Kure Beach Council Adopts Resolution Opposing Sales Tax Legislation

Kure Beach Council Adopts Resolution Opposing Sales Tax Legislation Featured

By / Local News / Wednesday, 22 April 2015 04:00

Managing Editor

KURE BEACH, N.C. - A bill submitted by NC Senate Majority Leader Harry Brown  (Republican - District 6, Jones and Onslow counties) along with other senators in March could have drastic impacts on sales tax revenues collected by counties and municipalities.
The Kure Beach Town Council voted to adopt a resolution at their April 21st, meeting that opposes legislation currently proposed in the North Carolina General Assembly that would lead to a reduction in sales tax revenues for many counties and municipalities.
Senate Bill 369, titled "Sales Tax Fairness Act" would redistribute sales tax revenues collected in large populated areas to more rural communities. For example, the Town of Carolina Beach would see an approximate -33% ($497,000) reduction in sales tax revenues per year which would have to be made up using other revenue sources. Currently sales taxes are distributed back to where they were generated. Under SB369, they would be distributed on a per capita basis meaning smaller rural communities would get more revenue while large cities counties would see a decline in sales tax revenues.
The bill is still being revised at the moment.
Last week Chairman of the New Hanover County Board of Commissioners Jonathan Barfield sent a letter to the areas local delegation in the General Assembly. Barfield wrote, "The bill effectively redirects New Hanover County sales taxes to other units of local government that are largely absent a retail and/or commercial base. While redirecting sales taxes, the bill does not propose redirecting or lifting any mandated service obligations from New Hanover County; therefore, the consequence to every property owner is a property tax increase."
Barfield explained, "As calculated by the NC Association of County Commissioners (NCACC), by fiscal year 2019, New Hanover County's annual sales tax could grow to $52.5 million under the current law. Although the changes would be phased in over time, when the proposed changes are fully implemented in fiscal year 2019, our annual sales tax is estimated to be only $38.8 million or $13.7 million less than it would have been under current law, which would currently equate to a 4 cent property tax increase."
He explained, "The estimated $38.8 million, the sales tax amount estimated to be received in fiscal year 2019 under the proposed changes, is also less than our previous year's sales taxes of $45.5 million, which for New Hanover County means that in five years our sales tax would have actually decreased $6.7 million from our current revenues received. This equates to an over 2 cent property tax increase for every $100 of [property] value."
Barfield explained, "What is not known at this point is the effect a redistribution of sales taxes may have on the ability for New Hanover County to service its current bonded indebtedness and future bond obligations without a property tax increase beyond earlier forecasts. The county currently holds a double, triple A bond rating - without a clear plan of action in terms of raising the lost revenues through property tax increases or reduction in County services, an intentional redistribution of revenues could affect the county's position in the bond market ultimately costing taxpayers more with an unanticipated interest rate increase."
According to the NCACC, SB369 (Sales Tax Fairness Act) would convert 2% of local sales taxes to a state sales tax over three years. The state would allocate 2% of the 6.75% state sales tax to counties and cities on a per capita basis.
Senate Bill 369 timeline:
Note: The following timeline does not take into account the Article 43 transit tax or the Article 46 local-option quarter-cent sales tax.
• Current: State sales tax = 4.75% / local sales tax = 2% (counties determine if local revenue is split with cities on per capita or property tax levy basis).
• Jan. 1, 2016: State sales tax = 5.75% / local sales tax = 1% (17.39% of state sales tax revenue distributed to counties and cities on a per capita basis; 1% local sales tax).
• Jan. 1, 2017: State sales tax = 6.25% / local sales tax = 0.5% (24% of state sales tax proceeds distributed to counties and cities on a per capita basis; 0.5% local sales tax).
• Jan. 1, 2018: State sales tax = 6.75% / local sales tax = 0.0% (29.63% of state sales tax revenue distributed to counties and cities on a per capita basis).
According to the NCACC, "Any redistribution of existing revenues will create winners and losers, but all counties will lose control of their fiscal stability if local sales taxes become state revenues."
