Politics & Government

Politicians spar over new NC sales tax on services

Mechanic Deven Lee works on a car at Leith Volkswagen in Cary. Labor charges for car repairs now include sales tax.
Mechanic Deven Lee works on a car at Leith Volkswagen in Cary. Labor charges for car repairs now include sales tax.

On the first day of a new North Carolina sales tax on car repairs and other services, Republicans tried to focus instead on income tax cuts, while Democrats used the expanded sales tax to blast the majority party and Gov. Pat McCrory.

The legislature approved the additional sales taxes last year, and they took effect Tuesday. The expansion is part of a Republican-led move to lower income taxes while expanding the number of services subject to sales taxes.

Part of the additional sales tax revenue will be distributed to poorer counties. About $84.8 million in new revenue will be divided among 79 suburban and rural counties for schools, community colleges and economic development projects.

Democratic legislators held a news conference Tuesday to argue that the sales taxes will hurt poor and middle-class families. The tax is expected to become an election year issue.

“Starting today, life gets a little more expensive for families in North Carolina,” said Sen. Terry Van Duyn, an Asheville Democrat. “This places a new burden on middle-class families who are already feeling left behind. This is exactly the wrong time for Republicans to raise taxes.”

Van Duyn also said small businesses will suffer because customers will be reluctant to pay higher prices. Among the services that now include sales taxes are appliance installation, clothing alterations, shoe repair and knife sharpening.

“The vast majority of services taxed here are performed by local small businesses,” she said. “They were hit hardest by the recession, and they have been the slowest to recover.”

Republicans aren’t talking much about the sales tax but have been promoting their overall tax policy, centered on income tax cuts.

“Our state’s Republican leadership has instituted historic tax relief and reform that is growing our economy and putting more money in the pockets of North Carolinians,” N.C. Republican Party director Dallas Woodhouse said.

The state budget approved last year will drop the personal income tax rate from 5.75 percent to 5.499 percent in 2017. And the standard deduction will increase, meaning a married couple filing jointly won’t owe income taxes on their first $15,500 in income.

House Finance Chairman Jason Saine, a Lincolnton Republican, pointed out that Republicans allowed a temporary one-cent sales tax increase – enacted by Democrats – to expire several years ago. Coupled with the income tax cuts, Saine said, Republican leaders have saved the state’s taxpayers about $2.7 billion – while state revenue has grown.

“We’re receiving more revenue because of our pro-growth policies,” he said.

But Democrats say many families will pay more in new sales taxes than they’ll save from income tax cuts.

“They’re going to need a magnifying glass to see the tax cuts that Sen. (Bob) Rucho touts,” said Sen. Mike Woodard, a Durham Democrat. He pointed to estimates that the income tax cuts will save families making between $38,000 and $60,000 about $60 per year.

And while McCrory has voiced opposition to the new sales taxes, Democrats are trying to tie him to the change because it was included in the budget he signed. The governor is running for re-election this year.

The N.C. Democratic Party noted that McCrory has taken credit for other items in the budget. “Now the governor wants to run from his record, but as his own spokesman says, ‘the whole point is that he signs the budget,’” party chairwoman Patsy Keever said in a news release.

Attorney General Roy Cooper, running for the Democratic nomination for governor, also weighed in: “What they’ve done is corporate tax giveaways to out-of-state corporations,” he said of Republicans, “and they’ve replaced it with taxes that hurt the middle class.”

Republican lawmakers plan to consider more income tax cuts when the legislature returns in late April. One option would raise the standard deduction for personal income taxes by $2,000, a move that could save taxpayers up to $115 per year.

“The General Assembly will come up with a plan that we feel will be a huge plus, a new plus, for the middle income,” Rucho said Tuesday, “and that will have to be decided at another time.”

Staff writer Craig Jarvis contributed to this report.

Colin Campbell: 919-829-4698, @RaleighReporter