NC Senate Unveils New Tax Redistribution, Economic Development Proposal

Senate leaders yesterday unveiled and approved a new Finance committee substitute to HB 117, the ‘NC Competes Act,’ with a new proposal for a 50/50 Sales Tax Distribution between point of sale and county population (the original bill redistributed 80% of local sales taxes statewide, compared to 25% under current law). The new ‘compromise’ language represents an effort by the Senate to reach a budget agreement with the House, after nearly three weeks of largely unproductive negotiations.

Numbers from the state’s Fiscal Research Division show the new proposal would still negatively impact the state’s metropolitan counties when it kicks in in 2016, with Mecklenburg County losing an estimated $12 million per year (5% of its annual sales tax revenue), Wake losing $6 million per year (4%), Durham $6 million per year (11%), Forsyth $1.5M per year (2%), and Guilford about $500,000 annually (1%). But numbers from the Mecklenburg County Manager’s office are more dire, showing an estimated loss of $64 million over four years, or $16.25 million annually.

The Senate bill also retains the House language for data center tax incentives, as well as the 4-year extension of the airline fuel tax exemption for American Airlines. However, it also sticks to the chamber’s original proposal for the JDIG job incentives program, which would modestly expand the existing cap, and limit the fund’s application in metro counties. The Senate’s single-sales factor tax language is also in the bill, but not their proposed expansion of the sales tax to vets, pet care and auto repair.

A number of state and local business groups, including the three North Carolina chapters of NAIOP, have already voiced their strong opposition to the original Sales Tax Redistribution plan, and it is unlikely they would see the new proposal as much of an improvement.

The bill will be on the Senate floor next Monday night, and would then go back to the House for what is expected to be a lengthy debate.

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