- Associated Press - Wednesday, March 12, 2014

RALEIGH, N.C. (AP) - North Carolina’s largest cities could lose millions of dollars annually in legislation considered Wednesday that replaces complicated local business taxes with what supporters call a simpler solution.

A committee that focuses on tax issues unveiled the latest version of a bill that would repeal business privilege license taxes that about 300 municipalities require. Instead, towns and cities could charge a tax capped at $100 per business location. Like their current privilege license tax authority, municipalities wouldn’t be required to levy the proposed local business tax.

Legislators say the broad authority towns and cities now have creates disjointed tax rates and methods for calculating the tax. There are also many statewide exemptions and limits on what can be taxed, and chain stores in different locales can pay widely different amounts, according to a recent presentation for Revenue Law Study Committee members.

The committee plans to vote in April on whether to recommend the measure to the full General Assembly when it reconvenes in May for its annual work session. The change, if ultimately approved by the full legislature and signed by Gov. Pat McCrory, wouldn’t take place until July 2015.

“What we’re basically trying to do is have a fair and flat tax,” said Rep. Julia Howard, R-Davie and a committee co-chairwoman.

Municipalities collected $62 million in privilege license taxes during the 2011-12 fiscal year, with Charlotte collecting the most at $16.9 million, followed by Raleigh at $7.6 million, according to the presentation from the School of Government at the University of North Carolina at Chapel Hill. Counties collected only $500,000 -their very limited authority to levy privileges would be repealed entirely.

Although some municipalities already charge a flat rate - the town of Dunn requires $30 per business - others base their levy upon the location’s gross receipts. Many Charlotte businesses pay 60 cents per $1,000 in receipts, up to a maximum tax of $10,000. Durham has a sliding scale, but there’s no cap on the tax for retailers.

An analysis by the legislature’s nonpartisan staff estimates municipalities could see a loss of $11 million to $25 million during the 2015-16 fiscal year if the bill becomes law.

Although some smaller towns could see revenue gains should they charge each business $100, Charlotte could lose $8.5 million, Raleigh $3.4 million, and High Point and Lumberton about $1.3 million apiece, the analysis says.

Rep. Kelly Alexander, D-Mecklenburg, said Charlotte’s loss would equal the amount generated by 2 cents on the city’s property tax rate. Lowering the privilege rate to the level contemplated in the bill would mean “simultaneously, I’m essentially voting to increase the property tax rate in my home community,” Alexander said.

Christopher Nida, research director at the North Carolina League of Municipalities, told the committee the group is concerned about the bill because “there is a significant financial loss in revenue associated with the proposed change.” Nida said privilege taxes help pay for government services businesses and residents use. Many utilities, already taxed by other means, would be exempt from the proposed business tax.

Sen. Floyd McKissick, D-Durham, suggested that any legislation include provisions that would make up for some or all of the revenues local governments lose.

Sen. Bill Rabon, R-Brunswick and a committee co-chairman, said such “hold harmless” provisions will be considered but that some cities have been abusing their authority to collect excessive revenues from businesses.

“There’s a limit to what we can condone for behavior, if you will,” Rabon said.

Legislators debated and proposed ending local privilege license taxes during the 2013 tax reform debates, but they weren’t dealt with in the bill given final approval.

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Online:

Potential town-by-town fiscal impact of the bill: https://bit.ly/1hd3Kos

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