consists of the following:
(1)	The amount specified in G.S. 105‑164.44F(a)(2).
(2)	Twenty and sixty‑five hundredths percent (20.65%) of the net proceeds of the taxes collected during the quarter on video programming, other than on direct‑to‑home satellite service.
(3)	Thirty‑two and forty‑six hundredths percent (32.46%) of the net proceeds of the taxes collected during the quarter on direct‑to‑home satellite service."
SECTION 1.(d)  This section does not apply to construction materials purchased to fulfill a lump‑sum or unit‑price contract entered into or awarded before the effective date of the increase or entered into or awarded pursuant to a bid made before the effective date of the increase when the construction materials would otherwise be subject to the increased rate of tax provided in this section.
SECTION 1.(e)  This section becomes effective July 1, 2012. Subsection (a) of this section applies to sales made on or after July 1, 2012, and subsections (b) and (c) of this section apply to distributions for months beginning on or after July 1, 2012. This section does not affect the rights or liabilities of the State, a taxpayer, or another person arising under a statute amended or repealed by this section before the effective date of its amendment or repeal; nor does it affect the right to any refund or credit of a tax that accrued under the amended or repealed statute before the effective date of its amendment or repeal.

part II.  Reduce corporate income tax
SECTION 2.(a)  G.S. 105‑130.3 reads as rewritten:
"§ 105‑130.3.  Corporations.
A tax is imposed on the State net income of every C Corporation doing business in this State. An S Corporation is not subject to the tax levied in this section. The tax is five and nine‑tenths percent (5.9%) of the taxpayer's State net													income."
SECTION 2.(b)  G.S. 115C‑546.1(b) reads as rewritten:
"(b)	Each calendar quarter, the Secretary of Revenue shall remit to the State Treasurer for credit to the Public School Building Capital Fund an amount equal to five fifty‑ninths (5/59) of the net collections received during the previous quarter by the Department of Revenue under G.S. 105‑130.3. All funds deposited in the Public School Building Capital Fund shall be invested as provided in G.S. 147‑69.2 and G.S. 147‑69.3.
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SECTION 2.(c)  Subsection (a) of this section is effective for taxable years beginning on or after January 1, 2012.  Subsection (b) of this section is effective July 1, 2012, and applies to the calendar quarter that ends September 30, 2012.  

part III.  Increase personal exemption for personal income tax
SECTION 3.(a)  G.S. 105‑134.6(a1) reads as rewritten:
"(a1)	Personal Exemption. – In calculating North Carolina taxable income, a taxpayer may deduct an exemption amount equal to the amount listed in the table below based on the taxpayer's filing status and adjusted gross income. The taxpayer is allowed the same personal exemptions allowed under section 151 of the Code for the taxable year.
Filing Status	Adjusted Gross Income	Personal
		Exemption
Married, filing jointly	Up to $100,000	$2,950
	Over $100,000	$2,350
Head of Household	Up to $80,000	$2,950
	Over $80,000	$2,350
Single	Up to $60,000	$2,950
	Over $60,000	$2,350
Married, filing separately	Up to $50,000	$2,950	Over $50,000	$2,350".
SECTION 3.(b)  This section is effective for taxable years beginning on or after January 1, 2012.

part IV.  Use of revenue
SECTION 4.  The revenue resulting from the one percent (1%) increase in the sales and use tax rate enacted by Section 1 of this act shall be used, in decreasing order of priority, as follows:
(1)	To offset the reduction in corporate income tax revenue resulting from the reduced corporate income tax rate, as enacted by Section 2 of this act.
(2)	To offset the reduction in personal income tax revenue resulting from the increase in the personal exemption, as enacted by Section 3 of this act.
(3)	To increase, notwithstanding any other provision of law, the salaries of State employees, The University of North Carolina employees, community college system employees, and State‑funded local school employees by two percent (2%). The Fiscal Research Division of the General Assembly shall identify any employee whose salary is set by statute, shall calculate the two percent (2%) increase required by this section, and shall convey that information to the Revisor of Statutes, who shall make the appropriate and corresponding substitutions in the statutes.
Any remaining funds are appropriated to the Department of Public Instruction and shall be used to reduce the LEA budget adjustment for local school administrative units and charter schools on the basis of average daily membership. 

part V.  Effective date
SECTION 5.  Except as otherwise provided herein, this act is effective when it becomes law.