Sharing the wealth
RALEIGH – Some are calling it a redistribution of wealth.
Others say there are “two North Carolinas” – the haves and the have nots.
In the North Carolina Senate, it’s known as the Sales Tax Fairness Act, one designed to narrow the financial gap now present between rich and poor counties across the state.
That plan, introduced by Senate Majority Leader Harry Brown (R-Onslow), will have a positive financial impact on the state’s rural, less populated counties, including all four in the Roanoke-Chowan area. Three of those counties – Bertie, Gates and Northampton – would see a triple digit increase in the percentage of sales tax revenue they currently receive from the state.
Brown wants to reform the state sales tax system. The state levies a 4.75 percent sales tax, while counties levy an additional two percent. The two percent is the focus of the bill, and is currently composed of three different taxes – the Article 30 one-cent tax, the Article 40 one-half cent tax, and the Article 42 one-half cent tax.
The local sales taxes are collected by retailers and then sent to the NC Department of Revenue. Currently, 75 cents of every $1 generated by the sales tax is returned to the county, with the remaining 25 cents distributed on a per-capita basis statewide. The bill introduced by Brown would require all 2 percent of the locally collected sales tax to be distributed on a per-capita basis.
That would benefit the majority of the state’s 100 counties, most notably the rural areas. For example, Gates County received $1.3 million from the state sales tax during the last complete fiscal year (as of June 30, 2014). If Brown’s plan becomes law, Gates County would gain nearly 150 percent over their current allocation.
Northampton would gain 125.4 percent (they received $2.06 million in sales tax as of June 30, 2014), while Bertie County ($1.99 million) would see their sales tax revenue grow by 124.6 percent.
As a major retail center in the region, Hertford County’s sales tax growth would be the smallest in the R-C area (34.5 percent). Hertford County received $4.4 million in state sales tax during the 2013-14 fiscal year.
The plan does not affect Hertford County’s local option sales tax (one-quarter of one cent) that was approved by its voters during a referendum held in 2013.
Brown said his plan ensures that all North Carolina counties benefit from tax dollars their own citizens pay – so they have the local resources necessary to strengthen public education, attract new jobs and contribute to the state’s economy.
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 the rich, urban counties when they drive to those areas to spend their money. Instead, those who purchase goods will actually benefit locally from the sales tax dollars they spend, no matter where those purchases are made.
“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.”
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.
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.
“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.”
As an example of that “boom-or-bust” scenario, Mecklenburg County will lose $30 million in annual sales tax revenue under Brown’s plan. That’s $20.3 million more than the combined sales tax revenue ($9.7 million) received by all four Roanoke-Chowan area counties.
As expected, the counties whose financial coffers are taking a hit under Brown’s plan are up in arms. Those counties include Dare (who will lose 59 percent of its annual sales tax revenue), Currituck (-15.9 percent), New Hanover (-13.4 percent), Buncombe (-10.9 percent), Durham (-9.2 percent), Carteret (-8.3 percent), Mecklenburg (-7.4 percent), and Watauga (-2.3 percent).