The Senate Finance Committee is scheduled to convene at 7 PM tonight to consider a modified version of House Bill 1050 (HB 1050), which includes a provision that would restrict the ability of local governments to manage their budgets and public investments in their respective communities.
One provision, among many, within HB 1050 would repeal the local privilege tax beginning next year. State law currently permits local governing authorities to levy a local privilege tax on various businesses that engage in significant economic activities in their respective locales. Repeal of the local privilege tax would result in nearly $63 million in less revenue for public investments in cities and counties across the state.
State policymakers point to the tax plan passed last year as a way to offset the lost local revenue from repealing the local privilege tax. Particularly, proponents expect the expansion of the sales tax base to some services to generate additional revenue.
The proposed repeal of the local privilege tax means businesses would get a tax cut that will be paid for largely by middle- and low-income North Carolinians who pay more of their income in sales tax than higher income taxpayers. And if the local sales tax fails to generate sufficient revenue to make up for lost revenue from repealing the local privilege tax, local governments will either have to find revenue in other places (e.g. increase local property tax rate), reduce the level of services provided to residents, or a combination of both.
Cities and counties, like the state, faced tough budget decisions during the economic downturn and recovery. They are relying on revenues to catch up and keep up with the needs of their residents. This bill puts that progress at risk.
Changes to the local privilege tax could have been made in a way that held local governments harmless, as was done in tax modernization proposals back in 2009 and earlier; however, policymakers chose this path. Under this tax change, local governments could become further challenged with providing its residents with core public services and an attractive quality of life.