Governor, senators at odds over sales tax plan

Senators want to change how sales tax is distributed in a way that would favor rural counties. Gov. Pat McCrory says he'll veto any such bill.

Posted Updated
North Carolina tax
Mark Binker
RALEIGH, N.C. — Senate Majority Leader Harry Brown crammed the small press conference room at the Legislative Building full of county commissioners, county managers, school board members and community college leaders on Tuesday to make a point: People from rural areas want his plan to shift how sales taxes are distributed.

Under current law, 75 cents of every dollar paid on the local 2 percent sales tax charged statewide stays in the county where it was collected. The rest is distributed statewide on a per-capita basis. This gives large, urban counties with lots of shopping, such as Wake County, a boost over rural areas, such as neighboring Franklin County.

The latest version of Brown's bill, which was included in the state budget, would turn that formula on its head so that 80 percent of the local sales tax would be distributed based on population.

"I call this the Tax Reclamation Act," said Sen. Tommy Tucker, R-Union, who said it would merely give rural governments access to revenue that's being unfairly taken away from their areas.

Brown, Tucker and his allies face opposition on the sales tax shift from House members, the governor and groups such as the North Carolina League of Municipalities and North Carolina Association of County Commissioners. The shift would blow holes in bigger counties' budgets, although the Senate budget would give those counties the chance to partially make up for the losses through added local sales taxes.

The sales tax measure is one of a bundle of issues that has delayed passage of the state budget. North Carolina's new fiscal year began July 1, but the state is running on a temporary spending measure through Aug. 14. Sales taxes are among a groups of issues, along with Medicaid reform and economic development spending, where Republican House and Senate leaders and Gov. Pat McCrory, also a Republican, find themselves at odds.

The split over sales taxes emphasizes a rural-urban divide among lawmakers, with senators having the deepest sympathy for rural areas they see as losing out to bigger metropolitan counties.

For example, Franklin County Commissioner Don Lancaster told reporters that his county would gain $14 million under Brown's bill, money that would be critical for a county that is growing quickly but sees 62 percent of its workforce head to Wake County and elsewhere during the day.

"They spend their money outside the county, which presents a major problem for infrastructure," Lancaster said.

Brown, R-Onslow, and Tucker insist that more than 80 of North Carolina's 100 counties would benefit, while larger counties and counties with lots of tourism revenue, including some in coastal areas and some in the mountains, would lose out.

House members have been slow to embrace the deal, and McCrory said Tuesday he would veto Senate Bill 369, Brown's original bill. A McCrory spokesman said that veto threat applied only to that bill, but then later updated his statement saying it applies to any bill containing the sales tax language.

"This bill will result in a tax increase for millions of hardworking, middle-class families and small-business owners throughout North Carolina," McCrory said in a statement. "Redistribution and hidden tax increases are liberal tax-and-spend principles of the past that simply don’t work. More importantly, this bill will cripple the economic and trade centers of our state that power our economy."

McCrory called on lawmakers to help rural areas by passing his bond package for transportation and his proposed economic development bill.

"This legislation will decimate our travel and tourism sector – particularly in our mountain and beach communities – shop owners and their employees who depend on tourism for their livelihood," McCrory said. "Instead of pursuing left-wing ideas that continually fail, it’s time for the General Assembly to get to work on job creation for all North Carolina."

Brown responded to McCrory by suggesting the governor is too focused on urban areas such as Charlotte, where he was mayor before being elected governor.

"I can't figure out if Pat thinks he is the Governor of Charlotte or the Mayor of North Carolina," Brown said in a statement. "Today, over 100 local officials from across the state came out in support of sales tax fairness. Sadly, the governor’s tone-deaf response to their overwhelming support is doubling down on a 2007 sales tax policy change that kicked rural North Carolina in the teeth."

He added that a transportation plan backed by McCrory has shifted road projects from rural to urban areas and that economic development incentives routinely go to metropolitan counties.

Local officials at Brown's news conference insisted that they need a bigger share of sales tax proceeds to give relief to property taxpayers, who are tapped out.

Randolph Latimore, superintendent for Hyde County Schools, noted that his coastal system's bus garage dates to 1939, when buses were much smaller.

"We cannot get our buses into the bus garage for their inspections," Latimore said. "We get the hood part in, but the other part of the bus is outside, and our mechanics are down on their dollies to do what needs to be done."

Changing the sales tax distribution, he said, would allow his system to update the building and help land teachers who won't come to a district with relatively low pay.


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