Local officials have ramped up efforts to defeat legislative proposals that would take sales tax revenue from wealthier urban counties and give it to cash-strapped rural counties. A delegation from New Hanover County, Wilmington and the beach towns met last week with Senate and House leaders to discourage a redistribution, noting the significant impact the legislation would have on tax revenues.
Although several scenarios have been proposed, the one with the most traction is a compromise crafted by Senate President Pro Tem Phil Berger, R-Rockingham, that would distribute 80 percent of sales taxes on a per-capita basis statewide, while the other 20 percent would remain with the local jurisdiction where it was collected.
The provision, the Senate substitute for House Bill 117, also would allow counties to increase sales taxes by one-half cent, in quarter-cent increments, with a vote of the people. It also imposes a cap on sales tax exemptions for large nonprofits, including hospitals, and addresses a broad range of economic developments.
The Senate included the proposed changes as part of its budget, which was released Monday, June 15. Although the change would be less dramatic than proposed in a bill sponsored by Senate Majority Leader Harry Brown, R-Onslow, the impact would be felt in Wilmington and other metropolitan areas. The Senate’s provision would also tax more services and lower income-tax rates.
Proponents want to redistribute sales tax from the urban areas collecting the lion’s share of sales tax revenues to rural counties left behind as North Carolina’s economy has grown. The idea has considerable support from rural lawmakers, whose home counties stand to benefit.
In March, Gov. Pat McCrory likened the suggestion to class warfare. More recently, he attended a fundraiser at the home of Wrightsville Beach Mayor Bill Blair, where he reiterated his concerns. Blair said he pulled the governor aside and talked about the impact on Wrightsville Beach.
“It could be as much as a penny or more on our [property] tax rate,” depending on the option chosen, Blair said.
Changes would be phased in, but urban areas would lose a significant part of the sales tax they collect to rural neighbors. Tony McEwen, Wilmington’s legislative affairs liaison, said the city could lose up to $2.5 million a year under the current scenario.
New Hanover County officials estimate the plan could cost $7.6 million in potential revenue annually — the equivalent of more than 2 cents on the property tax rate — by the 2019-20 fiscal year. A letter signed by Commission Chairman Jonathan Barfield to the state commissioners association said the state’s estimates may be low, because it underestimates current and potential annual revenue from sales tax and assumes passage of one-fourth cent local sales tax, which requires a referendum.
Wrightsville Beach would lose about $137,000 annually under the 80-percent/20-percent formula, or about 10 percent of sales tax revenue. Carolina Beach would lose $175,000, and Kure Beach would lose nearly $87,000.
Legislators representing Wilmington and New Hanover County said they oppose the redistribution as proposed.
“I do not intend to vote on something that is going to hurt New Hanover County, the fire district, Wilmington, Wrightsville Beach Kure Beach and Carolina Beach,” said Rep. Ted Davis Jr., R-New Hanover.
Sen. Michael Lee, R-New Hanover, said even the compromise would be detrimental.
“A 20-percent distribution [instead of 75 percent] will not allow the urban counties to cover their unique infrastructure and public safety costs — which serve both urban and rural citizens,”
Lee said in a June 15 email. “Also, those counties that have a large tourism component to their economy are disproportionately hurt given much of the sales tax revenue comes from more than just the urban residents and surrounding rural areas (e.g., vacationers).”
The proposal could change again. The Senate and House budgets differ in spending and priorities. Secret conference committee deliberations ultimately may decide future sales tax distributions.
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