03/23/08 — Sales tax explained

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Sales tax explained

By Matthew Whittle
Published in News on March 23, 2008 2:02 AM

On May 6, voters in Wayne County will have the rare opportunity to decide on their own taxes.

On the ballot, along with this spring's primaries, will be a quarter-cent sales tax referendum.

That referendum, which the commissioners voted onto the ballot in January, is the result of the state General Assembly's Medicaid relief package last summer.

The option to put the tax before the voters was given to the counties because, as part of the agreement to begin taking that health care burden off their budgets, the legislature also is taking back one of the half-cent state sales taxes that it had been allocating down to the local level, and adjusting the distribution of another.

Wayne County Commissioner Efton Sager explained that they decided to put the sales tax on the ballot and not the 0.4 percent land transfer tax -- their other option -- because they felt it to be fairer.

"The good thing about the sales tax is that everybody pays it and it's not a regressive tax," he said. "It's better than putting a property tax on people."

Besides, added Commis-sioner Atlas Price, "Our property tax is already well up there. A sales tax is not something you do in place of a property tax, but you do it if you need it. I don't like taxes, but it simply makes sense to go for the sales tax."

* What is a sales tax?

Currently North Carolina levies a 6.75 percent sales tax on all retail goods sold. Of that, before Medicaid relief, 4.25 percent went to the state, while 2.5 percent went to the localities. The state's adjustment of that proportion will be made as the Medicaid relief is phased in over the next three years.

This quarter-cent local option sales tax would make Wayne County's rate an even 7 percent.

* Is the tax automatically levied if approved by the voters?

No, the voters are only giving the commissioners the option to levy it. It cannot, however, be put into place without the majority of voters' permission.

If the tax is approved by the voters, the commissioners must then still move to enact it.

"It is not automatic," Wayne County Manager Lee Smith said. "The board of commissioners has to approve it."

* When can they do that? And when will it take effect?

The commission can vote to enact it anytime after it is approved by the voters following a 10-day public notification period.

Then, as long as that's done by Aug. 1, the earliest it can become effective is Oct. 1. Otherwise, it can become effective on the first day of any calendar year as long as the county gives the state Secretary of Revenue at least 60 days notice.

* How is the money going to be spent?

The ballot does not allow the county to state a specific use for the funds, but during the commissioners' meeting last week, County Manager Lee Smith explained his desire to use the full amount, for the next four to five years, to help pay for the replacement of the county's emergency communication equipment. The revenues also will pay for the radio equipment and its installation for each of the county's municipalities and fire departments, as well as possible expansions to the school system and Red Cross emergency shelters.

It was a suggestion that the commissioners all seemed to concur would be a good use of the money.

"There's a dire need for a new communications system," Price said. "It's been patched up for years. It's a matter of public safety."

"Nobody likes a tax," Sager added. "But we have to put (a communications system) in, and it's the easiest way to solve the problem."

* How does this affect school facility plans?

The commissioners say that this sales tax will not have any effect on school facility plans.

The funding for the first stage -- the $25 million in projects announced in December -- is already in place and no firm plans have been made beyond that for construction work.

Members of the Wayne County Board of Education also said they felt the communications system was an acceptable use of the funds -- especially since they never felt the money had been promised to them.

"I feel like it's real good if they follow with what they say," school board member Pete Gurley said.

"I think they have a right to use it how they want as long as they tell the people," school board member George Moye added. "It's going for a much-needed project if it's going for a communications system."

* How will it affect possible future school or other bond issues?

Technically, the sales tax has no bearing on whether or not the county has the ability to offer up a bond referendum. The concern of some, though, may be whether or not the commissioners or the voters would be motivated to approve one after raising the sales tax.

But Sager doesn't think that will be a problem.

"I think it's completely separate," he said, adding that even though he is in his last year on the board, he's hopeful that lottery revenues may be at a level they can provide enough funding to support a bond in the future.

* How long will this tax be on the books?

There is no expiration date on the tax. It will be in place until a future board decides to remove it.

"You can keep it for as long as you want, or you have the option to take the tax off. Any board in the future can remove it," Smith told the commissioners.

That means that even if approved by voters in May and enacted by the commission in October, the next board, which will be elected in November, could vote to remove the tax next year.

* What happens to the money after the communications system is paid off?

The county is not obligated right now to spend the money on the communications system. It is still merely a suggestion. If it is used for that, however, once the debt is paid off, there still are no restrictions as to how the money must be spent. It can be used for capital or operations.

"That will be the obligation of the board at that time," Smith said.

* So just how much revenue will this tax generate anyway?

The North Carolina Association of County Commissioners is projecting that the quarter-cent sales tax will generate approximately $2.57 million annually for Wayne County.

Smith is estimating that it could be anywhere from $1.8 million to $2.4 million -- "depending on the economy."

* And how does that compare to what is generated by the county's property tax rate of 76.4 cents per $100 value?

One penny of property tax is equal to approximately $550,000. That means if the quarter-cent sales tax generates $2.4 million in revenues, it will be equal to 4.36 cents in property tax.

* If the referendum fails is that end of it?

Maybe, but maybe not. The commissioners can vote to put the matter back on the ballot -- either for the next election (in this case November) or for a special election, provided that it's at least 30 days after the last election and at least 30 days before the next.

"I would think we'd put it right back on the ballot and try one more time, and maybe try to educate the public more about why it's needed," Sager said.

Otherwise, Price added, they may have to look to other revenue sources.

"It seems to me if the public doesn't accept it, then it's going to have to move to the property tax eventually," he said.