How the ‘Medicaid swap’ affected sales tax


By Andy Winemiller - [email protected]



Some officials in Raleigh and around the state are saying that a recently amended plan to change the sales tax distribution system will return the system to what it was prior to 2007. However, other officials said that the change in 2007 was to cover county budget shortfalls that resulted from that year’s “Medicaid swap.”

North Carolina Senate Majority Leader Harry Brown’s plan to restructure the way that sales tax revenues are distributed among counties has evolved from a plan that would have converted local sales taxes to a state tax to a new plan that would keep taxes local but distribute revenues from them by means of a system based 50 percent on a county’s population and 50 percent on point of sale.

Brown’s legislation is co-sponsored by Sen. Shirley Randleman, who represents Surry County in the General Assembly.

According to a Mecklenburg County lawmaker, Brown is now saying that his new plan for restructuring the system will simply put the sales tax distribution system back to what it was in 2007.

In 2007 the state eliminated a mandate for counties to fund a portion of Medicaid services. However, along with the mandate, the state also took some local revenue sources such as the one-half percent Article 44 sales tax away from counties.

The latter portion of the deal hurt “high income counties,” according to Dare County Manager Robert Outten. Outten said that lost revenue in his county and others like Mecklenburg and Durham far outweighed the cost savings in giving Medicaid funding responsibilities to the state.

According to Outten and others the sales tax distribution system was then changed to make up for lost revenues in those counties, shifting the methodology for distribution of sales tax funds to a system based primarily on point of sale. Outten said that attempts to shift the methodology back to what it was before the Medicaid swap would end up causing the same shortfalls as the swap did in 2007.

Surry County Assistant County Manager Betty Taylor said that Surry County was among the counties that saw a positive impact to its budget as a result of the Medicaid swap. During the time of the swap Taylor presented numbers to Surry County Commissioners that showed the county writing a more than $7 million Medicaid expense from the county budget.

At the time, Taylor predicted that Surry County would lose nearly $6 million annually in the Article 44 sales tax revenues that ended up going to the state as a result of the Medicaid swap. That meant Surry County was a winner under the Medicaid swap.

Taylor emphasized that the figures she provided were from 2007 and were also projections at the time. However, she also said they are an overall accurate reflection of how the Medicaid swap worked out for Surry County.

However, the counties with less of a Medicaid funding burden than the tax revenue from the Article 44 sales tax lost. Thus, some sales tax revenues were shifted from a population-based methodology to a point of sale methodology, closing the funding shortfall for counties like Dare County.

In short, Taylor said that though the Medicaid swap isn’t a factor in the sales tax distribution restructuring from the perspective of Surry County, she’s still concerned about any legislation that could change the way North Carolina does sales tax.

“Sales tax has been a good revenue source for us,” commented Taylor. According to Taylor’s numbers, sales tax revenues account for about 20 percent of the county’s total revenue. Thus, the eyes of Surry County officials are on Raleigh as lawmakers continue to tinker with proposals to change the distribution system.

By Andy Winemiller

[email protected]

Andy Winemiller is a staff writer for the Mount Airy News. Andy can be reached at (336) 415-4698 or [email protected]

Elkin Tribune

Andy Winemiller is a staff writer for the Mount Airy News. Andy can be reached at (336) 415-4698 or [email protected]

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