- Associated Press - Tuesday, May 27, 2014

RALEIGH, N.C. (AP) - Senate Republicans on Tuesday altered a wide-ranging tax bill from their House counterparts that had proposed scaling back the power of North Carolina’s municipalities to charge certain business taxes starting next summer. Instead, senators would eliminate the power altogether.

The Senate Finance Committee approved an omnibus tax bill that adjusts slightly portions of last year’s tax overhaul and also creates a new excise tax on what’s inside the nicotine cartridges for electronic cigarettes, as the House did.

Republicans in both chambers agree on most of their respective measures, but they haven’t agreed what to do with a disjointed system that more than 300 cities and towns use to levy taxes against businesses registered in their communities. The current system lets cities use various factors in determining these taxes, which makes for dramatically different payment levels depending on the municipality.

While the House version approved last week would cap so-called privilege license taxes at $100 starting July 1, 2015, the Senate measure would repeal those taxes altogether. The Senate proposal also would mandate that as of July this year, cities couldn’t raise their current license taxes and would only be permitted to levy the tax against businesses located within city limits.

The Senate and House have yet to find common ground on the question of whether to preserve some kind of privilege taxes for cities, said Sen. Bill Rabon, R-Brunswick, who is managing the Senate’s version of the bill. The cities are worried the lost revenue will require them to raise property taxes, cut services or both.



The Senate’s plan would still allow a solution to be found for the 2015 session, Rabon said, but the tax “is going to end unless we do something about it.”

While a $100 cap could mean cities could cumulatively lose $11 million to $25 million during the 2015-16 fiscal year, a complete prohibition would mean a loss of $62.2 million, according to estimates from legislative staff analyzing both bills.

The repeal worries the North Carolina League of Municipalities, which represents hundreds of cities and towns, and has offered several proposals to legislators to make up the lost revenue or alter the tax structure.

“We’ve made it very clear we want to work out an arrangement to try to make this work for cities, but you’re holding a $62.2 million hit on folks’ heads. That’s pretty tough,” league executive director Paul Meyer said after the finance committee meeting. Limiting license taxes to entities within the city’s boundaries also will remain a roughly 10 percent hit statewide for municipalities, a league researcher said.

Both versions create a new e-cigarette tax equal to 5 cents on every milliliter of the liquid used in e-cigarette cartridges. The need for replacement cartridges varies by user.

The Senate version, which could go to the floor later this week, also eliminates a tax break in the House version for people who buy manufactured or modular homes. Last year’s tax overhaul raised the tax on these homes to 4.75 percent.

The Senate also eliminated a House provision that would allow the University of North Carolina and East Carolina University health system again to collect long-outstanding patient debts by tapping into state tax refunds and lottery winnings. That power was eliminated last year.

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