RALEIGH – The state House pushed ahead Tuesday with House Bill 1050, limiting the amount of money North Carolina cities and towns could charge businesses for privilege licenses. The bill, which would cap municipal privilege licenses at $100 per year, is part of a catch-all tax package designed to tweak last year’s tax reform law and clarify other portions of the law, and add an excise tax to electronic cigarettes, known as e-cigarettes.
The House passed the bill 83-35. A final House vote could come today. If approved, it would go to the Senate.
Andy Ellen, president and general counsel at the N.C. Retail Merchants Association, which is pushing for the change, said the move addresses some of the inconsistencies in privilege taxes across the state.
“It was not intended to be a revenue generator,” Ellen said. “It was intended for cities to know which businesses were in their town.”
Paul Meyer, executive director of the N.C. League of Municipalities, said the move would punch a hole in the budgets of a number of cities and towns.
“They either solve it through service cuts or property tax increases,” Meyer said. “There’s no other way.”
Fiscal analysts at the N.C. General Assembly estimate the proposed change would result in a net revenue loss of between $11.4 million and $25.2 million for North Carolina municipalities.
Meyer called the $25.2 million figure “rosy” and said the lower, $11.4 million loss assumed that municipalities levying a privilege tax would be able to impose it on every business operating in their city — including home-based businesses — levy the tax, and collect it.
“That’s not going to happen,” Meyer said.
He said 330 of North Carolina’s 540 municipalities levy some sort of privilege license tax, bringing in $62 million overall.
Ellen noted that the state privilege license tax was repealed in 1997 with the idea that soon afterward the General Assembly would allow some type of local privilege tax. “It just never happened,” he said. The issue has come before the Revenue Laws Study Committee, the group that meets when the General Assembly is not in session to take a look at tax statutes, but has not been addressed until now, he said.
“We think it’s equitable,” Ellen said of the proposed plan. “The time has come to fix the problem.”
While the proposed law does not require municipalities to impose a privilege license tax, those doing so must impose it on a broad basis, including retailers, wholesale merchants, service providers, manufacturers, nonprofits (other than a 501(c)(3) organizations), franchises, sole proprietorships, partnerships, LLCs, and corporations. It includes home-based businesses. The tax would be levied on full-time, part-time, and seasonal businesses, regardless of size.
Exempt from the levy are businesses supplying piped natural gas, telecommunications services, video programming, and electricity.
Rep. Paul Luebke, D-Durham, opposes the bill, saying it doesn’t raise enough money to make up for the lost revenue. “It will be an impact of $2.2 million for Durham alone,” Luebke said. “Durham should not have to take that type of hit.”
Luebke said the privilege license tax has “multiple problems” in the way it’s implemented.
Rep. Andy Wells, R-Catawba, countered that the local privilege license tax amounted to a hidden tax, noting that some high-volume retailers such as grocers are levied a $20,000 annual privilege license tax which is passed on to consumers.
The bill would also establish a 5-cent-per-milliliter excise tax on e-cigarettes. Lawmakers said that that would amount to 5 cents per pack. Rep. Becky Carney, D-Mecklenburg, pushed to have that tax taken out of the bill, saying it had not been vetted enough. She added that she didn’t think the tax was high enough. Her effort failed by a 76-41 vote.
The bill also simplifies the sales tax on mobile and modular homes and imposes a sales tax on gross receipts for meal plans.
Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.