Sales Tax Increase Eyed for Medicaid Relief

Raleigh, N.C. — As they haggle over a final state budget, lawmakers are looking at a statewide or local-option sales tax to help counties experiencing their own budget difficulties.

Counties rely on property taxes to run their governments, but leaders complain that school, road, water and sewer needs far outpace what home and business owners pay. Some rural counties spend as much as 30 percent of their budgets on Medicaid, for example.

State lawmakers appear determined to pull those health care costs off the backs of local governments.

"We need to get this one behind us so that we give some of these counties a chance to succeed. Now, we're denying them that chance, and that's not right," Senate Majority Leader Tony Rand said.

The latest Medicaid relief plans would utilize sales taxes. Gov. Mike Easley and many House and local leaders also want a land-transfer tax rolled into the mix.

"It's targeted at those growth areas," said Rebecca Troutman, director of research for the North Carolina Association of County Commissioners. "I'm afraid what we're going to be seeing is annual property tax increases over and over and over again."

Two-thirds of homeowners statewide will pay higher property taxes this year, officials said.

The owner of a $200,000 home will pay $88 more in taxes in Wake County, an extra $94 a year in Orange County and $50 more in Durham County.

Instead of the original plan for a 1 percent tax on land, home and business sales, lawmakers are considering a compromise 0.4 percent transfer tax.

Real estate agents have waged a media campaign to fight off even the smaller transfer tax plan.

"It's still a tax on sellers. It's still an unfair tax. There's no reason folks selling their property should pay more than people not selling their property," said Rick Zechini, director of regulatory affairs for the North Carolina Association of Realtors.

Rand, D-Cumberland, said he's confident a Medicaid relief plan will get worked out this session. But there's still plenty of disagreement between the House and the Senate on the proposed land-transfer tax.