A sales tax redistribution plan that would have made a significant dent in the revenue streams from Wrightsville Beach and New Hanover County could have suffered a fatal blow last week when it was soundly defeated in the North Carolina General Assembly’s House of Representatives.
After passing the Senate 34-12 on Aug. 11, the House on Aug. 19 voted 111-2 to reject H.B. 117, which included a number of economic incentives along with the sales tax plan.
With the House’s rejection of the Senate’s version, the bill will go back to a conference committee. Two local politicians have been appointed to the committee: Rep. Ted Davis, Jr., R-New Hanover and Rep. Susi Hamilton, D-New Hanover.
Both Hamilton and Rep. Rick Catlin, R-New Hanover, said they believed the sales tax issue won’t survive any negotiations. Plus, Gov. Pat McCrory has said he would veto the measure if it passed the General Assembly.
Hamilton anticipated that the bill would be defeated in the House, but the margin of defeat was surprising.
“The way it was explained to the counties that appeared to be the beneficiary, it sounded like a very good idea,” she said. “But as we peel back the onion, the counties that looked like they would benefit, actually don’t benefit.”
Hamilton said the sales tax redistribution proposal specifically lacked support in the House Finance Committee. A series of hearings revealed issues with the bill, in particular that several rural counties would be required to enact their own sales tax hikes to meet the budget projections.
Sales taxes can only be raised through public referendum and only one-fourth of a percent at a time. In some cases, counties would have had to raise sales taxes twice in order to meet the budget projections.
The proposal, pushed by Senate Majority Leader Harry Brown, R-Onslow, would have changed the distribution of sales taxes in the state to give more funding to rural counties. Under the current system, 75 percent stays at the point of sales while the other 25 percent is distributed by population, generally to more rural counties.
Brown’s proposal would have reversed the formula, distributing 80 percent based on population. That proposal was made part of the state’s budget legislation, which is currently being negotiated in the General Assembly. Later, the measure was pulled from budget legislation and returned to an economic incentive bill, where a new 50/50 split was introduced. Even that proposal proved unpopular in the House.
“The opposition was different in the House,” Catlin said. “We don’t think it’s fair to have that kind of impact on our municipal communities. Many people who would have counties benefit from the redistribution didn’t think it was fair.”
Financial estimates of the proposal showed that Wrightsville Beach stood to lose $123,000 a year in sales tax revenue, while it could have cost New Hanover County as much as $6 million a year.