- Associated Press - Wednesday, April 9, 2014

RALEIGH, N.C. (AP) - North Carolina legislators on Wednesday backed replacing fragmented local business privilege taxes with a streamlined, flat-fee system many hope will get passed when the full General Assembly convenes next month.

A tax study committee tentatively agreed to draft legislation that would repeal in July 2015 the current system used by more than 300 municipalities, which now have wide latitude on what to tax and how to calculate the tax. Cities and towns would then have the option to tax most every business location, but only up to $100 annually.

The changes are portrayed by bill supporters as the next step in creating a more uniform North Carolina tax system following last year’s massive tax overhaul bill that reduced income tax rates and broadened slightly the items subject to sales taxes.

Critics of the current local tax structure say it confuses and complicates business and results in wildly different tax bills for essentially identical businesses in adjoining municipalities. Some cities, like Durham or Charlotte, base privilege taxes on a business’ gross receipts, resulting in tax bills of thousands of dollars in addition to local and federal income taxes.

“What has actually developed over the years is an unfair way of taxing businesses where you have one of them that pays $20,000 and one of them pays $50,” Sen. Bob Rucho, R-Mecklenburg, said in the Revenue Laws Study Committee. The proposal, he said, “is about a matter of simplification and fairness.”

Some lawmakers and municipal lobbyists caution towns and cities could have to raise property taxes if it passes without a way to make up for lost revenue.

Municipalities collected $62 million in privilege license taxes during the 2011-12 fiscal year, according to a recent presentation from the School of Government at the University of North Carolina at Chapel Hill. The General Assembly’s fiscal staff estimates municipalities could lose up to $25 million in lost revenue in the 2015-16 fiscal year if it becomes law.

Charlotte could lose the most at $8.5 million, the report said. Raleigh could lose $3.4 million, and High Point and Lumberton about $1.3 million apiece. Paul Meyer, executive director of the North Carolina League of Municipalities, which represents more than 540 cities and towns, asked legislators instead to study the issue more and return in 2015 with a solution with alternative revenue sources.

“We want to be as business-friendly as we can (but) I don’t think property tax increases are business friendly,” Meyer said after listing several small- or medium-sized cities facing a property tax increase if the bill was approved.

Andy Ellen, president of the North Carolina Retail Merchants Association, urged legislators not to be frightened by threats of tax increases and delay no further giving relief to local businesses.

“They had to pull that money out of their pocket and pay those bills,” Ellen said. “Our members have never said we don’t want to pay our fair share.”

The proposal, which had been discussed in earlier committee meetings, was changed Wednesday to ensure certain nonprofits wouldn’t be subject to the new privilege taxes.

The committee will meet the day before the General Assembly holds its annual work session May 14 for final votes on this and other recommended legislation. Any legislation would then need full House and Senate approval and clear Gov. Pat McCrory’s desk to become law.

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