State Politics

Proposed sales tax shift heads to NC House

Cashiers ring up sales at the Save-A-Lot grocery store in Raleigh. A proposed shift in sales tax revenues would mean Wake County would get less sales tax revenue than it receives under current law.
Cashiers ring up sales at the Save-A-Lot grocery store in Raleigh. A proposed shift in sales tax revenues would mean Wake County would get less sales tax revenue than it receives under current law.

After the Senate took a final 34-12 vote Tuesday, a controversial plan to change how sales tax revenues are distributed among counties is headed to the House.

The Senate’s handling of the proposal will leave the House with limited flexibility. The sales tax change – which benefits rural counties at the expense of some urban and tourism counties – is attached to a jobs incentives bill that has widespread support.

But because House Bill 117 has already passed in the chamber, House leaders must first decide to agree with the Senate’s version. The House would not be able to change the legislation before taking that vote. If the House votes against agreeing with the bill – likely given the strong opposition from many Republican legislators there – the two chambers would appoint a conference committee to resolve the differences.

The negotiating process would mean more delays in funding the state’s main jobs incentive program, Job Development Investment Grants, or JDIG. That program has been out of money for months, and a House member said Tuesday that the standoff means about 7,000 potential jobs are on hold.

Senate Republicans said the sales tax change fits well in the larger economic development package. “If you’ll look at the incentive piece of it, you (urban counties) are huge winners,” said Senate Majority Leader Harry Brown, who developed the sales tax plan. “The sales tax piece gives some of those small counties – that will never get an incentive – a little piece of the pie.”

Currently, the majority of sales tax revenue in each county stays where the sale occurred. The proposed formula would split revenues, with half staying in the county where the sale took place and half distributed based on county population. The change would take effect in 2016.

A breakdown of the revenue impacts for each county shows about 80 counties would gain money and 20 counties would lose, compared with revenue projections made under current law. Wake County, for example, would lose $6 million, or 4 percent of its sales tax revenues.

Those projections prompted nine Democrats and three Republicans – most representing urban areas – to vote no. “Our cities are not our adversaries, they are our partners in economic recovery,” said Sen. Terry Van Duyn, an Asheville Democrat. “Sales tax redistribution stifles growth, and not just for rich counties.”

But while Republican Sen. Bill Rabon’s Brunswick County would see a 6 percent drop in revenue, he argued that the change is good for the state.

“This is the best economic package that we’ve brought forward in decades,” Rabon said. “I think it’s something where we should stop bickering about whose ox is being gored.”

Also among those voting yes: Democratic Sen. Floyd McKissick of Durham County, which would lose $6 million, or 11 percent, under the sales tax plan. McKissick said after the vote that he supports other elements of the bill and wants legislators to add a “hold harmless” provision that would keep counties from seeing revenues drop.

“I hope that I will be in a position to mitigate the damages it will have on our large urban areas, which I have deep concerns about,” he said.

Jobs provisions in the Senate bill

While much of the debate on the Senate’s version of House Bill 117 has focused on sales tax distribution, the bill would also:

▪ Add an immediate $5 million to the state’s main jobs incentive fund (JDIG) and direct $20 million a year to the program

▪ Allow the state to offer more generous incentives to companies that invest at least $500 million and create at least 1,750 jobs

▪ Phase in, over three years, the “single sales factor” formula for calculating corporate taxes. It would calculate companies’ tax liability based entirely on sales – instead of also factoring in their payroll and property value. It’s effectively a corporate tax cut that favors companies with extensive property and payroll taxes in the state

▪ Extend tax credits for jet fuel and technology data centers