Senate Majority Leader Harry Brown (R-Onslow) introduced legislation on Monday to reform the state sales tax system.
The state levies a 4.75 percent sales tax, while counties levy an additional two percent. The two percent is the focus of the bill, and is currently composed of three different taxes – the Article 30 one-cent tax, the Article 40 one-half cent tax, and the Article 42 one-half cent tax. Counties may also levy an additional quarter-cent sales tax with voter approval, which 29 out of the 100 counties in North Carolina have approved. The local sales taxes are collected by retailers and then sent to the NC Department of Revenue. Currently, 75 cents of every $1 is returned to the county, with the remaining quarter distributed on a per-capita basis statewide. The bill introduced last night would require all 2 percent of the locally collected sales tax to be distributed on a per-capita basis.
for The John Locke Foundation
by Sarah Curry
How many sales tax dollars does your county collect? Here is a table created by the Department of Revenue on each county and how much they collect in sales tax. In conjunction with the release of this bill, a map was attached showing how counties would fare under the plan to overhaul how state sales tax revenue is distributed. Counties in red would lose money, while those in green would gain. Those in white would break even.
Last week we saw lawmakers and Governor McCrory spar over tax credits and economic development. Today the debate continues. The House Finance Committee heard two bills, one to reinstate the Historic Preservation Tax Credits and another garnering bi-partisan support to expand the Job Development Investment Grant (JDIG) program. There is broad support for historic preservation, with a few members concerned about the state paying the entire cost of the tax credit when the benefit is mostly at the local government level. Since over half of the House members have signed on to this bill, continued historic preservation support seems inevitable. But the question still stands whether it should be a state or a local government responsibility. Another important provision of the bill defines an historic building as being at least 50 years.
The JDIG bill was brought up for discussion only. Legislators want to expand the $15 million per year JDIG program to $20 million and also extend the sunset on a long list of targeted tax credits including film, renewable energy, research and development, ports, and low income housing.
Gov. McCrory stated in early January that he needed a new economic development plan with more money in order to recruit jobs to North Carolina. The House responded by quickly filing the NC Competes Act, an economic development bill that would expand the existing JDIG program, but also enacts sales tax refunds for certain industries. The Senate decided to take a different approach; they filed a bill that would reduce the state corporate income tax rate, restructure the way corporate taxes are calculated, eliminate special tax breaks for airline fuel, and shift a much larger percentage of the existing JDIG money to smaller counties that have traditionally not received the bulk of incentive funds. Which one does the Governor prefer? He likes the House plan, because it would provide him the cash and the flexibility he wants to give money to corporations. He isn’t so keen on the Senate plan.
Economic Development policy has become so popular that even small towns across the state are sending their commentaries to Raleigh. On March 16, the Eden Preservation Commission votedon a resolution encouraging state government officials to renew the state’s historic preservation tax credit. There are seven members on the commission, and only one voted against this resolution. The city of Eden claims they need the tax credit because they have blighted, unused, and unsafe structures. The John Locke Foundation did a report on why there is no justification to compel state taxpayers to subsidize the preservation of historic properties in particular cities or towns.
So whether it is corporate welfare, targeted tax credits, or reforming the sales tax, there is a lot going on with your tax dollars at the General Assembly right now.
Sarah Curry is Director of Fiscal Policy Studies for the John Locke Foundation.
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