NC Senate unveils latest plan to distribute county sales taxes

From the N.C. Association of County Commissioners — June 12, 2015 — After several days of waiting, the N.C. Senate rolled out its latest plan to redistribute county-adopted sales tax revenues on Wednesday. The Senate plan was only presented in the Commerce Committee and is rumored to be included in the Senate budget that will be unveiled next week. The Senate plan is comprehensive legislation that makes significant changes to the state’s personal income taxes, corporate income taxes and economic development incentives, among others.

Many sections are of particular interest to counties, most notably the pieces that deal with existing county sales taxes. Earlier plans introduced by the Senate this session eliminated the existing county sales taxes and replaced them with a state sales tax that is then appropriated to counties on a per capita basis. Many counties objected to these plans because the loss of existing county-adopted sales taxes would put all local governments in the position of having to fight for a state appropriation every year.

The Senate’s new plan does not eliminate the 2% of county-adopted sales taxes, but it does phase in a significant change in how this revenue is distributed to counties. Currently, revenues from the first 2% of county-adopted sales taxes are distributed to counties 25% per capita/75% point of sale. The Senate proposes changing this to 80% per capita/20% point of sale by 2019-20. This plan would largely boost revenue in counties with fewer retail centers while taking revenue from counties with larger retail bases.

The Senate plan also proposes ending the hold harmless provision that was part of the Medicaid swap back in 2007. However, through direct communications with Senate leaders, NCACC staff were told that the intent was not to end this arrangement. Therefore, confusion remains on this particular point, and we have a high level of certainty that this issue will be corrected.

For More Information

• You can access a detailed analysis of the legislation and other components of interest to counties, including an expansion of the sales tax base and additional sales tax authorities to counties for transportation and public education, prepared by the NCACC by clicking here.
• Click here to view the revised bill language and supporting documents released Wednesday.
• Click here to see an example of how to interpret the county-by-county information.