News: CJ Exclusives

Fate of municipal sales-tax option uncertain

Session could end before legislature takes up first-ever city-imposed sales tax

A Republican-sponsored bill in the General Assembly could allow the first ever municipal sales taxes in North Carolina.

House Bill 900, sponsored by Reps. Stephen Ross, R-Alamance, and Jason Saine, R-Lincoln, would allow a municipality to hold a voter referendum on the adoption of a sales and use tax of 0.25 percent.

The bill’s stated purpose is to keep municipal property taxes low by creating a new, optional revenue stream. Funds raised through the tax could be spent only on public infrastructure and facilities or economic development.

But this year’s legislative business may end before the measure moves forward.

Currently, counties and the state are the only levels of government that can levy a sales tax.

H.B. 900 has been changed significantly since its April introduction. The bill originally allowed municipalities to hold referendums on three kinds of local sales taxes, though only one could be adopted.

The first draft of the bill included a food sales tax of up to 1.5 percent, and the local sales tax option of 0.25 percent that passed revisions. An occupancy tax provision also would have allowed cities and counties to tax hotels and other forms of lodging up to 6 percent, though both taxes could only add up to 6 percent if applied together.

Julie Tisdale, city and county policy analyst at the John Locke Foundation, says 70 counties have held 127 tax referendums since 2007, when they first gained the power. Of the 127 votes, only 31 have passed.

Bladen County held a local sales tax referendum five times between 2010-16. All five attempts failed. Harnett County held unsuccessful referenda between 2007 and 2012 before passing a sales tax in 2013.

Data from the North Carolina Association of County Commissioners further illustrates the unpopularity of these taxes when put up to voters.

In 2016, 19 counties held 21 votes on the local sales tax option, and 19 of the votes failed. Cherokee and Jackson counties passed referendums the same day as the June 7 congressional primary. Bladen and Stanly counties held two unsuccessful votes during the March 15 primary and Nov. 8 general election.

Tisdale thinks county commissioners see the sales tax as an easy way to create new revenue in a nearly unnoticeable way, though voters have proved they are not so keen on the option.

She noted that taxing people when they go out to eat, stay at a hotel, or buy from a store has the potential to hurt business and tourism on the local scale. She advised local governments towithin their means rather than trying to nickel and dime residents and visitors.

Scott Mooneyham, director of public affairs for the N.C. League of Municipalities, disagrees with Tisdale, pointing out that Florida has high sales taxes and still makes a good deal of money from tax dollars spent by tourists.

Visitors to Orlando pay a 6.5 percent local sales tax on top of the state’s 6 percent sales tax, according to The Orlando Sentinel reports that tourism in the region reached record numbers in 2016, with around 68 million people visiting.

Disney World, the leading tourism attraction in the Orlando area, is actually located in the municipality of Bay Lake, Florida. Disney controls Bay Lake and another nearby village, allowing company attractions and resorts to not charge a municipal sales tax like Orlando, among other privileges.

Mooneyham said his organization supports the bill, in part because economically disadvantaged municipalities statewide lose property tax revenue when factories close up and leave. He believes state funding for downtown revitalization projects has created momentum to improve municipal tax bases.

“There needs to be a state policy that allows that momentum to carry,” Mooneyham said. “It’s not going to be important to every town, but it’s going to be important to some towns.”

A spokeswoman for the N.C. Association of County Commissioners told Carolina Journal that the NCACC had no position on H.B. 900. She said the group does not push the local sales tax option as a preferred source of revenue.

The bill was referred back to the House Rules Committee June 14. The offices of representatives Ross and Saine told Cthey were unsure of the bill’s fate.