RALEIGH, N.C. (AP) - Legislation modifying North Carolina’s tax rules and repealing some local business taxes next summer was signed quickly Thursday by Gov. Pat McCrory, even as municipalities are anxious for a long-term solution to avoid raising other taxes or cutting services.
But McCrory, a former Charlotte mayor, said lawmakers told him they’ve pledged to work with towns and cities to help them make up lost revenue from what’s called the privilege license tax and to reform local taxes generally. Without a replacement, municipalities could lose more than $62 million combined, led by Charlotte at $17 million.
“With their assurances, I look forward to working with municipalities and the General Assembly to seek long-term resolution,” McCrory said. The bill signing came soon after the House and Senate gave separate, final approval to the legislation.
Lawmakers, business owners and municipal leaders have agreed for years that business privilege taxes - which are paid for the “privilege” of doing business in a locality - are too complicated and need change. Similar businesses in adjoining towns can end up paying wildly different bills because the cities calculate their respective taxes differently.
“There’s no debate that the privilege tax has been applied inconsistently,” McCrory said in a release. But a replacement tax hadn’t been settled upon and House and Senate members couldn’t enact one this year, either.
The House originally would have set a cap of $100 per business per year on how much privilege tax municipalities could charge. That still could have cost local governments up to $25 million in lost revenue.
The Senate proposal, which prevailed, repeals the tax method altogether as of July 1, 2015. Senate Republicans said they would keep working on the issue with municipal leaders for the legislative session starting next January.
Raleigh Mayor Nancy McFarlane, chairwoman of a group representing big-city mayors, said its members are committed to working with McCrory and legislative leaders to “find a solution that properly balances funding the services our citizens’ desire with a continued strong city business climate.” Raleigh could lose nearly $8 million without a replacement, according to data from the North Carolina League of Municipalities.
In the meantime, starting this July 1, the law directs cities to levy the privilege license tax only on companies that are physically within their boundaries. The League of Municipalities estimates towns and cities will lose about $6 million, but bill proponents say they have new sources of revenue to make up for the loss.
The measure also created a new excise tax for electronic cigarettes equal to 5 cents on every milliliter of the liquid used in e-cigarette cartridges. The need for replacement cartridges varies by user. North Carolina’s regular cigarette tax is 45 cents per pack.
The bill also made several small changes to the 2013 tax overhaul law that reduced corporate and individual income tax rates and expanded slightly the number of items subject to sales tax. The new law tweaked sales taxes collected for live shows and other entertainment and agricultural purchases for farmers, among other items.
Bill supporters say swift resolution was needed in part to clarify local taxes on temporary home rentals before the U.S. Open golf championships in Pinehurst next month. House Democrats complained the final version - ultimately approved by a vote of 79-37 in the chamber - left out House proposals. One would have given a 50 percent tax break for people who buy manufactured or modular homes.
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