Ranking Senators are crafting a plan to shift millions in sales tax revenue from urban counties, which collect the lion’s share of revenue, to rural counties, according to a report in the News & Observer.
Debate on the issue will likely bring the urban-rural divide in the state to the surface once again as it has over corporate incentive funding, where over 80 percent of incentive funding over the last two years has resided with three counties in the state, Senate President Pro Tem Phil Berger (R-Guilford) said in a press conference Wednesday.
Berger announced his economic incentives bill at the press conference on Jones Street.
Legislators say Durham, Mecklenburg and Wake counties have benefited greatly from incentive programs like the Job Development Investment Grant, while the remaining 97 counties in the state have been largely left out to dry.
“One of the major problems facing our state is we have two North Carolinas — one that is booming and one that is busting,” Senate Majority Leader Sen. Harry Brown (R-Onslow) said in a statement.
“There are several reasons for this, including the fact that just two counties [Wake and Mecklenburg] received about 85 percent of the $300 million in job incentive funds awarded over the last two years.
“Another reason is our sales tax system, which unfairly benefits a few counties at the expense of the remaining 80 percent of the state. I am exploring ways to level the playing field so our entire state can grow and prosper, and I hope to work out the details and introduce a bill this session.”
Brown has said he intends to file legislation this session to adjust the way sales tax is distributed in the state.
But resistance to the plan has already surfaced.
A change in the sales tax system would help rural counties and municipalities but would hit the budgets of urban communities.
As it stands, a larger portion of sales tax collections is funneled back to the counties in which the taxes were collected, while a smaller portion is spread out across the state.
Counties with more retail operations — often in more urban settings — benefit while rural counties without large retail operations are often left out.
The justification for adjusting the distribution is that rural residents visit malls in major-metropolitan areas, leaving their money there.
So outside money flows into urban areas from more rural parts of North Carolina and then that revenue goes to fund schools and other services in urban communities.
The proposed shift would change that by adjusting way sales tax funds are returned to counties by emphasizing a distribution system based on population, not where taxes are collected.
The change would likely give rural areas a relatively large influx of cash, but opponents of the plan say major-metro areas would be left with a deficit that may be recouped through higher property taxes.
Proponents of the change say it would be fairer.
“I think over time we’ve started to develop two North Carolinas,” Brown said in an interview with the N&O. “We’ve got to find a way to make this thing fair.”
Brown said under the current system there are about 20 winning counties, while 80 are left losing out.
Outlines show Brown’s plan would give more sales tax revenue to those 80 rural counties, while taking millions from some urban counties.
Estimates show that under a per capita plan, many poor, rural counties such as Greene, Caswell and Jones counties would see sales tax revenue more than double, while Mecklenburg County and its towns and cities could lose $35 million, a 16 percent drop, according the an N&O report.
Wake County and its cities and towns would collectively see a drop of $18 million, or 13 percent, according to projections by legislative staff.
Metro-area politicians say they could be forced to either increase property taxes under the proposed framework or reduce spending.
Raleigh City Councilwoman Mary-Ann Baldwin criticizes the proposal, saying that the current “point-of-sale” system makes sense.
“It’s really a redistribution of taxes,” Baldwin, a Democrat, told the N&O. “We’re building the infrastructure and everything that goes into development. If somebody is coming here to purchase clothing, we’ve invested to enable that.”