The city of Charlotte has feared a sales tax reform could cause it to lose nearly $30 million a year. But a recent state analysis shows the impact to the city would be only $2.6 million a year.
It’s unclear whose analysis is correct – the city of Charlotte’s estimate from January or the legislature’s nonpartisan Fiscal Research Division projection from March 25. It’s also unclear why the difference in the two estimates is so large.
Local sales tax revenues today are mostly distributed on a “point of sale” basis, which benefits cities with large shopping centers or tourist areas.
A legislative proposal would scrap that allocation and distribute all local sales tax dollars based on population.
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▪ In January, as Charlotte was starting its budget process, the city estimated that if the sales tax change was enacted, Charlotte would lose almost $30 million each year.
▪ The city estimated Mecklenburg County government and county towns would lose $62 million each year.
There appears to be some agreement on that projection.
The state estimated county government would lose $67.8 million, while the county towns would gain about $4.2 million.
The loss of nearly $68 million represents nearly 32 percent of the sales tax revenue the county is expected to receive in 2018.
If enacted, that would probably result in cuts to schools, parks and social services, which are funded by the county.
Charlotte’s chief financial officer, Randy Harrington, said he couldn’t comment further on the issue because the city is still analyzing the proposed legislation.
Senate Majority Leader Harry Brown, a Jacksonville Republican, supports changing the current distribution formula. He has said it has created “two North Carolinas” – prosperous cities and poor rural counties.
Under the plan he supports, the city of Jacksonville would see a nearly 17 percent jump in sales tax revenue. The plan would phase in the sales tax changes over three years.
The state estimates show that some cities would suffer huge financial losses.
Asheville would lose 20 percent of its sales tax dollars. Fayetteville would lose 18 percent. Greensboro’s sales tax would drop 16 percent. Raleigh would lose more than 23 percent.
Some municipalities on the coast – which depend on tourism – would lose much more.
On Friday, Brown said those projections represent unintended consequences of his bill, and he plans to make changes to ensure that cities and towns see revenue changes that largely mirror their counties.
“I think there will be very little if any impact to the cities” in the final legislation, he said. “This is a complicated major bill that’s going to take a lot of work.”
State Sen. Bob Rucho, a Matthews Republican, introduced a competing bill Thursday that would also distribute sales taxes based on population. His bill, however, would have a “hold harmless” provision, which would keep county sales tax funding at 2013-2014 levels.
Republican County Commissioner Bill James said the county is studying the Brown and Rucho bills to determine the impact.
“The real question is whether urban counties should subsidize rural ones,” James said in an email. “I find the Democrats position against this ironic considering the amount of wealth redistribution they engage in at the City level – taking from suburbia and handing it off to the inner-city.”
Gaston County Manager Earl Mathers said he needed to study the proposal further before deciding if it was good policy.
Gaston County would see a 9 percent increase in sales tax dollars, and most of the county’s municipalities would see more money.
“We have some leakage to Charlotte,” he said of Gaston residents who shop and eat in Mecklenburg County. “It would have a significant impact there.”
Mecklenburg’s towns would either receive more sales tax revenue or break even, according to the report.
The only exception is Pineville, which would lose about $263,000, or nearly 18 percent of its sales tax revenue. Pineville benefits from having Carolina Place Mall in its town boundaries, but under the proposed plan, that advantage would end.
Charlotte is struggling to balance its budget for the upcoming fiscal year, which begins in July. The city lost $18.1 million when the Business Privilege License tax was repealed. Charlotte also expects to lose $14 million for the upcoming year due to property values that are lower than expected after the recently completed revaluation.
Reporter Colin Campbell of the (Raleigh) News & Observer contributed.
Tax proposal’s impact in Mecklenburg
The legislature’s nonpartisan Fiscal Research Division released a report this week showing the impact of changing how sales taxes are distributed. Here is how Mecklenburg County and its municipalities would fare:
Mecklenburg County -$67.8 million (-32%)
Charlotte -$2.2 million (-2%)
Cornelius +$324,000 (+9%)
Davidson +$5,500 (+.3%)
Huntersville +$1.9 million (+34%)
Matthews +$932,000 (+27%)
Mint Hill +$1.34 million (+58%)
Pineville -$263,000 (-18%)