State Politics

Should cities and towns have their own sales taxes? NC House panel backs proposal

Rep. Stephen Ross is the sponsor of the sales tax bill
Rep. Stephen Ross is the sponsor of the sales tax bill

Cities and towns would be able to have their own sales taxes to raise money for infrastructure and economic development projects under a bill moving forward in the N.C. House.

House Bill 900 would let municipal leaders pursue a quarter-cent sales tax — if voters agree to the tax in a ballot referendum. The sales tax would come in addition to the county and state sales tax rates.

Under current law, cities and towns don’t have the power to have their own sales taxes, but they get a share of revenue collected through county sales taxes.

Rep. Stephen Ross, a Burlington Republican and the bill’s sponsor, said the sales tax option is needed because many cities and towns have seen a drop in property tax revenue.

“It’s important to consider how many towns have suffered revenue losses in North Carolina, from declining home values, closing manufacturing plants, and the loss of revenue streams like privilege tax,” Ross said.

It’s important to consider how many towns have suffered revenue losses in North Carolina, from declining home values, closing manufacturing plants, and the loss of revenue streams like privilege tax.

Rep. Stephen Ross

In 2015, the legislature eliminated the privilege tax, which was a licensing tax that many cities and towns charged on businesses. Opponents of the tax argued it was unfair and inconsistent because the tax rates varied wildly between different types of businesses, but the tax brought in millions of dollars in revenue.

If HB 900 becomes law, cities and towns would be limited in how they could spend the sales tax revenue. It couldn’t be used for general expenses but only for “construction and improvement of public infrastructure and facilities or for economic development.”

“This legislation deserves our support because it provides a needed revenue option to cities and towns so they can continue to invest in infrastructure and dynamic new projects that are bringing jobs to their communities,” Ross said.

An earlier version of the bill would have also allowed municipalities to pass meals taxes and occupancy taxes through a referendum, but those provisions were deleted from the legislation that passed the House Finance Committee on Wednesday. No one spoke out against the bill, but a few “nos” could be heard during the committee’s voice vote.

The N.C. League of Municipalities is supporting the sales tax bill, and elected officials from Cary and Burlington attended Wednesday’s committee hearing.

A news release from the League says the sales tax could ease property tax needs because “a local tax structure that relies too heavily on one form of taxation can place an unfair burden on some residents.” The group also notes that while about 75 percent of retail sales occur inside city or town limits, municipal governments typically only receive 36 percent of county sales tax revenue.

The sales tax bill now goes to the House Rules Committee. If it passes the House, it’s unclear whether the Senate will take up the proposal.

Colin Campbell: 919-829-4698, @RaleighReporter

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