A News & Observer story on Monday about Raleigh’s loss of millions in privilege-tax revenues has drawn a response from Rep. Paul Stam, the House Speaker Pro Tem.
The article described Raleigh’s efforts to replace about $7.6 million for next year’s budget, which previously would have come from the local “privilege tax” levied on businesses.
Stam’s response showed the statewide extent of the change: Towns and cities across the state could lose $62 million in privilege-license revenue, as shown by a legislative staff analysis.
Stam, who lives in Apex, argues that only a handful of municipalities – Raleigh and Charlotte included – made heavy use of the tax, while Apex, Fuquay-Varina and Holly Springs will lose only minimal revenue.
“The ‘privilege tax’ was repealed because it is an absurd and irrational way to collect money,” Stam’s website read. “Good riddance.”
Here’s how it works: Businesses in specific categories, such as “ice cream” or “armored car service” pay minimal yearly fees.
Meanwhile, business types not specifically defined in the ordinance, such as grocery stores, pay a percentage of revenues above $100,000. More details are available on the city’s business license application.
Critics of the tax argue that it was never meant to be a moneymaker, saying that instead it was created as a way to license and track businesses. The tax also has been criticized as inequitable, and Raleigh Mayor Nancy McFarlane agrees it needed improvement. However, she took issue with the speed and scope of the financial changes.
Stam’s post described Charlotte in particular as “a major abuser of the system, attempting to tax businesses located in most of the other counties of North Carolina, other states in the nation, and even some in foreign nations.”
The House leader also argued that the legislature’s reform of taxes, and the state’s new taxation of online Amazon purchases, would offset the loss. Accounting for all the changes, some towns will come out ahead.
Apex, for example, stands to gain $100,000 in revenues in the coming fiscal year, while Raleigh still will lose $6.3 million, according to the legislative analysis.
When all the tax changes are accounted for, North Carolina municipalities are set to lose $48 million, according to the legislative staff spreadsheet. But that still leaves plenty of taxes on businesses standing.
“Business owners still pay property tax, corporate income tax, franchise tax, the employer’s portion of Social Security on their employees, workers’ compensation, unemployment insurance and a host of miscellaneous fees,” Stam’s post noted. “And their owners pay personal income tax on the dividends.”
In Raleigh, staff are beginning the earliest work of writing a new budget. The possibilities to make up the loss include increased fees and taxes or reduced services.