Big change: Asheville, cities may get sales tax

ASHEVILLE – Cities around North Carolina may get the option to create their own sales taxes, a potentially historic move in a state where local governments have limited taxing authority.

A bill in the state House would allow counties and cities to levy a quarter-cent sales tax and use the proceeds as they wish. The new revenue would ease pressure on property owners and give local governments more options after the state eliminates a business tax this summer, state lawmakers supporting the bill said.

Mayor Esther Manheimer said she didn't know if a majority of the City Council would support adding a sales tax, but called it a "positive opportunity" that would allow the city to collect more tourist dollars.

"I think one of the concerns for council is how to pay for the cost associated with the tourism economy," Manheimer said.

The new tax would add 0.25 percent on top of the 7 percent sales tax in Buncombe County. It would apply to most purchases, not including food.

For city coffers, the tax would generate $6 million, Manheimer said. That's roughly 6 percent of Asheville's general fund, the main pot of money the municipality uses to pay police and firefighters and provide many other basic services.

The city is facing the loss of $1.5 million starting in July after the planned elimination of a statewide business privilege license fee collected by municipalities. That loss would be doubled to $3 million under some additional legislation proposing to shift sales tax receipts toward poorer counties. But the quarter-cent tax would not be a part of that shift.

Right now, Asheville gets less than six cents of every dollar of sales tax collected in Buncombe County, according to city finance staff.

The rest goes to the state and is redistributed from Raleigh to counties, municipalities and other specially earmarked recipients, such as schools. New legislation in the Senate would reduce even further the amount Asheville gets back by giving out a large portion of the sales tax on the basis of population rather than on where the tax originated.

Rep. Chuck McGrady, R-Henderson, is co-sponsoring House Bill 903, the legislation for the new city sales tax, saying it will help fill the hole left by the privilege license fee and other funding sources.

Because North Carolina is not a home rule state, counties and cities can't create their own sales taxes and have limited control over their funding. Funding sources they do control are property taxes and fees they can charge for things such as recreation facilities and garbage collection.

"They can raise prop taxes, but that's not something they'd like to do," McGrady said. "They'd like to have a broader range of options, so they're not just having to default to property taxes."

The primary sponsor of the bill is Lincoln County Republican Jason Saine, whose position as finance committee chairman means the legislation will likely pass the House. How it will be received in the Senate remains to be seen.

The sales tax dynamic is especially interesting for North Carolina cities with high tourist and commuter populations.

In Asheville, 50,000 people visit every day with 9.1 million visitors annually, Manheimer said. While that helps businesses, it can put a strain on roads, sidewalks, emergency services and other city services.

"People say it's great for business, and it is great for business," the mayor said. "But it's hard on a local government."

The best solution, she said, would be if the state gave cities such as Asheville more control over existing sales tax, that way taxes wouldn't have to be raised, she said.

Council members have balked in years past at increased sales tax as a funding source, calling it a regressive tax that hits the poor as hard as the rich. But in Asheville, it is one of the better ways to tap into the tourist economy, the mayor said.

"To really hit the nail on the head for Asheville would be a food and beverage tax which would be more focused on tourism — but a sales tax may be a cruder way of getting to that same end."