The Charlotte Observer yesterday wrote an article about the proposed repeal of the local privilege license tax imposed by cities on local businesses, a provision included as part of an omnibus tax bill currently being debated in the House. The article attempts to portray the tax change as a major blow to city revenue streams, but unfortunately leaves some vital information out.
A bill tentatively approved Tuesday by the N.C. House could pressure city officials across the state to raise taxes or cut services, according to the director of the League of Municipalities.
His comments came after the House tentatively passed a far-ranging, 56-page tax bill. Among other things, it would replace the privilege license tax cities collect from businesses and cap it at $100.
Legislative staff estimates the change would cost North Carolina cities $25 million a year and Charlotte alone $8.5 million.
“You’ll see cities go one of two ways: across-the-board service cuts or across-the-board tax increases,” said Paul Meyer, executive director of the N.C. League of Municipalities.
This fear-mongering is merely a tactic by the Municipalities to scare the public by creating the impression that if this provision is approved then they should expect to get smacked with local tax hikes or a cut in those “essential” government services (because obviously reducing the size and scope of government – or improving efficiency – are simply not an option).
The article is telling, however, in the details that it leaves out.
The Fiscal Note accompanying the bill indeed projects that the repeal of the local privilege tax and replacement of it with a flat business fee will result in the aggregate of a net decrease in revenue to municipalities. And the estimated impact on Charlotte and Raleigh are taken from this document produced by the Revenue Laws Study Committee, that itemizes the specific impact on NC cities.
The article goes wrong, however, in two significant ways. First, it claims that the city of Durham stands to lose $2.2 million from the privilege tax change. But the study committee document shows the impact to be only $294,263. Where did the $2.2 million figure come from?
Secondly, the article overlooks the fact that changes in the 2013 tax reform law now taking effect would have a positive effect on municipal government revenue, enough to more than offset any revenue lost from the privilege tax repeal. As noted in the bill summary document:
For many cities, the loss of revenue from the repeal of the current tax structure is overcome by the revenue it receives in local sales tax revenue from an expansion of the sales tax base under S.L. 2013-316 and from the greater collection of sales tax applicable to online purchases from the agreement of Amazon to collect and remit sales tax on purchases made through Amazon.
Indeed, most smaller cities would see a net increase in revenue from the privilege license tax reform without even taking into consideration last year’s tax changes. And once factoring in the increased local revenue from the 2013 reform law, most city governments will still see an increase in revenue even if the privilege license tax is repealed.
Don’t count on the League of Municipalities or their accomplices at the Char-O to provide all the relevant details.