Ending privilege tax drives up property taxes

The Republicans leading North Carolina’s state government talk a lot about cutting taxes, but in practice they’re more about shifting taxes. And cutting and shifting are quite different actions.

The supposed “historic” tax cut of 2013 actually resulted in a tax code under which the average taxpayer in the bottom 80 percent of the income distribution now pays more in state and local taxes, according to the Institute on Taxation and Economic Policy.

The “cut” in the gas tax actually eliminated a larger automatic cut under the existing gas tax formula.

Now comes the effect of the eliminating the local privilege license tax on businesses. Local governments had the right to impose the surcharges on business based on the impact of the businesses. The General Assembly eliminated the tax saying it was arbitrary, unfair and bad for business development. The levy was not regularly applied statewide, but it was not onerous and it helped local governments diversify their tax base.

Now it’s gone and cities and towns are considering turning to all property owners to offset the loss. A recent article in the the N.C. League of Municipalities bulletin reported that, “Cities across the state are in the final stages of preparing their FY2015-16 budgets, and the pending loss of privilege license revenue is leading to a number of proposals for property tax increases and service cuts.”

Among the increases under consideration to offset the lost tax are these:

The town of Cary is weighing a 3-cent property tax increase, it’s first in 25 years. Charlotte’s staff has proposed 1.35 cent property tax increase. Statesville’s proposed budget includes 5 percent property tax. The town of Washington is proposing a 1.5 cent increase.

Jacksonville decided against a tax increase, but Jacksonville Daily News reported that “18 functions face expenditure reductions to compensate for the loss of $750,000 in revenue reaped from fees charged for privilege license.”

Gov. Pat McCrory, a former Charlotte mayor, understood the important of the privilege tax to local revenues. He went along with the repeal, but said he would push the legislature to provided cities and towns alternatives to the property tax as a source of replacement revenue. A year later, there’s no sign of an alternative taxing authority. The league of Municipalities is 1/4-cent municipal sales tax option contained in House Bill 903, but the bill has not yet passed.

Tax cutting is about more than news conference announcements and being fodder for campaign letters. The cuts should be real, broadly received and clearly justified. Tax cuts at the state level are failing on all three requirements.

This story was originally published May 20, 2015 at 7:21 PM with the headline "Ending privilege tax drives up property taxes."