Cities fear loss of privilege tax (N&O)
BY MARK SCHULTZ, Staff writer
CHAPEL HILL – Local governments are watching anxiously as state lawmakers consider eliminating one of their revenue streams. It's called the privilege license tax, a fee that businesses pay for the privilege of operating within a local government's jurisdiction.
Some lawmakers say the state needs to replace an unfair hodge-podge of fees that differ by locale and businesses without clear reason.
Local government officials and even some business advocates, however, say now is not the time to tinker with cash-strapped local budgets.
The N.C. Metropolitan Mayors Coalition has told local governments to oppose eliminating the tax, which generated $54.7 million in the last fiscal year for municipal governments across North Carolina, according to state legislative staff.
“At a time when cities are hurting economically and have already adopted their budgets, the loss of the privilege tax will result in a loss of services,” said Julie White, the coalition director.
“Local governments already have very limited local taxing options,” she said. “Why would they take away one of the few tools they have?”
Sen. David Hoyle, co-chairman of the Senate Finance Committee, said it's too soon to say whether the tax will be eliminated. But if it is, he said, new taxes on services would cover any losses.
“Local governments wouldn't lose any money,” said Hoyle, a Gaston County Democrat. “They'd gain money. … We're a service economy now.”
Local government leaders across the Triangle aren't so sure.
“We're concerned any time they talk about taking away part of our revenue,” said Ken Pennoyer, director of business management for Chapel Hill. “It's kind of a strange proposal. I'm not sure how this helps.”
Chapel Hill, with a small commercial tax base and a maximum $300 privilege license tax, projects making $110,000 from the tax this fiscal year, Pennoyer said.
In Durham and Raleigh, where revenue from the tax approaches 2 cents on both cities' tax rates, the stakes are much higher.
This year the tax is projected to bring in $2.75 million in Durham, interim finance director Keith Hermann said.
In Raleigh, the tax generates about $7 million, chief financial officer Perry James said.
Legislative staff members are analyzing how broadening the tax base and eliminating privilege license taxes would affect local governments.
Lawmakers want to simplify the tax structure and eliminate a “hodgepodge of authority” filled with inequities between businesses and between cities, said Sabra Faires, the Senate tax attorney.
“The goal in the end is not to have cities lose any money,” she said. “They'll get it in other ways than they get it now. That's the theory. The details aren't nailed down.”
Those details concern financial officers such as Raleigh's James.
“The [expanded] sales tax would supply some additional revenues,” he said. “But it's an untested revenue source.”
If lawmakers want to simplify taxes, they can do it other ways, James said, such as basing all levies on gross sales. Some privilege taxes are now based on types of businesses or their physical size.
“There's absolutely an argument to do away with the inequities,” he said. “I don't know that means getting rid of the tax.”
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