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Panel wants to cap privilege fees

Staff and wire report

May 15, 2014

RALEIGH — A North Carolina House panel moved forward Thursday with a wide-ranging tax bill that could cost North Carolina cities, including Lumberton, millions in revenue by capping how much they can tax businesses.


The bill, expected to head to the House floor next week, would essentially replace the longstanding authority of cities and towns to levy business privilege taxes, which critics say result in a hodgepodge of rates and calculations and tax bills in the thousands of dollars. The new system would cap any such municipal tax at $100 per business per year.


On the second day of this year’s session, the Finance Committee pushed through the measure that draws together tax changes in at least 15 areas and includes a tax on e-cigarettes. All of them were recommended by a joint House-Senate study that discussed the changes over the past several months.


Although the Associated Press reports that Lumberton stands to lose the fourth most revenue after Charlotte, Raleigh and High Point, City Manager Wayne Horne said that’s not entirely the case.


“Depending on what they do, it could have some impact, but it’s not going to be a major impact on us,” he said.


According to Horne, the legislature’s nonpartisan fiscal staff determined the potential effect of the bill on Lumberton using outdated reports of how much the city collects from privilege licenses. The number used in the report reflects the money collected by the city before the state Supreme Court ruled in 2013 that the city’s fees on gaming establishments were excessive.


Horne said the report lists Lumberton’s revenue near $1 million, whereas the city recently has collected about $220,000 each year.


Horne said the city’s revenue should level out because the tax base has been expanded.


“We don’t now typically levy a privilege license for attorneys or insurance agents,” he said. “If they’re now included in the base that would replace the other money. So we don’t think it’s going to be as drastic for us.”


If the bill becomes law, Charlotte could lose the most at $8.5 million, followed by Raleigh and High Point.


Lawmakers have studied for years the jumble of local taxes, which hurts economic development within some cities, said Rep. Julia Howard, R-Davie, the Finance Committee’s senior chairwoman. It’s time to fix the problem, she said.


“If you just want to keep kicking the can on down the road, we can do that — that’s the easiest thing to do,” Howard said.


Wilmington could lose about $700,000, the report said. Rep. Susi Hamilton, D-New Hanover, said the loss would be much higher and require the city to raise property taxes. “That will hurt economic development like you’ve never seen,” Hamilton said.


The bill would also make several slight changes to the 2013 tax overhaul. It was approved by the Republican majority after the committee deadlocked on an amendment by Rep. Becky Carney, D-Mecklenburg, to remove the e-cigarette tax provision. Hamilton entered the committee room after the vote but her request to be counted supporting the amendment and breaking the tie was denied.


The parent of Winston-Salem-based R.J. Reynolds Tobacco Co. earlier this week essentially asked for the tax, which would appear a pre-emptive move before the U.S. Food and Drug Administration finalizes how it intends to regulate the product. The bill, for taxing purposes, would not classify e-cigarettes as a tobacco product — running counter to a definition of e-cigarettes in a 2013 North Carolina law banning their sale to minors.


While traditional cigarettes are assessed a 45-cent-per-pack tax, Reynolds says the equivalent of a pack of its e-cigarette product would have a 5-cent excise tax. Carney asked for more time to discuss the measure, which she said could make it harder to raise the tax if the FDA determines it’s more dangerous than currently believed.


The committee agreed to remove another provision that would have changed the formula to calculate corporate state taxes, which was projected to result in $23 million in fewer revenues starting in 2015-16.


“It’s a major change in tax policy that deserves a bigger discussion,” said House Majority Leader Edgar Starnes, R-Caldwell. Senate Republicans are more supportive of changing the formula.


Staff writer Sarah Willets contributed to this report.