Cities and towns would be able to enact their own quarter-cent sales tax under a plan proposed by state House leaders.
The proposal is one response to the legislature’s decision last session to stop cities and towns from collecting a business privilege license tax. The elimination of the tax has left some cities with multimillion-dollar budget holes, and complaints about no other help from lawmakers.
If the bill passes, city councils could add a quarter-cent to the sales tax rate that is applied to sales and services within the city limits. Only a public hearing – no referendum or other voter decision – would be required.
The bill’s sponsor, House Finance Chairman Jason Saine, said the House is looking at the idea in context with other sales tax legislation. In the Senate, Republicans want to change how sales taxes are distributed among counties, and they’re considering an expanded list of services that would be subject to the tax.
“If counties and municipalities can make a case that that’s something that they need,” Saine said, “the bill is filed.”
Saine’s bill, House Bill 903, would also allow counties to enact their own quarter-cent sales tax increases – an alternative to a Senate GOP plan that would redistribute sales tax revenue based on population. In areas where both cities and counties take the option, the sales tax rate could rise by 0.5 cents per dollar of sales.
The N.C. League of Municipalities has made local taxing authority a top legislative priority this session. The group says a quarter-cent tax could help plug budget holes by adding millions to city and town coffers.
“If all cities and towns decided to authorize a quarter-penny sales tax, the league estimates that it would bring in between $215 million and $230 million statewide,” spokesman Scott Mooneyham said.
In Raleigh, Chief Financial Officer Perry James said a quarter-cent would generate “just a little over $20 million” – well above the $7.1 million loss from the privilege tax repeal.
Durham Mayor Bill Bell said he’s not sure whether his city would levy a new sales tax, but he likes the option. Durham officials estimate the tax would add about $10 million to the city’s annual budget. “It’s always good to have a tool that will allow you to establish different sources of revenue,” Bell said.
Durham is looking to replace $2.9 million in revenue from the privilege license tax. The tax was repealed last year amid complaints that it was too complicated and unfair; the repeal takes effect July 1.
Legislators and Gov. Pat McCrory promised mayors last year that they’d help establish a replacement revenue source. But the General Assembly doesn’t yet appear close to approving anything. Meanwhile, city and town councils are already discussing budget proposals.
“We’re planning a budget assuming we don’t have it,” Bell said. “It’s going to have to come out of increased property taxes or reducing other sources of expenses. We haven’t gotten to that yet.”
Raleigh is also looking closely, James said. “It’s fair to say that there are going to be some growth-related expenditure items that won’t make it into the base budget,” he said.
Several bills in play
The municipal sales tax proposal is one of several House bills that aim to address revenue shortfalls related to the privilege tax.
A bill filed last month by Republican Rep. John Faircloth of High Point would restore a scaled-back privilege tax program. House Bill 362 – still awaiting a committee hearing – would allow cities and towns to charge businesses up to $50 “only for the purpose of creating a contact database” for fire, police and other city services.
And two House members are looking to bring back the privilege tax – but only for their county. Rep. David Lewis, the House rules chairman, wants to let Harnett County towns charge businesses up to $100. Rep. Paul Luebke, a Durham Democrat, has a bill allowing his city to charge privilege license fees ranging from $50 to $5,000, depending on the number of employees.
Julie White, director of the Metropolitan Mayors Coalition, said her group of city leaders hasn’t taken a position on which proposal it prefers. She says revenue shortfalls could also be addressed through the Senate’s proposed expansion of services subject to the sales tax.
“We’re part of the full conversation that’s going on as far as local revenues,” she said. “I think everyone is sensitive to being sure that both the state and local have the infrastructure they need.”