McCrory, lawmakers pledge tax help for NC cities

Posted December 15, 2014

Gov. Pat McCrory

— Raleigh Mayor Nancy McFarlane was paying close attention Thursday when Gov. Pat McCrory was talking about holding lawmakers' feet to the fire on the privilege license tax.

If no changes are made to state law, the tax cities charge to businesses that set up shop within their boundaries expires next summer, knocking holes in local budgets around the state. 

"It's a huge deal," McFarlane said after McCrory finished speaking.

Raleigh figures that the privilege tax brings in $7.5 million. That doesn't sound like a lot in terms of the city's $754 million budget, but $7.5 million is more than the city spends on grants to arts, human services and economic development groups combined. 

Pretty much every city leader sitting in the room during the North Carolina League of Municipalities legislative goal-setting conference could tell a similar story, which explains why McCrory got a round of applause for noting that lawmakers had promised to help local governments replace the lost revenue.

"We're interested in figuring out how to make up that revenue and how to give you more options at the city and county level," McCrory said, adding that Finance Committee chairmen in the House and Senate had pledged to work with the cities to find a replacement for the privilege tax money. 

"We're hoping the state comes back and makes good on that pledge," McFarlane said.

And quick. Cities have to finish work on their budgets by June 30, which means they begin figuring out how much money they will have to work with in February or March. 

"I'm assuming that most municipalities are going to do their budgets assuming that money is lost," McFarlane said. 

It certainly seems unlikely to return as a privilege tax. 

"I see it as a completely irrational tax because it has nothing to do with ability to pay or benefits received," Rep. Paul "Skip" Stam, the House speaker pro tem, told the same gathering. "I'm hopeful we can replace the revenue without renewing the privilege tax." 

Stam, R-Wake, didn't say what might replace it, although various ideas have been floated.  

"I don't think we'll see a reinvention of the privilege tax," said Paul Meyer, executive director of the League of Municipalities.

McCrory noted that during his speech that when he signed a recent tax bill dealing with privilege licenses got a promise from Rep. Julia Howard, R-Davie, and Sen. Bill Rabon, R-Brunswick, two of the senior finance chairmen in the legislature, to work on the issue. 

"We've talked about it," Howard said Friday. "There are several things that we're looking at." 

None of the proposals, she said, are quite ready for a public unveiling because details are being worked out. However, one possibility, she said, would be an effort to plug loopholes in sales and occupancy tax collections that exists when travelers book hotel rooms via online travel sites. She also noted that Senate leaders have talked about expanding the sales tax base to include services. That idea was debated fiercely during the 2013 tax reform discussions but did not make the final bill. If it did come back, not only would it allow the state to drop income tax rates, but would boost local collections.

But those are only potential changes, she said, and it's far from clear what direction the legislature may go. 

"We're just not ready to bring anything out," Howard said. 

And, of course, city privilege license tax is far from the only finance issue on state leaders' plates next year. Revenue officials report collections running about $190 million behind forecasts and a host of pent-up needs put off during the great recession.

"I do need to let you know that we're all looking for new revenue," McCrory said, adding that he was looking at the state's cash flow in advance of next year's budget. "I'm going to be coming out with some major proposals in December and in January ... My cabinet team is looking at transportation funding for the future, looking at health and human services funding for the future."


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  • Rebelyell55 Dec 16, 2014

    LOL, so now they're going to raise the tax on gas. Can't catch a break with these guys no matter which party is in control. They claim to need money, they're gonna get it one way or the other. But can make a sure bet it'll be on the backs of worker and retirees.

  • Road-wearier Dec 15, 2014

    No doubt these 'proposals' will involve more taxes er revenue enhancements on residents, including those who don't use the businesses. Just another shifting of the tax burden from business to the public....the GOP way.

  • pawnmasta Dec 15, 2014

    There are so many revenue options if some folks could get over their fear.
    Firstly we would not need such a resource draining gigantic prison system IF the laws were such as to punish the non addicted suppliers and REHABILITATE the "addict".
    ACCEPT the Medicaid expansion, Currently Medicaid in this state for a family of four allows a NET income of 850 per month..If you have a chronic condition what makes more sense, Working a minimum wage job OR not working in order to get benefits? The way it is set up now it punishes the working poor and prevents them from contributing to the overall revenue, not in the form of income tax but ALL of the other sources we ALL already pay..more people working more money spent.
    Thirdly..CONSIDER, just CONSIDER Colorado and Washington state and the FACT that armageddon did not happen and they have a HUGE new source of revenue..Just CONSIDER it.

  • Greg Boop Dec 15, 2014
    user avatar

    View quoted thread

    Business privilege licenses pay for local regulatory services required by state law such as restaurant health inspections.

    Eliminating business privilege license fees means that all the individuals in the community are subsidizing local businesses. Businesses need to pay their own way - I should not be paying for businesses I do not use.

  • arfamr1010 Dec 15, 2014

    View quoted thread

    Bev borrowed 2 BILLION just for unemployment. I'd say the repubs are doing just fine

  • Walter Smirth Dec 15, 2014
    user avatar

    I'm sure the guv means well..but his proposals and concerns don't go anywhere.

  • Matt Wood Dec 15, 2014
    user avatar

    View quoted thread

    Except that this GA has already hamstrung local governments from increasing taxes as much as they want.

    So they are going to cut income tax more and raise sales taxes more, when not even halfway through this fiscal year that exact strategy is what has left us $190 MILLION in the hole. Right, that makes sense?

  • Jim Reingruber Dec 15, 2014
    user avatar

    I would like to know what they mean by the occupancy tax loophole. I've worked for a hotel. We collected and remitted occupancy tax regardless of whether the reservation was made through us, Expedia, Travelocity, or any of the rest of them. Perhaps they mean the incremental difference that a traveler pays the website over what the hotel charges the website, but that would be a minuscule amount. It might add 1 or 2% overall to that source, but in most cities, total occupancy tax received would need to increase by 200 - 300% to make up for the privilege license lost revenue. It's not a solution at all. Here's an idea: get rid of the refunds that nonprofits get on sales taxes. That would make a real impact.

  • rushbot Dec 15, 2014

    Would anyone care to wager on the GA passing a gasoline tax increase in the coming months. They have a huge tax receipt shortfall to make up and the lower gas prices will make it more palatable.

  • rushbot Dec 15, 2014

    Did I not recently read that there is an approximate $170 million shortfall in tax receipts since the Republicons gave the wealthiest citizens their huge tax cut?