State tax changes could chew a sizeable hole in the City of Charlotte’s pocketbook, staff told City Council members at their annual retreat Friday. Two changes—one last year and one proposed this year—have them worried.
An incomprehensible business tax
Last year, the state legislature cut the business privilege license tax, one of the few local taxes a city could levy. The tax was also as incomprehensible as its name suggests, says Charlotte City Manager Ron Carlee.
“It was a tax that did not make sense,” Carlee said.
Still, without a replacement from the legislature, the loss leaves the city expecting a $16 million hole in its next budget, about 2.5 percent of total spending. But Carlee told council he will not recommend raising the property tax to fill it.
A redistribution of sales taxes
They might not have a choice if state lawmakers enact another change under discussion to the sales tax. Right now, each city and county in North Carolina gets a cut, partially based on how much is collected there. Because most sales occur in urban areas, cities and urban counties are collecting the lion’s share.
“What was intended to be a local sales tax to support local governments across the state has become a sales tax that supports a few local governments,” said Mayor Dan Clodfelter, formerly a long-time state legislator. “That is the view of those who want to change it.”
So, lawmakers are discussing redistributing sales tax money evenly, based on population.
If lawmakers made that broad change, Charlotte would lose another $29 million. But actually, it would be even worse, Carlee said, because the county would also lose sales tax revenue.
“The worst number here is actually north of $90 million, because it also impacts the county and thus the schools,” says Carlee.
Lawmakers have not coalesced around one proposal yet and no bill has been introduced. But, Clodfelter argued the city needs to act to prevent that worst-case scenario before a bill forms. He gestured at a chart by city staff showing plummeting revenue from both tax changes.
“I think we ought to look at this chart not so much as a prediction of the future, but as a motivation for action,” said Clodfelter. “Crank up the lobbying machine full-scale.”
