Politics & Government
7:55 am
Thu May 29, 2014

'This Is A Thorny Issue' - Senate Tentatively Passes Bill Ending Municipal Privilege Tax

Credit NC General Assembly

State lawmakers in the Senate have tentatively passed a broad tax bill that would continue to make changes to the state’s tax code.

One controversial section in the bill would eliminate certain taxes that municipalities currently levy on businesses. A House version of the bill that has already passed would only scale back- rather than eliminate- those taxes.

The driving force behind the omnibus tax bill is the overall Republican philosophy that the lower the taxes, the better. But Democrats in the Senate have real concerns about this bill, especially when it comes to taxes that municipalities get to levy on businesses. They’re called privilege taxes.

State lawmakers in the House have tentatively passed a tax bill that would end municipal privilege taxes.
'If we eliminate these privilege taxes -- these communities will be put in a very precarious financial position.' - Democratic Senator Floyd McKissick

"If we eliminate these privilege taxes, which is proposed after this coming year, these communities will be put in a very precarious financial position," says Democratic Senator Floyd McKissick is from Durham."We know one thing’s for sure, just based upon the physical impact, we’re talking about $62 million, and over in Durham, it’s projected to be a $2.2 million impact."

Those numbers come from the legislature’s own fiscal research division. The Senate bill would eliminate privilege taxes completely on July first of 2015. Until then, cities could only charge the taxes on businesses within their physical boundaries. And they couldn’t raise those taxes. That’s a big hit for cities across the state.

And McKissick worries that individuals would have to make up the difference.

"The only place these communities can go to is to increase their property taxes. The increase in property taxes for some small towns: They’d have to increase their property taxes so high, we’re talking about double digits percentage wise to make up for this revenue loss."

But business owners have long complained that the way privilege taxes are levied is unfair.

They vary from one community to the next, and smaller business owners say they are penalized by them. Republican Senator Tommy Tucker of Waxhaw is himself a small business owner who pays a flat tax.

'My heating and air company who has more than 75 employees I don't see the fairness in us having to pay the thousand dollar tax the same as Bank of America or Wells Fargo or any other large corporation.' - Republican Senator Tommy Tucker

"My heating and air company who has more than 75 employees I don’t see the fairness in us having to pay the thousand dollar tax the same as Bank of America or Wells Fargo or any other large corporation," says Tucker.

And when it comes to the idea that municipalities may have to raise property taxes, Tucker says that shouldn’t have to be the default choice:

"If there is a loss in revenue you have another choice besides raising taxes, you could reduce your budget accordingly or not offer incentives for hotels or whatever else they do in Durham or in any other city around the state, that they could reduce the size of their budget and still be able to operate."

Senate leaders say if their version of the bill ends up becoming law, there’s still room to come up with a plan that would ease municipalities’ pain. But city officials worry that no matter what happens, they might have to cut services.

Paul Meyer is the executive director of the North Carolina League of Municipalities. He says his organization has put forth a number of different options for lawmakers to consider.

"On behalf of all the cities in the state, the league offered probably nine different ways to slice this, the most recent one was to create a tier of privilege tax based on the number of employees a business had. There are still problems with that proposal, but this is a thorny issue," says Meyer.

Meyer says it will take time to develop a plan that will work for every community in the state. In the meantime, lawmakers have to consider other parts of this bill with far-reaching implications, including one section that would tax e-cigarettes and another that would change the way sales taxes are paid by ticket sellers. The measure requires final approval from the Senate before it can move forward.