NC cities starting to feel the loss of privilege tax

by Benjamin Brown, The Insider, published in News and Observer, October 17, 2014.

When the legislature voted last session to take away municipalities’ ability to charge a privilege license tax starting in July 2015, city leaders across the state warned about loss of revenue.

What wasn’t obvious was how soon those losses would be felt.

Legislative leaders learned this week that at least 52 cities and towns in the state will lose out on several million dollars in their current fiscal year because of their billing cycles.

The municipalities typically bill and often receive payment for privilege licenses months in advance of the start of their fiscal year and budget on that expected revenue. Raleigh is among those cities that operate this way and expects to lose out on more than $5 million in revenue as a result.

The predicament could lead to some sort of legislative fix – or at least discussion about it – in the session starting in January, a staffer with the General Assembly’s research staff indicated this week.

The bill that arranged the ban on privilege license taxation – to end what lawmakers and Gov. Pat McCrory called an inconsistent, confusing system that was burdensome to businesses – passed early in this year’s session, but late in the budget-writing season for local governments. For many, spending plans were already firm.

Trina Griffin of the legislature’s research division said the 50-plus cities in that situation came to light through a League of Municipalities survey that had a 30 percent response rate, so the actual affected number could be greater.

The full repeal will mean less revenue for all cities starting next fiscal year, with NCLM calling it a $62 million “fiscal cliff.”

“The urgency to find a legislative solution to help make up for this revenue loss exists regardless of a city or town’s billing or budget cycle,” said NCLM spokesman Scott Mooneyham. “Legislative leaders have indicated that they understand that urgency and will work to address the revenue loss.”

McCrory said earlier this year that he had received commitment from two Republicans who head the House and Senate finance committees – Rep. Julia Howard of Mocksville, and Sen. Bill Rabon of Southport – to work on a revenue replacement of some sort.

In a phone interview, Rabon said it’s sure to come up for discussion, but it’ll be difficult to make strides while the legislature is out of session. “It’s a complicated subject and tough to do during the interim when you don’t have all the stakeholders there,” he said.

Until the full repeal next year, the amended law includes another provision affecting local government income currently. It only allows cities to levy privilege taxes on businesses with physical locations locally, a change from their previous authority to also tax out-of-town companies that do business there.

Benjamin Brown writes for NCInsider.com, a government news service owned by The News & Observer.