Cities and towns would be able to enact their own quarter-cent sales tax under a plan proposed by state House leaders.
The proposal is one response to the legislature’s decision last session to stop cities and towns from collecting a business privilege license tax. The elimination of the tax has left some cities with multimillion-dollar budget holes, and complaints about no other help from lawmakers.
If the bill passes, city councils could add a quarter-cent to the sales tax rate that is applied to sales and services within the city limits. Only a public hearing – no referendum or other voter decision – would be required.
The bill’s sponsor, House Finance Chairman Jason Saine, said the House is looking at the idea in context with other sales tax legislation. In the Senate, Republicans want to change how sales taxes are distributed among counties, and they’re considering an expanded list of services that would be subject to the tax.
“If counties and municipalities can make a case that that’s something that they need,” Saine said, “the bill is filed.”
Saine’s bill, House Bill 903, would also allow counties to enact their own quarter-cent sales tax increases – an alternative to a Senate GOP plan that would redistribute sales tax revenue based on population. In areas where both cities and counties take the option, the sales tax rate could rise by 0.5 cents per dollar of sales.
The N.C. League of Municipalities has made local taxing authority a top legislative priority this session. The group says a quarter-cent tax could help plug budget holes by adding millions to city and town coffers.
“If all cities and towns decided to authorize a quarter-penny sales tax, the league estimates that it would bring in between $215 million and $230 million statewide,” spokesman Scott Mooneyham said.
A quarter-cent sales tax in Mecklenburg would generate about $37 million a year, though the amount would be slightly less if just inside the city of Charlotte.
The city lost $18.1 million when the business privilege license tax was repealed.
Raising the sales tax would present some challenges to Charlotte, however.
Mecklenburg County already has a half-cent sales tax for transit, which makes the general sales tax of 7.25 percent among the highest in the state. Some city leaders have said the city might want to increase the sales tax in the future for transit, though there are no plans to do so.
In addition, the county has a 1 percent tax on prepared food and beverages, which raisesthe sales tax on restaurant and bar tabs to 8.25 percent. There also is a 6 percent tax on hotel and motel rooms bills.
In Raleigh, Chief Financial Officer Perry James said a quarter-cent would generate “just a little over $20 million” – well above the $7.1 million loss from the privilege tax repeal.
Durham Mayor Bill Bell said he’s not sure whether his city would levy a new sales tax, but he likes the option. Durham officials estimate the tax would add about $10 million to the city’s annual budget.
Legislators and Gov. Pat McCrory promised mayors last year that they’d help establish a replacement revenue source. But the General Assembly doesn’t yet appear close to approving anything. Meanwhile, city and town councils are already discussing budget proposals.