North Carolina’s upcoming expansion of the sales tax to a broad range of admissions charges – including movies, college and professional sporting events, concerts, plays, and museums – means that arts patrons and sports fans alike will probably pay more to enjoy their favorite pastimes.
Some arts organizations fret that attendance could suffer as a result, especially for students on school field trips and low-income people. But legislators who supported the expansion of the sales tax say the tax isn’t large enough to be a deterrent.
The new sales tax structure goes into effect Jan. 1. Because of a peculiarity in the law, its impact won’t be felt until months later at many venues. However, movie theaters are responsible for the sales tax – which ranges from 6.75 percent to 7.5 percent, depending on the county – from Day One. The total sales tax in Mecklenburg County is 7.25 percent.
Many nonprofits and venues in Charlotte haven’t decided whether they’re going to absorb the tax hike or pass it on to patrons. Nonprofit leaders have wondered aloud that schools could face a bigger burden as they plan field trips to museums. Students often get deeply discounted tickets, but it’s common for schools to bring hundreds or thousands of students every year.
“These institutions were created to serve this community and the visitors to this community and to be accessible to all of the residents,” said Robert Bush, the interim president of the Arts & Science Council. “So it is a concern that any change in price possibly elimintaes groups of kids or people that can’t afford this.”
Emily Zimmer, president and CEO at the Levine Museum of the New South said it will tack on the tax in addition to its admission fees. That would add 58 cents to the cost of an $8 adult ticket, and 29 cents to a $4 student ticket.
Leaders there will assess the effect of the increase by next summer. Still, she worries they’ll see fewer students.
“All of us know how much schools have experienced cuts in recent years,” she said. “Suddenly 7-and-a-quarter percent does add up. Schools don’t have a lot of wiggle room.”
Herman Stone of Charlotte-based Stone Theatres, which has multiplexes in Indian Trail, Morrisville and Fayetteville, complained that admissions were “singled out” in the expanded sales tax while services such as haircuts, auto repairs, doctors and dentists remain exempt.
Movie patrons, he said, include some “very price-sensitive groups” – senior citizens, college students and teenagers.
“We don’t need to make it more expensive for people to go to the movie theater,” Stone said.
The expansion of the sales tax to admission tickets that previously were exempt is one of the revenue-raising tradeoffs that came with the Republican-led legislature’s decision to cut personal and corporate income tax rates. The theory is that aligning income taxes to the lowest levels of neighboring states will boost the overall economy by spurring job creation and putting more money in people’s pockets and in corporate coffers.
“We need to (tax) in a simpler way, a fairer way,” said Sen. Bob Rucho, a Mecklenburg Republican who co-sponsored the sweeping tax bill passed by the legislature this year and signed into law by Gov. Pat McCrory. “We tried it the other way. It doesn’t work.”
Passing it on
Pam Davis, a spokeswoman for the Bechtler Museum in uptown Charlotte said leaders there are aware of the law, but don’t know yet how much of an impact it would have on ticket prices or patrons. She said leaders there plan to take an in-depth look at the law and talk with other nonprofits.
Toni Freeman, chief operating officer of the Mint Museum, said the museum intends to pass the tax onto patrons but said she worries that fewer people will come.
“We try to eliminate barriers, so this might be seen as an added barrier, especially for a family,” she said.
But it would be difficult for venues to avoid passing the increase on to ticket buyers one way or another.
“I don’t know of a single organization that could absorb a 7 percent or 7.5 percent increase in their expenses,” said Karen Wells, executive director of Arts North Carolina, an advocacy group for 250 nonprofit arts organizations.
For many events, any impact on ticket prices will be delayed well beyond Jan. 1. The Department of Revenue has concluded that tickets that initially go on sale before Jan. 1 are not subject to the new tax – even when someone purchases those tickets in 2014.
In other words, if tickets are on sale today for a play that is scheduled to be performed in April, the sales tax does not apply – regardless of whether you buy the tickets tomorrow or on the day of the show next spring.
Since sports teams and arts groups typically put their tickets on sale well in advance, it will be business as usual for the short term.
Movie theaters, however, are slated to begin collecting the tax Jan. 1.
Replaces existing taxes
Some of the affected groups already are paying a different tax tied to their receipts, but at a lower rate. Movie theaters pay a 1 percent gross receipts tax, and many sporting events are subject to a 3 percent gross receipts tax. These taxes would be supplanted by the new sales tax.
Nonprofit arts groups currently don’t pay any gross receipts tax.
Rucho, the state senator, said eliminating the old gross receipts tax will diminish the impact of the new sales tax for many patrons.
The sales tax on admissions should not pose an administrative burden, given that many organizations already pay sales taxes on concessions, he said.
“You look at your receipts that you have that are taxable, you multiply by the percent, and there’s your number,” Rucho said. “It’s not that hard.”
The possibility of another wave of venues becoming subject to the sales tax also looms on the horizon.
More changes proposed
In an effort to eliminate confusion, a draft bill discussed by the Revenue Laws Study Committee would expand the tax to venues that remain exempt under the new law, including “state attractions,” agricultural fairs, youth sporting events and limited nonprofit events. That would extend the tax to the N.C. Museum of Art, the North Carolina Zoo and the State Fair, among others.
The draft legislation still calls for exempting events at public schools and those sponsored by nonprofit groups with no paid employees.
Wells said the law as it now stands makes no sense because many large arts organizations are exempt while small ones aren’t.
“Under the current law with the current deadline, on Jan. 1 the Museum of the New South in Charlotte would have to begin collecting sales tax, and the N.C. Museum of History would not,” Wells said.
Arts North Carolina is advocating that the effective date of the law be delayed until the legislature acts on the draft bill. The legislature isn’t scheduled to go back into session until May.
Not only would that be fairer, but it also would give small arts groups more time to map out how to implement the new tax collection, Wells said.
“If you are talking about a one-person organization or a two-person organization or even a five-person organization, ... there is nobody existing in this organization to take on this responsibility,” Wells said.
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