Sales tax increase in effect
Ask shoppers what they think about the half-penny increase in the sales tax that goes into effect today, and a lot of them throw back a blank stare.
“I don’t even know what the sales tax (rate) is,” said Diane Chapman of Fuquay-Varina, who was shopping with her 2-year-old son Monday afternoon at the Target in Garner.
“I don’t think it’ll make a difference to anybody,” said Marian Worsley of Raleigh, shopping at Simple Pleasures, a gift shop and cafe on Glenwood Avenue.
But others aren’t happy with the timing of the tax hike.
“It’s like the wrong time,” said Signal D. White of Burlington, shopping Monday night at Northgate Mall in Durham. “Because of everything that’s happened as far as the terrorist attacks, people aren’t spending as much money as before.”
The timing was crucial, however, for the General Assembly and Gov. Mike Easley, who hope the higher sales tax rate will raise an additional $ 246.3 million in state revenue this year – a big part of the $ 14.4 billion budget they finished a month ago.
The average retail shopper in the Triangle may find it hard to notice much pain. Consider that for a $ 100 purchase, the general sales tax will rise just 50 cents. Including the local, 2 percent sales tax, the tax rises from $ 6 to $ 6.50.
At Simple Pleasures, not even the office manager, David Ring, knew the tax increase was taking effect. He was more concerned about the logistics of retooling his cash registers than any ill effect on sales.
“I’ll try to get it changed tomorrow morning,” Ring said. “Otherwise, we’ll have to eat that half-percent for a couple of days.”
With about $ 2,000 in daily sales, he added, that extra half-cent amounts to only $ 10 per day.
The lack of concern among shoppers may have to do with the fact that there are so many different sales-tax rates, said Fran Preston, a lobbyist with the N.C. Retail Merchants Association.
The state sales tax doesn’t apply to groceries, but the local 2 percent sales tax does. But the state and local taxes both apply to prepared, restaurant foods. And in some counties, there is an additional local premium for prepared foods; in Wake County, it’s 1 percent.
“I don’t think the consumer realizes what happens to him,” Preston said. “I think it’s 2 percent of the population that’s aware. I think they’ll see that it went up a half-percent, but I don’t think it will be a hue and cry.”
Jonathan Hill, who heads the state chapter of the anti-tax group Citizens for a Sound Economy, said the tax increase isn’t registering with the public because people are more focused on national and international events right now.
Hill said even he decided not to spend too much effort getting the word out about the tax hike because he thought the timing was wrong in the wake of the terrorist attacks of Sept. 11. But that will change, and voters will be interested to know next November who voted to increase their taxes, he said.
“If you spend $ 30 today, that half-cent doesn’t seem like a whole lot,” Hill said. “It’s the toll it takes on the individual or family budget over time. That’s when people will feel it. It will resonate for them during election time, when they’re told that these people raised their taxes.”
But state officials and advocates for government programs such as education and human services say the tax increase was essential to avoid painful budget cuts.
“Other states are coming back in midyear sessions and making significant budget cuts,” said Dan Gerlach, project director of the N.C. Budget & Tax Center, a nonprofit group representing the interests of the poor. “All those critics who said, ‘We’re the only state doing tax increases or deep spending cuts’ are going to be proved wrong. Unfortunately.”
The sales-tax increase is one of a number of tax changes approved by the General Assembly this year. Among others: The highest income tax rate will rise from 7.75 percent to 8.25 percent; a 6 percent telephone tax will be levied on out-of-state long-distance calls; and a 6 percent sales tax will be applied to liquor.
The sales- and income-tax increases are by far the biggest in terms of the money they’re expected to raise. Overall, individual income tax receipts make up roughly half of state revenue, and sales and use tax receipts make up about a quarter.
Both tax increases are set to expire in two years, although local governments will have the option then of adding a half-cent to their own, 2-percent levy.
One tax change – elimination of the $ 1,500 cap on the sales tax on cars – already took effect. Now, buyers of luxury cars must pay 3 percent of the full value of their vehicles.
But the change hasn’t affected sales, said Robert Glaser of the N.C. Automobile Dealers Association.
“Some of the dealers were impacted by the shortness of time between when Governor Easley signed the bill and when the sales tax increase went into effect,” Glaser said. “It didn’t give them time to update their systems.”
But despite a short drop in sales after Sept. 11 – short primarily because car makers quickly began offering 0 percent financing – dealers remain on target to post the third-best annual sales ever, he said.
As for concern that the tax increases will come back to haunt the General Assembly and Easley next fall, when all 170 legislative seats come up for election, it depends on whom you ask.
The same shoppers who said they don’t care about the tax hike said they do notice when candidates accuse their competitors of raising taxes.
But Gerlach countered that the consequences of not raising taxes would have been even greater. That’s true even if, as a result of the economic downturn, the tax increase doesn’t generate quite as much money as budget writers expected, he said.
“The question is what would happen without the revenue increase,” he said. “I think they would notice the absence of services that the increase will fund.”
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When tax changes occur:
2001
– The top state income tax bracket increases from 7.75 percent to 8.25 percent on taxable income exceeding $ 100,000 for married people filing separately, $ 120,000 for singles, $ 160,000 for heads of household or $ 200,000 for married couples filing jointly. The new marginal rate, which would apply to taxable income in excess of those amounts, would be in effect for tax years 2001 through 2003.
– The state income-tax credit for taxpayers who pay health insurance for dependent children, which ranges from $ 100 to $ 300, is repealed for tax years beginning Jan. 1, 2001.
– Oct. 1. The $ 1,500 limit on sales tax on cars is repealed.
– Today. The state’s sales tax is increased from 4 cents to 4.5 cents. This rate does not include the 2 percent sales tax levied by local governments. The new half-penny state tax is scheduled to expire July 1, 2003.
– Dec. 1. A new 6 percent sales tax on liquor is imposed. Under current law, mixed beverages are subject to sales tax, but liquor sold in state ABC stores is exempt.
2002
– The child tax credit will be increased from $ 60 to $ 75 per child for the 2002 tax year and to $ 100 for 2003.
– To eliminate the so-called marriage tax penalty, the standard deduction for married couples filing jointly will increase from $ 5,000 to $ 5,500 for tax year 2002 and to $ 6,000 for 2003.
– Jan. 1. A 5 percent state sales tax is imposed on satellite television services. Currently, cable TV subscribers pay local franchise taxes of as much as 5 percent.
– Jan. 1. A 6 percent sales tax is levied on local phone service, as well as on in-state and out-of-state long-distance calls. Currently, there is no state tax on out-of-state long-distance calls.
– Feb. 1. The excise tax on liquor is scheduled to be reduced from 28 percent to 25 percent.
– Aug. 3 and 4. The state will have its first sales tax holiday. During the holiday, the sales tax will be waived on purchases of items such as school supplies, computers and clothing. The exempt items include clothing and accessories with a sales price of $ 100 or less per item, footwear with a price of $ 100 or less per item, computers, printers and supplies with a price of $ 3,500 or less per item.
2003
– Jan. 1. A new 1 percent premiums tax will be levied on HMOs and Blue Cross and Blue Shield of North Carolina.
– July 1. Local governments get the authority to begin imposing an additional half-cent sales tax to coincide with expiration of the half-cent state sales tax that takes effect today.
(Source: N.C. General Assembly)
GRAPHIC: c graphic Sales tax revenue Woody Vondracek/Staff
