News&Observer: NC tax overhaul protects some municipal revenue but others still uncertain

As they reviewed budget projections for the new fiscal year, Asheville City Council members and city staff kept an eye on an overhaul of the North Carolina tax system — the Republican-led General Assembly was considering reforms that would cut income taxes but raise sales taxes, and do away with many municipal revenue streams, including franchise taxes.

State legislators recently adopted a tax overhaul, and according to a recent report by the Raleigh News&Observer, municipalities could see some short-term increases in revenue, but franchise taxes and other fees that provide funds will be phased out, creating some uncertainty.

By expanding the current state sales tax and canceling tax holidays on retail items, the deal reached by Republican leaders boosts municipal revenues a total of $5 million this fiscal year and $16.4 million in fiscal year 2018-2019, according to an estimate by the League of Municipalities, a nonpartisan advocate for cities, towns and counties. …

While local leaders are relieved by their reversal of fortune – previous tax overhaul proposals might have cost municipalities more than $160 million by 2018 – they’re skeptical of budgeting for long-term gains because a directive in the overhaul bill sets up more debates over popular tax streams. The bill directs the Revenue Laws Study Committee to consider eliminating the franchise tax and the privilege license tax by the end of next year’s short session.

“If they turn around and do away with privilege taxes, we’ll be right back where we started,” said Zebulon Mayor Bob Matheny. Zebulon is projected to earn $5,600 in additional revenue this year, but could lose more than $20,000 if legislators take away the town’s ability to levy a privilege license tax.

Franchise taxes are fees assessed by local governments on power, water and sewage companies. Privilege license taxes are fees local governments impose on other businesses. Last year, North Carolina municipalities collected $60 million in privilege taxes and more than $200 million in franchise taxes.

Legislators in the Senate, especially, have taken aim at those particular taxes, saying they’re unfair to businesses because they’re largely unregulated. …


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