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NC Senate Sales Tax Proposal Further Cuts Charlotte Budget

City of Charlotte

Top Republicans in the state Senate Monday unveiled their proposal to shift sales taxes from urban areas to rural areas. The bill’s sponsor says it will help poorer counties, but it would compound the growing hole in Charlotte’s budget.

A portion of North Carolina's sales taxes get distributed back to counties. About three-quarters of it goes back to the county where the sale happened. That’s mostly urban areas. The rest gets spread evenly by population. Senate Majority Leader Harry Brown is one of the Senate leaders from rural counties pushing to change that.

“Large urban counties have had an unfair advantage for decades,” Brown said during a press conference introducing the legislation. “This bill restructures the sales tax system so rural, poor counties can finally receive a fair shake.”

At its most basic, the bill distributes all of the sales tax revenue by population, instead of just a quarter—meaning more money for economically depressed rural counties.

The trade-off is a hit to urban areas. Mecklenburg County and Charlotte officials couldn’t immediately calculate the bill’s exact effects, but the city budget office has estimated the changed formula, when fully implemented, would drop sales tax revenue by a third—roughly five percent of the city’s current budget.

The new formula will phase in over three years, which Brown says gives those areas time to cope.

But Charlotte already faces a budget gap, even before any new cuts to the sales tax. The elimination of another state tax for business licenses, as well as lower-than-projected property tax revenue, has carved a bigger hole than any year of the recession. The added strain would be "devastating" says Charlotte City Manager Ron Carlee.

"​What services would have to be cut or what increases the council would have to consider are impossible to predict right now," Carlee says.

3/24/15 12:45 p.m. - This article has been updated to clarify that a portion of the sales tax is distributed by the state back to local municipalities--it's this portion the bill would redistribute.