Politics & Government

NC Senate unveils compromise on sales tax distribution, jobs incentives

Senate Majority Leader Harry Brown has agreed to scale back his proposal to change how sales tax revenues are distributed among counties.
Senate Majority Leader Harry Brown has agreed to scale back his proposal to change how sales tax revenues are distributed among counties. cseward@newsobserver.com

Senate Republican leaders rolled out what they said was a major compromise Thursday to address jobs incentives and a controversial plan that would change how sales tax revenues are distributed among the state’s counties.

The new Senate economic development bill – now separated from legislative budget talks – softens the impact of earlier proposals on the sales tax revenue plan, which had prompted outcry from some urban and tourism counties that would lose substantial money.

The effort in the Senate is aimed at pumping more state money into areas of the state, generally smaller and more rural, that have not seen the same prosperity as in larger counties.

As it is now, the majority of sales tax revenue in each county stays where the sale occurred. Senate Majority Leader Harry Brown had called for distributing 80 percent of revenues based on population and only 20 percent based on the sale location.

But that plan prompted cries of communism and wealth redistribution by members in the House, and Gov. Pat McCrory had threatened to veto the entire state budget if the plan was included.

The Senate’s new proposal would split revenues, with half staying in the county where the sale took place and half then distributed based on county population. The change would take effect in 2016 and wouldn’t be phased in gradually over several years, as in the previous bill.

A breakdown of the revenue impacts for each county, prepared by the legislature’s nonpartisan research staff, shows about 80 counties would gain money and 20 counties would lose, compared with revenue projections made under current law.

“Overall, it’s a whole lot less for the 83 counties that win and a whole lot less of a loss for those counties that lose,” Brown said.

Wake County, for example, would lose $6 million, or 4 percent of its sales tax revenues. But while the percentages indicate a softer blow to urban counties under the latest plan, Wake actually fares worse under the new proposal.

The last version of Brown’s proposal had a projected a loss of $5.5 million – or 3.4 percent – by fiscal year 2019-2020, when the plan would be fully phased in.

That version included provisions to give counties more revenue because it included new sales taxes on services such as veterinary visits, auto repair and pet grooming.

But the compromise bill doesn’t include any of those new sales taxes.

House Rules Chairman David Lewis sent a message on Twitter that said the overall bill “will increase NC’s competitiveness across the board.” But other House leaders said they can’t move on the plan.

“We just can’t stomach it,” said Rep. Bill Brawley, the finance co-chairman and a Mecklenburg County Republican. “We can’t compromise it at any level.”

Jobs incentives

The economic development package also includes the Senate’s plan to raise the cap on the Job Development Investment Grant, or JDIG, which is the state’s main jobs incentive tool. The Senate is sticking to much of its original proposal, which also requires more of the money to go to poorer, typically rural, counties.

The House version would raise the cap without imposing any location restrictions.

The latest Senate proposal would cap JDIG spending at $20 million per year, with an additional $5 million for the current year. The awards would be more generous in poorer counties and most generous for companies investing at least $750 million while creating at least 2,000 jobs.

The Senate bill has also added tax credits for jet fuel and technology data centers that the House has already approved. Those credits had been criticized as handouts that needed to be eliminated in favor of lower across-the-board tax rates.

“We all agree that encouraging job growth and tax relief are top priorities,” Senate leader Phil Berger said. “I believe this is a plan that everyone should be able to embrace.”

House Finance Co-Chairman Jason Saine, a Lincolnton Republican, said the jobs elements in the Senate plan will help the two chambers reach a deal.

“I think there’s a lot of pressure building from our counties that need the help in recruiting businesses, so this is a good move forward,” he said. “It seems like we’re starting to get that logjam broken up.”

Senate leaders have fast-tracked the bill, with a favorable vote in the Finance Committee an hour after it was introduced. They said it will go before the Senate Appropriations Committee Monday afternoon and get a floor vote several hours later.

Sales tax changes’ impact on local governments

Here’s how the new version of the Senate sales tax distribution plan would change the fortunes of cities and counties in fiscal year 2016-2017:

Wake County: Down $6 million, or 4 percent

City of Raleigh: Down $3.3 million, or 4 percent

Durham County: Down $6 million, or 11 percent

City of Durham: Down $6.5 million, or 11 percent

Orange County: Up $145,000, or 1 percent

Town of Chapel Hill: Up $84,000, or 1 percent

Johnston County: Up $2.2 million, or 7 percent

Dare County: Down $4.5 million, or 24 percent

Jones County: Up $485,000, or 42 percent

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