While towns like Knightdale create and review their budgets for the fiscal year 2016, members of the state Senate are simultaneously working to form legislation that would redistribute sales tax revenues and significantly impact towns with substantial retail.
With the potential for a loss in revenue over the coming year, a discussion on a possible property tax hike interrupted an otherwise mundane budget committee meeting Thursday.
The goal of the Senate legislation is to funnel millions in sales tax revenues from urban areas to rural areas in the state.
Like other municipalities, including Wendell and Zebulon, the 6.75 percent sales tax rate contributes 4.75 percent of retail sales to state government and 2 percent goes to their county and town where the purchase was made.
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Currently, a portion of the sales tax collected is directed back to the counties through a formula that calculates mostly where the sale occurs, so that counties like Wake with more retail benefit. That way, those counties keep a greater share of the sales tax money and use it toward their schools and other services.
The Senate plan would aim to change that, emphasizing instead a distribution of the sales tax based on where people live, giving more to 80 poorer counties and leaving multi-million dollar gaps for others.
The legislation could be introducedas soon as this week by Senate majority leader and Jacksonville Republican Harry Brown.
Wake County and its municipalities would collectively see a drop of about $18 million, or 13 percent, according to the projections by legislative staff. Raleigh would lose about $8 million.
As Wake goes, so Knightdale goes
Knightdale’s portion of that hit would be $180,000, according to documents.
A legislative document has calculated how much each county would have to increase its property tax to keep revenues where they are, and Wake would have to add about 1 cent on the property tax rate.
Mayor Russell Killen pushed during the budget committee meeting to keep the sales tax legislation in mind as they calculated the budget, saying that the town needs to come up with a plan.
Most of the changes to their budget, the committee agreed, would surround the date the law goes into affect, whether immediately, in January or for fiscal year 2017.
“There’s just not that much left in our budget to cut,” Killen said. “We can’t do it and grow.”
He suggested that they may have to raise property taxes about one and a half cents. With large developments rising rapidly and adding to the town’s expansion, he said the budget can’t afford to be trimmed much more.
“You’re going to be hit on both ends,” he said, referring to the loss in the county and the town.
“At the end of the day, in either 2016 or 2017 we are going to have a lot less money, and unless we find a way to fill that, the only way we have is property taxes.”