NC Senate gives initial OK to sales-tax changes

RALEIGH, N.C. — (AP) Legislation that would alter how counties in North Carolina can raise sales taxes received initial approval from the state Senate on Wednesday following a debate that has reopened the old fault lines between urban and rural North Carolina.

The measure would place a cap on what counties can levy in sales taxes beyond what the state already collects. Nearly all of the state's 100 counties — including four large urban counties currently allowed to raise the sales tax to 2.75 percent — would be subject to a local sales- and use-tax limit of 2.5 percent.

The measure also gives most counties more options on how to spend the revenues generated by increased taxes — for public schools, transit or essentially any government purpose — provided such use is approved by local voters.

Many counties are "desperately looking for income and they cannot raise their property tax" more than a certain amount, said Sen. Rick Gunn, R-Alamance, the bill's chief proponent. Small-town and rural areas have little need for transportation money, Gunn added, and the proposal gives "far more flexibility to invest in public education."

Consumers in more than 70 counties currently pay a combined state and local sales tax of 6.75 percent. Other counties have slightly higher rates.

Mecklenburg, Wake, Guilford and Forsyth counties already have the authority to generate an extra half-cent of sales tax for regional public transit projects. In Mecklenburg County, which already levies such a tax, the bill would block a scheduled referendum for an additional quarter-cent increase.

Wake County ultimately would have to levy a half-cent increase if it wants to participate in a planned Triangle light-rail system, so their options for other increases would be eliminated.

The other two Triangle counties, Durham and Orange, would be exempt from the 2.5 percent cap in the bill because they already levy the extra half-cent. Six Republicans joined Democrats in voting for an amendment that would have exempted the other four large counties from the cap, but it was defeated.

Democratic senators from Raleigh and Charlotte said the bill would harm the ability of their economically thriving areas to keep attracting jobs through improving infrastructure, relieving highway congestion and supplementing teacher salaries.

"If North Carolina is a body, then certainly the urban area is the heart," said Sen. Malcolm Graham, D-Mecklenburg. "And if the heart stops beating, the body dies."

But Sen. Harry Brown, R-Onslow, said the state is turning into "two North Carolinas" divided among the rich counties and the poor counties. The counties outside of the Piedmont crescent lack many realistic options to raise revenues to make them attractive to businesses looking to relocate, he noted.

"It just makes it more difficult to compete," Brown said. "Small counties get further and further behind. Rich counties get better and better."

The bill, he said, would still let voters decide whether they want to raise their taxes.

Three Democrats from rural areas joined most Republicans in voting 33-16 for the bill. Three Republicans from the Piedmont voted no. A final Senate vote could come Thursday.

Prospects are uncertain in the House for the bill, which contains other economic recruitment provisions as well. Among them are those that would:

— expand eligibility for the state's Job Maintenance and Capital Development Fund to benefit a packaging company in Haywood County.

— increase the capacity for the state to award an additional $14 million in the Job Development Investment Grant program, which gives cash payments to companies that meet job creation and investment requirements.

— create a new Commerce Department incentives program to help local government land large manufacturing projects.

— authorize North Carolina companies to raise capital through crowdfunding, which encourages small, individual investments.

WSOC