North Carolina lawmakers are considering bills that would reduce taxes on tips and overtime pay, as well as gambling losses.
A Republican-sponsored “No Tax on Tips” bill got its first House committee hearing Tuesday. Similar to President Donald Trump’s proposal at the federal level, the bill would allow workers to deduct up to $2,500 in tips, bonus or overtime income from their state taxes.
Rep. Jay Adams, R-Catawba, questioned the bill sponsor, Rep. Harry Warren, R-Rowan, about the likelihood that the tax break could be abused.
“Have you figured out all the different ways that this could be gamed?” Adams asked.
Warren responded that “nobody has,” but that “there are about 20 other states that have at least 20 bills doing the same thing, and they’re all looking at it from their individual situations. There’s at least four of them in the U.S. Congress pertaining to it on a federal level, and so it’s a work in progress.”
Warren said he doesn’t yet have an estimate on how the change would affect state tax revenue collections, but he plans to get legislative staff to do an analysis.
Another bill would create an income tax deduction for gambling losses. Rep. Erin Paré, R-Wake, says it’s unfair for gamblers to pay income taxes on winning bets when they ultimately broke even or lost money over the year. She says that since the state legalized sports betting, people are surprised to learn they owe taxes on winnings even if they had no net income from the activity.
“Even though there’s gambling in the title, this is not a gambling bill — so this is a fair tax bill,” Paré said. “North Carolina law says that I have to pay income tax on what I won, not taking into account of what I lost, but federal law says that I can deduct my losses capped at my winnings.”
Opponents worry the tax deduction could make people more likely to gamble.
“The bill reduces the immediate financial impact of losing money, and this, in turn, lowers the natural deterrent against risky behavior,” said Rev. Mark Creech of the conservative religious group Return America. “People might feel encouraged to gamble more frequently or wager higher amounts, knowing that some of their losses will be absorbed by the state.”
Rep. Keith Kidwell, R-Beaufort and a co-sponsor of the bill, stressed that he’s fought all legislation to expand gambling access in North Carolina, but “to cause someone to pay taxes without allowing the deductions against that income flies in the face of the North Carolina Constitution.”
The House Commerce and Economic Development Committee plans to vote on both tax bills when it meets again next week.