(From The InsiderGov. Pat McCrory on Thursday quickly signed legislation making a raft of tax changes, including nixing the authority of cities and towns to levy privilege license taxes on businesses starting July 1, 2015. McCrory's signature came within a couple of hours of the House and Senate giving final approval to the bill. Under the legislation, cities are allowed to collect business taxes for the 2014-15 fiscal year, but with restrictions. Although Republican lawmakers have said they planned to work with cities on new privilege tax legislation in 2015, the measure sets up what's being called a $62.2 million "fiscal cliff" for municipalities. More than 300 cities and towns levy the taxes on businesses, generating more than $62 million annually. Cities' advocates have said they would have to cut services or raise property taxes to offset the lost revenue if a fix isn't enacted in time.

Upon signing the measure, McCrory said the privilege tax has been applied inconsistently across the state, creating confusion and expense for businesses. He also acknowledged that "legitimate concerns" have been raised by the N.C. Metropolitan Mayors Coalition, the N.C. League of Municipalities and others about the tax sunset. He said he has received a commitment from leading lawmakers that they will "work with local governments during the next year to find a resolution that reforms the local tax option and addresses lost revenue, prior to the sunset date."

Andy Ellen, president and general counsel for the N.C. Retail Merchants Association, lauded the end of the privilege tax, which he said has become a revenue source for some cities to fund budget shortfalls. He said the privilege tax created uncertainty in taxation, which frustrates business owners. "Localities have been taking advantage of a loophole in statute where they are arbitrarily deciding how much revenue they’d like to squeeze out of businesses," Ellen said in a release.

The Senate passed its version of the bill 38-7 with no debate Thursday, and it was sent to the House for concurrence. House leaders moved to hear the bill immediately and a Democrat objected, setting up a vote on whether to consider the bill. Rep. Paul Luebke, D-Durham, argued that the Senate made significant changes before sending it back to the House, including repealing the privilege tax -- the House version included a $100 cap on the tax, which would have allowed cities to retain some revenue. Luebke said that House members should have more time to review the Senate changes and that a conference committee should be appointed.

Rep. Julia Howard, R-Davie, said that she didn't believe the Senate changes harmed the measure and that it was time-sensitive because of a provision requiring that private residences rented for fewer than 15 days and listed by real estate agents be subject to sales and occupancy taxes. Lawmakers said that provision needed to be in place before the men's and women's U.S. Open golf tournaments in Pinehurst next month. Howard also said a provision removed by the Senate that would have exempted 50 percent of the cost of modular or manufactured homes from the sales tax would be included in the House budget.

The House voted to hear the bill Thursday and concurred with the Senate changes in a 79-37 vote. The measure also includes an excise tax on the liquid used to create vapor in e-cigarettes, and it corrects and clarifies provisions from last year's tax package. (THE INSIDER, 5/30/14).

AuthorDavid Crawford