Barfield explained to the areas local state delegates the Board of Commissioners, "Recognizes the economic challenge of other county governments in the state. However, the Board believes there is a better way to address statewide concern without an indiscriminate redistribution of revenues collected locally. The requirement to build and maintain infrastructure that creates retail and commerce centers should not go unnoticed in the public policy debate aimed at solving a broad-based economic challenge. The Board of Commissioners requests that you suggest to the majority leader that he engage the leadership and staff of both NCACC and the North Carolina League of Municipalities in framing a set of options that creates "all winners" verses losers and winners."
He explained, "While perhaps not intentional in its design, New Hanover County reads SB369 as an elimination of local option sales taxes and replaces those with an exclusive statewide sales tax of 6.75 percent. Irrespective of the distribution methodology (per capita, point of sale, or combination thereof), an exclusive statewide sales tax does not offer certainty or predictability in financial planning to counties and municipalities. The revenues collected from the state sales tax would be subject to the appropriation choices of the General Assembly year-in and year-out."
He explained, "In years where state revenue is lean, it is reasonable to assume the state would choose to hold those sales taxes to meet its operating and strategic priorities - prior evidence of state action in distribution for beer and wine taxes and lottery proceeds are easy and prime examples to offer. Counties and municipalities need better than those past practices indicate."
According to President Pro Tempore Senator Phil Berger, the bill proposes a three-year phase-in to a per capita sales tax system, "so citizens from the state’s mostly poor, rural counties no longer involuntarily redistribute their tax dollars to subsidize a few rich, urban counties when they drive to those areas to spend their money." In a statement issued March 23rd, "Instead, those who purchase goods will actually benefit locally from the sales tax dollars they spend."
"North Carolina’s antiquated system of redistributing sales taxes is unfair," said Brown. "It provides a huge advantage to a few rich areas that are booming while hurting the overwhelming majority of our state’s counties."
According to a release from Berger's office, "In addition to the unfair advantage urban counties with large commercial centers receive, some counties benefit from outdated and confusing “adjustment factors” created in the late 1980s to further redistribute sales tax revenues and enrich the home counties of former powerful state leaders. (For example, the home county of a former powerful Senate leader receives 49 percent more revenue than if it were strictly on a per capita basis, while Columbus County receives 19 percent less.) In 2001, North Carolina joined a national streamlined sales tax agreement to move the collection of sales tax on large, deliverable items from point of sale to point of delivery. Yet the state did not repeal the unfair adjustment factors, leading to a double windfall for some counties. Three of the state’s richest counties that receive a disproportionate share of sales tax revenue – Mecklenburg, Wake and Durham – were awarded over 85 percent of state JDIG incentive funds last year and receive more dollars under the new transportation funding plan – programs paid for by all taxpayers."
“These inequities lead to a vicious cycle that forces rural counties to fund their public schools and basic infrastructure needs through sky-high property taxes,” said Brown. “And sky-high property taxes in much of rural North Carolina create another major obstacle to new industry locating and creating jobs there. This is a big reason we have ‘two North Carolinas’ – one that is booming and one that is busting.”
Kure Beach Council member Emilie Swearingen presented a resolution opposing the legislation during the Council's April 21st, meeting.
She explained Kure Beach has an additional concern beyond those of inland communities due to the level of services such as police and fire that are relied upon by tourists that would be financially burdened by the legislation.
She said the legislation would cost the Town $454,000  annually in lost sales tax revenues resulting in a projected 55.6% decrease compared to current collections.
She said the Town would likely have to increase the property tax by approximately 5.75 cents (22% increase) to replace lost revenues to continue providing services.
The Council voted unanimously to send the resolution to the NC General Assembly.
The proposed legislation was Referred to Senate Finance Committee. Failure to establish a corresponding House bill by April 30th will halt this bill’s progress.


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