County commissioners in several North Carolina counties could avoid proposed sales tax increases for years by diverting money from existing revenue streams to high-priority county government functions, according to findings in new John Locke Foundation Regional Briefs.
For instance, in Duplin County, commissioners could avoid a proposed sales tax increase for 21 years by diverting $17.7 million from existing revenue, according to the findings. In Lee County a sales tax could be avoided for six years, in Randolph County a tax increase could be delayed for 13 years using the same technique, and in Stanly County the delay could be 16 years, according to the JLF reports.
In 2007, the General Assembly gave every county a chance to raise either the local sales tax or the real-estate transfer tax. The new tax options were part of a deal involving the state relieving counties of local Medicaid expenses. The deal also called on counties to forfeit a half cent of the local sales tax rate.
Though counties gave up some revenue as part of the Medicaid arrangement, they also benefit from a part of the deal called the “hold harmless” provision,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. The provision would bring additional funds to these counties.
Stanly is promised $1 million in the first year, with $8.2 million expected over 10 years, said Sanera. Randolph is set to get more than $2 million in the first year and $7.6 million over 10 years; Lee is promised $920,000 in the first year and $14.3 million over 10 years; and Duplin is promised $1.3 million in the first year and $14.8 million expected over 10 years, Sanera said.
County commissioners in these counties are asking voters to approve a quarter-cent increase in the sales tax May 6. “Commissioners say they need to raise taxes for school and infrastructure needs,” Sanera said.
“And taxpayers should remember that commissioners’ statements about how they would use new revenue are not legally binding,” Sanera added. “Once they raise a tax, the law says they can use new tax revenue for any legal purpose. Taxpayers should consider this corporate welfare before they decide whether the county needs a new source of money.”
Counties cannot raise the sales or real-estate transfer taxes without a local referendum. Twenty-seven counties pursued that option in November 2007. Five of the counties placed both tax options on the ballot. Voters rejected each real-estate transfer. They also rejected most sales tax proposals. In all, voters rejected 27 of 32 proposed tax increases.
“The results of the 32 votes in the November county tax votes were overwhelming,” said Sanera. “Citizens, when given the chance, are rejecting tax increases and sending a message to county commissions: live within the means of county taxpayers.”