For some who collect tax, a coveted rebate

dkane@newsobserver.comApril 29, 2013 

In 2011, North Carolina’s beer distributors received a $280,000 windfall just for doing what they had been doing all along: collecting the state’s excise tax.

For decades, North Carolina has given distributors a rebate on the excise taxes they collect as they sell beer and wine to restaurants, gas shops and grocery stores. But that discount is based on a percentage of the taxes collected, not the actual cost of collection.

That means, as the tax goes up, so does the rebate to the distributors.

In 2009, the excise tax went from 53 cents to 63 cents per gallon of beer. The distributors keep 2 percent of all taxes collected, so in 2009 they shared 2 percent of $100.3 million in excise taxes, which was just over $2 million. In 2010, at the higher rate, the tax produced $114.6 million, so the 2 percent collection fee produced $2.29 million, or an additional $280,000 without any change in how they collected the taxes.

It’s a perk that a handful of powerful interest groups have won from lawmakers over the years. Wine and tobacco distributors and liquor importers also keep two cents of every excise tax dollar they collect from their customers. Combined, state revenue officials say, those discounts cost the state close to $12 million a year, nearly double the cost from four years ago.

Others who benefit from such collection rebates are:

• Natural gas companies that pipe their product to homes and businesses. Cost to the state last year: $4 million.

• Motor fuel distributors who keep 1 percent of the excise tax they collect. Cost: $17 million.

Some of the groups that receive these collection discounts say they cover the cost of collecting taxes for the state. They also say the discounts cover losses incurred transporting taxed products.

Tim Kent, the lobbyist for the N.C. Beer and Wine Wholesalers Association, said the state benefits from having his clients collect millions in taxes.

“It’s an extremely favorable arrangement for the state of North Carolina,” he said. “There’s a high degree of compliance, and there’s little or no labor expense incurred by the state.”

Doing the state’s work

It’s also a highly coveted tax break. In 2003, in a surprise last-minute change to the state budget, lawmakers ended what had been a 4 percent discount for the beer and tobacco businesses. Beer distributors went on a major political fundraising effort, raising $20,000 each for Jim Black and Richard Morgan, then co-speakers of the House. The next session, the co-speakers allowed the tax break to be restored at 2 percent in an amended House bill.

Louise Butler is a board member of the N.C. Wholesalers Association, which represents tobacco product distributors, and the corporate secretary for the Reidsville Grocery Co.

“Our position is there is a significant amount of administrative duties that we have to do, and there is a significant amount of responsibility we have in this process, so we consider that discount as the state paying us to do the state’s work,” she said.

The state Department of Revenue requires no audits showing how much additional cost comes with collecting the taxes for the state.

There are many other businesses and individuals who collect taxes for the state without the benefit of a discount. Employers, for example, often remit income taxes for their workers. Retailers, car dealers and utilities remit sales taxes. And no one gets a discount for filing income tax returns on time.

State Sen. Fletcher Hartsell, a Concord Republican and former chief tax writer, said he has sought to get rid of the discount for tobacco distributors because originally it was put on the books to defray the cost of cigarette stamps. In 1993, North Carolina stopped requiring wholesalers to stamp cigarettes.

North and South Carolina are among the few states that do not require cigarette stamps, which are used to prevent smuggling large quantities of cigarettes from low-tax states such as North and South Carolina to sell them in high-tax states without paying those states’ higher taxes.

Hartsell became alarmed at cigarette smuggling when a Hezbollah-affiliated group was busted moving cigarettes from a gas station roughly 300 yards from his home. He said tobacco distributors should not be getting a tax break for something they have long stopped doing.

He has offered to keep the discount on the books if the distributors go back to stamping cigarettes, but his legislation failed to gain enough support. Hartsell is a co-sponsor of a major tax rewrite that would eliminate the discount for tobacco distributors.

“What you are talking about is inertia,” he said. “It’s been this way for a long time, and so folks just tend to leave it this way.”

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