Senate approves sales tax cap after efforts to raise limit fail
Posted July 24, 2014
Updated July 25, 2014
Raleigh, N.C. — Two efforts to resolve the concerns of urban counties over a proposed cap on local sales tax rates were narrowly defeated Thursday before the Senate approved the cap as part of a package of economic development changes.
For all but six of North Carolina's 100 counties, House Bill 1224 would make it easier to raise their local sales tax rate as high as 2.5 percent. Most counties are below that cap and unable to use existing authority to raises taxes for transportation projects. The proposed law would allow them to put referenda before voters asking to raise sales taxes in quarter-cent increments for either education, transportation, general purposes or some combination of the three.
Two counties – Durham and Orange – already have local sales tax rates of 2.75 percent and would be grandfathered in under the bill. Four other large, urban counties – Wake, Mecklenburg, Forsyth and Guilford counties – currently have the authority to ask voters to raise local sales taxes up to that 2.75 percent limit but would be limited to a 2.5 percent under the bill.
The measure would force Wake County to choose between keeping its commitment of dedicating a half-cent of sales tax to a regional transit system with Durham and Orange counties or following through with a quarter-cent sales tax increase this fall to help fund education.
Sen. Floyd McKissick, D-Durham, suggested Thursday that the four counties be given until the end of 2015 to enact any sales taxes that would move their local rate up to 2.75 percent, but he withdrew his amendment after Sen. Dan Blue, D-Wake, told him "thanks but no thanks."
"I don't want to put our (county) commissioners under the gun," Blue said, saying they should be able to take up tax proposals as needed and not because of a deadline.
Sen. Fletcher Hartsell, R-Cabarrus, then tried to move the cap to 2.75 percent for all 100 counties, saying that would settle the resentment between senators from rural and urban areas.
On Wednesday, several rural senators argued that a 2.5 percent cap would "level the playing field" across the state, maintaining that allowing big counties to have access to extra sales taxes wasn't fair to smaller counties with small tax bases.
Senate Finance Committee Chairman Bob Rucho, R-Mecklenburg, said a 2.75 percent cap "gives the image of a sales tax increase" and urged his colleagues to vote against Hartsell's amendment.
"It's a number that has no consistency under state law," Sen. Josh Stein, D-Wake, said of the proposed 2.5 percent cap. "It's only a tax increase if the people choose to raise their own taxes."
The proposal failed 26-21.
Hartsell then called for separate votes on the tax provision and the rest of the bill, which included sections allowing small investors to provide crowd-funding to small companies, creating a job catalyst fund to help industry recruiters close deals with major new employers and putting more money into a state grant fund for new or expanding companies.
"They are two distinct propositions, one having to do with taxation and the other having to do with other forms of economic development," he said. "I think people ought to have the opportunity to look at different sections in a bill that could easily be divided."
The motion split the Republican caucus, with Rucho and others saying a vote against the tax provision would either kill the whole bill or make it more difficult to pass in the House.
"If every section of every bill were standalone, we probably would end up accomplishing little because not everybody gets the whole cone of ice cream," said Sen. Bill Rabon, R-Brunswick. "Your motion isn't worth a hoot."
"Why would you separate something out for a few counties?" asked Sen. Harry Brown, R-Onslow. "I just think this will set a terrible, terrible precedent. What will end up happening is we'll start dividing every single bill on this floor and start voting piece by piece."
Sen. Jerry Tillman, R-Randolph, said split votes have been taken before, so there would be no precedent.
"I do not see the need for these to be wedded at the hip," Tillman said.
The Senate deadlocked 24-24 on the idea of a separate vote on the tax provision, so the motion failed. Moments later, the entire bill passed on a 32-16 vote.
The bill now heads back to the House for a concurrence vote. House lawmakers said earlier in the week that the tax provision caught them off guard, so it's unclear how the legislation will fare in that chamber.
Ticket tax dispute
A separate tax bill passed Thursday by the Senate included a package of technical corrections to state revenue laws, but it sparked a debate over when entertainment venues should send collected sales taxes to the state.
The state added sales tax to tickets to movies, plays, sporting events and other forms of entertainment this year as part of a tax system overhaul lawmakers approved last summer.
Hartsell proposed that groups from community theaters to the Carolina Panthers be allowed to remit taxes after a production or game and not when tickets are purchased.
Sen. Tamara Barringer, R-Wake, who is an accounting professor at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, said forcing taxes to be turned over to the state when tickets are purchased would create an accounting nightmare for venues that might end up refunding ticket revenue for canceled performances.
"We're supposed to be making business efficient not creating more bookkeeping hassles for them," Barringer said.
Rabon said the amendment amounted to "a carve out" for entertainment venues, which would go against lawmakers' efforts to simplify the state tax code.
"There's no way this is a carve out," Hartsell responded. "The tax is due and payable when the sale occurs. When does the sale occur in this context? ... I would contend, from an economic perspective, that attendance at a venue for whatever purpose is the same thing."
Rucho said allowing venues to delay paying collected sales taxes to the state amount to "a huge float," giving them thousands of dollars to assist with their cash flow and operating costs.
The amendment failed on a 24-24 vote, and the Senate later approved the technical corrections bill.