Raleigh, N.C. — Senators put their spin on a package of tax law changes late Tuesday night, sending to the floor the measure that would curtail when cities could levy certain kinds of business taxes.
The measure already passed the House, and members of the Senate Finance Committee made only a handful of changes to the bill.
One of those changes is a good news, bad news proposition for local governments.
A glitch in last year's tax bill would have phased out local privilege license taxes entirely on July 1.
The Senate version of the bill reinstates that authority for one year before phasing it out. However, the language that reinstates the tax blocks cities from raising the tax above current levels and makes technical changes that will cost cities $6.2 million between July 1 and June 30, 2015.
"Part of what we did by re-establishing this so that counties and municipalities could continue to raise money between now and July for 2015 was to minimize any type of abuse," said Sen. Bob Rucho, R-Mecklenburg, the committee's chairman.
Senators, Rucho said, wanted to head off any municipal efforts to jack up business license taxes over the next year.
The bill also says that, beginning July 1, cities may charge privilege licenses only on those businesses with a physical presence within their municipal boundaries. Currently, cities and counties can charge the tax on certain businesses that operate in the city but may not have offices or warehousing operations within city limits.
"That change comes into effect for a fiscal year that begins 33 days from now," said Paul Meyer, executive director of the North Carolina League of Municipalities.
Some cities, Meyer said, will have to refund money to taxpayers that already paid their privilege license renewals. That could force local governments to redo budgets that have already passed or are nearly complete.
The largest cities will be hardest hit. Sen. Joel Ford, D-Mecklenburg, estimates Charlotte could lose more than $3 million over the next 12 months.
After a year of curtailed privilege license collections, the Senate bill does away with the local levies. Meyer said lawmakers had committed to working with cities to find a replacement for the taxes but said the current bill creates a "fiscal cliff" that forces large and small cities to either raise property taxes or cut services.
The other major change to the bill would do away with a tax break for modular and manufactured houses. House members said half the sales price for such houses would be exempt from sales tax.
Senators kept a provision taxing vapor cigarettes, or e-cigs, at 5 cents per milliliter of fluid used to charge the devices.
The most vigorous debate came over provisions requiring those selling tickets to certain kinds of attractions, like ballets and sporting events, to send sales tax to the state immediately upon the sale of a ticket. Under current rules, those who sell such tickets remit sales tax only after the event happens.
"It's a problem for them to keep up with where the money is," said Sen. Tamara Barringer, R-Wake. "That problem is exacerbated when tickets are changed, transferred or refunded."
Sen. Fletcher Hartsell, R-Cabarrus, raised the same issue, saying it doesn't comply with how businesses typically account for revenue.
But Rucho said members of the Joint Revenue Laws Study Committee drafted the language as it appears in the bill and discouraged any changes.
"That was a decision that was made by the Revenue Laws chairs," Rucho said. "The same provision is in the House version of the bill."
Sen. Tom Apodaca, R-Henderson, who owns a travel agency, asked if the change would apply to travel agents. Staff members said it could.
"We're putting unfair restrictions and extra work on small businesses to collect this tax and send it in immediately," Apodaca said. "I just can't support that."
Hartsell told Rucho that he was drafting an amendment that might address the issue being discussed but was told to wait until the bill is heard on the Senate floor.
The public did not have a chance to weigh in on the changes.
"Are we going to have any public comment that's going to be made before the vote, sir?" asked Sen. Tommy Tucker, R-Union.
Rucho replied, "We hadn't opened it up to that so, at this point, no."
Despite grumbling over that ticket tax provision, the measure easily cleared committee on a voice vote. It could be heard by the full Senate as early as Wednesday.