Half-cent sales tax to hit county Dec. 1

CHAPEL HILL – Calling it the “pass-the-buck” sales tax, county officials have agreed to start collecting a new half-cent sales tax starting the first of December.

On Dec. 1, the overall sales tax rate in Orange County and counties across the state will go to 7 cents on the dollar, but it may drop back to 6.5 cents in July, when another half-cent tax is set to expire. That tax generates money strictly for the state.

The new half-cent tax, which will be on purchased items except for unprepared food, could generate about $ 1.8 million for Orange County in the seven months between Dec. 1 and the end of the fiscal year, according to projections from the N.C. Association of County Commissioners.

In addition, the projected revenues for the towns over the seven months include about $ 781,000 for Chapel Hill, $ 261,000 for Carrboro and $ 85,000 for Hillsborough.

The half-cent sales tax comes in the context of the state’s budget crisis and its impact on local governments.

With the state moving to hold back reimbursements and other revenues due to the cities and counties, the General Assembly authorized the local governments to enact a new half-cent sales tax, starting in July 2003. And the Legislature agreed last month to move up the date to December.

The Orange commissioners and others have complained that state officials are forcing the local governments to enact a new tax, rather than doing so at the state level – hence the “pass the buck” description. But the commissioners unanimously agreed this week to enact the half-cent tax, saying they didn’t see other options for recouping money the local governments no longer will get from the state.

In the current fiscal year, Orange would have expected about $ 3.1 million in reimbursements from the state. If the new half-cent tax does generate about $ 1.8 million between December and July 2003, then the county still will be out $ 1.3 million.

Starting with the 2003-04 fiscal year, the tax likely will bring in more money for Orange than the county once received through reimbursements.

“Over the course of three-plus years, we will probably recover what we lost,” Commissioners Chairman Barry Jacobs said Friday. “We just won’t get it all back at once.

“It’s money due to the citizens of Orange County, and we were given one tool to recover it,” he said.

“Thank goodness we didn’t sign a no-tax increase pledge,” Jacobs said, referring to a pledge circulated by the Citizens for a Sound Economy. “The citizens of Orange County would be stuck. That’s the kind of irresponsible decision-making that’s gotten the state in the mess it’s in. I certainly don’t think raising taxes is always a good answer, but there are times when you are forced to make a decision you don’t want to make.”

The numbers look better in the current fiscal year for the towns of Chapel Hill and Carrboro, but not for Hillsborough.

For Chapel Hill, the projected revenue of $ 781,000 from the half-cent tax between December and July is about $ 51,000 more than the town would have expected this year in reimbursements. For Carrboro, the projected $ 261,000 is about $ 10,000 more than the expected reimbursements.

But Hillsborough will get about $ 30,000 less from the sales tax this fiscal year than it would have from reimbursements and other state revenues, if the $ 85,000 projection holds true.

Town Manager Eric Peterson said Friday it’s a good-news-bad-news situation.

“It depends on how you look at it,” Peterson said. “We’ll end up losing another $ 30,000 in addition to what we lost last year.”

In the 2001-02 fiscal year, the state withheld roughly $ 250,000 from Hillsborough in various revenues, primarily from franchise taxes.

But in the budget the Town Board adopted for 2002-03, the town took a conservative approach and didn’t count on any of the state revenues. The fact that the town will get approximately $ 85,000 will be a big help, Peterson said.

“From a long-term standpoint, I think the half-cent sales tax is a win-win situation for the state and local governments,” he said. “They get to keep the reimbursement monies, and we end up getting a revenue source that isn’t subject to withholding by the state, which has made it very difficult for local governments to budget.

“Another advantage will be that the sales tax, in most places, will have a growth factor to it. In the long-term, it’s a good solution.”