Tax plan gives large retailers a break, penalizes small businesses

By Vicki Hyatt | May 21, 2014

As tax proposal in the General Assembly would provide a windfall for big box and large retail stores and could quadruple license fees for most businesses in Waynesville if it is enacted.

James Robertson, Waynesville’s tax collector, said the collects a $25 fee from most of the 682 license holders in town.

However, businesses with gross receipts above $1 million pay a fee of 50 cents per $1,000 of income as provided under a gross receipts collection system — one of the current options under state law.

A House committee has recommended capping the annual privilege license fee at $100.

“With the gross receipts system, we always felt it put everyone on a level paying field,” Robertson said. “With the new rate, small businesses will bear the brunt of that.”

Waynesville collects about $138,000 annually from business license taxes, but even with the increased price under the flat fee, the town’s revenue will drop about $74,000 if the proposal is enacted, he said.

By law, Robertson can’t disclose which businesses in town have gross receipts above $1 million, nor what their annual payments total. However, he did say many of the large retail operations fall into the category.

There is a different schedule for professionals who hold a state license, and another formula for restaurants based on occupancy rating and motels based on the number of rooms, Robertson added.

As president of the N.C. Association of Business License Officials, Robertson said large municipalities will see a significant drop in revenue if the flat tax is enacted.

“This would be a good chunk of change for us, but for cities, we’re talking about tens of millions of dollars because levy is very large,” he said. “Each governing board will have a challenge of making up revenue or cutting expenses.”

Mayor Gavin Brown said the state complaints about the privilege license are that it is “confusing, unfair, anti-economic.”

“Seems like the pot is calling the kettle black as usual,” Brown said. “Unable to solve their own problems, they tinker with our local taxes and say ‘see what a good legislator I am.’  I suspect the bill may have a lot of opposition on both sides of the aisle.”

Brown said Waynesville’s current tax rate and tax value yields about $100,000 per penny on the tax rate, Brown said.

“The obvious things we could do are to raise taxes, cut spending and services or find other sources of revenue.  Even better, leave the law as it is,” he said. “What the larger cities are loosing is substantial and those delegations may say ‘leave well enough alone.’”

 

Canton

In Canton, the town uses the minimum fee schedule set forth in state law to determine the privilege license fee and doesn't include a gross receipts collection. Revenue for the current fiscal year has been $26,600 so far — an amount that could increase if the new law passes.

The town also charges a privilege tax on each sweepstakes gambling machine which has netted $19,000 on on 26 machines this fiscal year. Lawsuits over the gambling issue have left towns in a state of limbo as to whether the machines will be allowed and be a continued source of revenue.

Maggie Valley, Clyde

Shayne Wheeler, Maggie Valley finance director, said the town charges the tax based on the state's fee schedule and not on gross receipts.

"So it won't affect us a whole lot," she said. "But it will affect bigger cities."

The town budgeted about $13,600 in revenue from the tax for the current fiscal year, which is collected from 573 businesses in Maggie Valley.

The town of Clyde collects very little privilege taxes.  Most fees cost $5 depending on the business. Car dealers and hair salons pay a little more.
"It's not a big revenue for us whatsoever," said Joy Garland. "If we switch to $100 flat tax, it would actually increase ours."
To date, Clyde has collected $340 in business privilege license fees over the current year. Clyde has between 50-55 businesses.

Chances of passage

Rep. Michele Presnell, the only legislator who responded by press time, said she believes the measure, which is part of a larger tax-reform package, will pass this session.

She said the privilege tax measure levels the playing field for all businesses to be taxed equally and notes local government entities will be allowed to collect sales taxes from Amazon when online purchases are made and from the expansion of the sales tax base.

 

Comments (1)
Posted by: Scott Lilly | May 21, 2014 08:08

"all businesses to be taxed equally and notes local government entities will be allowed to collect sales taxes from Amazon" -- Sounds to me like this is closing loopholes and eliminating more the ability to game the system.  How, exactly can this be bad?  Anything to close loopholes and simplify taxes is good.  When you buy a $1,000 3D/HD/Internet Enabled TV from Amazon instead of BestBuy, that $70 has been lost to a sales transaction that occurred out of state giving our local BestBuy a 7% disadvantage.  As I read this, that disadvantage will now be fixed.

 

And if "larger companies" find this favorable, won't that attract more "larger companies" to our state?  Isn't that what we all say is desired?

 

Mayor Brown seems to have a good perspective on how to react to a more fair and simplified tax system: "raise taxes, cut spending and services or find other sources of revenue."



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