NC Senate seeking to limit sales tax rates

From staff and wire reports

July 19, 2014

RALEIGH — North Carolina counties would be limited in the sales taxes they could charge in a bill that surfaced Wednesday in the Senate. The move could prevent voters in the state’s most populous county from deciding whether to raise their taxes further in November.

Local tax officials, however, say it is far to early to determine how much impact the bill could have should it become a law.

Sales tax in Surry County generates more than $15 million a year, which county Finance Director Betty Taylor said was a “substantial part of the county’s revenue.”

“It’s the number two source of money in Surry County, behind only property taxes,” Taylor said.

The Senate Finance Committee voted for a measure that would cap the local sales and use taxes a county can collect at 2.5 percent of the price of a good or service. That would mean the combined state and local sales tax would be limited to 7.25 percent, with exceptions for Durham and Orange counties, which are currently at 7.5 percent. The two counties already have approved a local tax for public transportation needs.

The combined tax is 6.75 percent in 73 of North Carolina’s 100 counties. The rest have approved higher rates through various voter referenda in recent years.

In Surry County, the county’s allocation of its seven percent tax rates is 2.25 percent, with the other 4.75 percent going to the state.

County voters passed a referendum in 2008 to hike its tax rate .25 cent to its current level, taking advantage of a state law that allowed the voters to decide whether to raise the county’s sales tax rate..

“While that money can be used for any purpose, the county’s choice was to use it for debt service on school construction projects,” Taylor said.

“This is really about leveling the playing field for all counties, and in many cases offering flexibility but at the same time protecting the taxpayer,” said Sen. Rick Gunn, R-Alamance, the chief proponent of the Senate version of a House measure originally designed to expand a targeted tax incentive for a large manufacturing plant.

The bill appears to conflict with a Mecklenburg County referendum this fall for an additional quarter-percent on its sales tax because the combined rate in the county, which contains Charlotte, is already 7.25 percent. Proceeds from the additional 0.25 percent would go largely to help pay for teacher raises.

The measure would allow all counties to ask voters to raise an optional public transportation tax by a half-penny. Currently, most counties are allowed to seek a quarter-cent.

There would also be created a new option for counties to seek a half-cent sales tax increase through a referendum, with proceeds for public education. But the cap would remain in effect and a county could not levy the tax while simultaneously charging the public transportation tax.

Representatives of the North Carolina Association of County Commissioners and the N.C. League of Municipalities told committee members they appreciated the attention to local revenues but raised concerns about details in the bill and suggested the issues be studied. Cities receive a portion of some local sales taxes.

For Taylor, it’s too early to tell what the final legislation, if passed, will look like.

“One way you look at it, it’s like it’s limiting county rights,” she said. “But we don’t have the authority to increase sales taxes anyway. It must be approved by the legislature.

“This is a very complicated thing, and there are a lot of details that have to be worked out before counties can make an informed decision.”