A North Carolina Senate proposal to change the way sales tax revenues are distributed has once again been changed. Senate Bill 369 was changed to legislation that would call for a distribution of sales tax revenue based 50 percent on point of sale and 50 percent on the population of a county.
According to data provided by the North Carolina Association of County Commissioners, Surry County sales tax revenues, under the new plan, would increase by about $500,000 if the plan is implemented as proposed for the 2016-17 fiscal year.
Senate Bill 369, which was introduced in late-March, is sponsored by Senate Majority Leader Harry Brown of Onslow, Surry County’s Sen. Shirley Randleman and more than a dozen other Republican lawmakers. Since its introduction the bill has been a hot-ticket item all over the state.
The overall concept of the legislation is to shift sales tax revenue distribution from a point of sale system in which revenues remain where they are earned to a per capita distribution that would take funds earned in larger metropolitan and tourist areas and distribute the revenue around the state based on population.
The proposal met its first opposition from lawmakers and other public officials when those officials from larger counties with more shopping centers and other revenue-garnering businesses lined up against it. Sen. Joel Ford, who represents Mecklenburg County, went as far as to call Brown’s bill “short-sighted” and “a redistribution of wealth.”
However, opposition didn’t stop in larger counties that were destined to lose sales tax revenue under the proposal. In its initial form the bill, that had been entitled “The Sales Tax Fairness Act,” would have stripped some taxing authority from counties and municipalities and converted those sales taxes into a state sales tax.
Surry County Commissioner Larry Phillips was among the most out-spoken local officials opposing Brown’s initial plan. Phillips explained that state lawmakers had given local officials little reason to trust the actions of Raleigh when it comes to promises of funding, citing Education Lottery fund money as one example of his and others’ mistrust of the goings-on in the state capitol.
In retaliation to state lawmakers’ attempts to strip counties and municipalities of some of their taxing authority, Phillips even went as far as saying “Why elect us (county commissioners). Maybe Raleigh just ought to appoint us.”
Additionally, Surry County commissioners and three of the county’s four municipalities joined other entities across the state in passing resolutions in opposition to the proposed measure. Brown and other lawmakers went back to the drawing board, introducing a new plan in early June.
The new plan included a phased-in approach that changed the sales tax distribution system to a system based 80 percent on population and 20 percent on point of sale. The June proposal also did not strip taxing authority from counties and municipalities. However, it did expand the tax base, placing sales taxes on services such as veterinarian clinics.
Local officials like Phillips described the June plan, which would have been almost revenue-neutral for Surry County as “more palatable.” Surry County Manager Chris Knopf said that he was “OK” with the June plan.
Where it stands now
While the June plan may have been “OK” with Knopf, apparently it wasn’t “OK” with some lawmakers in Raleigh. According to an email from the N.C. Association of County Commissioners to county officials throughout the state, the Senate Finance Committee chose to vote its approval on Brown’s new 50-50 distribution plan on Thursday.
Though Surry County would see an effect of about a $500,000 increase as a result of Brown’s latest proposal, the interest is much greater for other counties. Stokes County, which is also part of Randleman’s Senate district, could see an added $1.6 million in sales tax revenue in the first year of the proposed new plan.
The plan would have some harsher effects on the budgets of other counties. The counties that would be hardest hit by the new proposal are Durham and Dare, which would each see more than $4 million in lost sales tax revenues as a result of Brown’s 50-50 distribution plan.
Dare County Manager Robert Outten said that he’s absolutely not opposed to helping distressed counties, but he is opposed to any form of Senate Bill 369. Outten explained that his county had a population of about 35,000 residents, though services in the county support a much larger population.
“Our economy is based on tourism. Right now we have about 300,000 people here who we provide services for,” said Outten. Outten said the financial hit that Dare County would take as a result of Brown’s proposal accounts for about 5 percent of the county’s annual operating budget.
“Since 2008 we have cut everything we can in our budget. Further cuts would be to the meat of our services. We would probably have to raise ad valorem (property) taxes to make up for the shortfall,” said Outten. “That would amount to our residents footing the bill for services provided to tourists.”
Outten called the Brown’s proposal to narrow the gap between counties that are doing well and distressed counties a “scatter-shot approach” that redistributes some funds from some counties to others. “It’s not directed where it needs to be,” commented Outten.
“This proposal removes all incentive for us to do well in every category. It removes economic development incentives, and removes the incentive for us to do a good job monitoring expenditures. We’ve kept our tax rate low here, and now we could face increasing it,” explained Outten.
In the end, Outten said the Senate’s new sales tax proposal is no different than the two prior proposals. “Any county that was a winner is still a winner, and any county that was a loser is still a loser,” said Outten.
Even though Surry County stands to gain $500,000 as a result of Brown’s new sales tax plan, Phillips questioned the thought process behind the legislation, voicing concerns similar to that of Outten. “If a county makes an investment, it should reap the benefit of the added sales tax revenues that result from that investment,” said Phillips.
Phillips went on to say that he has concerns that such a sales tax distribution measure could prove to eliminate the incentive for counties and municipalities to make investments in their communities.
“Though this latest proposal is palatable to a lot more counties, it’s not really what I want,” commented Phillips.
Andy Winemiller is a staff writer at the Mount Airy News. Andy can be reached at (336) 415-4698 or [email protected]