Taxes should be fair, simple; privilege license tax wasn't

Appeared in the Charlotte Observer on June 4, 2014

From Rep. David Lewis, R-Harnett, who is in his sixth term as a member of the N.C. House. He is the House Finance Committee chairman.

Imagine being asked to open a grocery store in an economically distressed area of Raleigh, making the investment to serve the underserved area, being cheered by Raleigh news outlets and the people for bringing much needed goods to a struggling area and then finding out an unfair, arbitrarily applied tax threatened your ability to operate the store. With the opening of your business – in this case a low margin grocery store in an underserved area – you notice that you have to pay a percentage of your gross receipts for the privilege of doing business in Raleigh.

Meaning, a difficult year might mean paying thousands of dollars in taxes after little profit was made. You realize these taxes are a disincentive to do business in the new area, because other high-margin businesses like law offices are exempt from the same tax that is perhaps crippling your business.

This is the story of Mack McLamb, owner and operator of 15 Carlie C’s IGA, a local grocery store in Dunn, N.C. Mack has several stores in Harnett County where the fees assessed for the privilege to do business are minimal and relatively consistent. Seeing an opportunity, he decided to build a store that would serve an impoverished area in Raleigh. Come to find out, Mack was assessed a tax in excess of $6,000 from the city of Raleigh just for the privilege to do business – a fee that was calculated from the total cost to do business, not just on revenue made.

All businesses pay property taxes and fees to the cities for the services they receive. This is consistent with the conservative principle that taxes should be assessed to as broad a base as possible and at the lowest possible rate. Keenly aware of the responsibilities cities and towns face, the General Assembly broadened the sales tax base which produces more revenue for nearly every municipality – a reality rarely reported surrounding the debate on the privilege license tax.

Just the other day, Dan Clodfelter, a Democrat and mayor of Charlotte said, “the tax is archaic and difficult to administer fairly.” He went on to say he would not support the repeal or alteration of the privilege license tax without “providing a comparable substitute.” Current legislation passed will hold cities harmless for one year while they have time to adjust their revenue and budgeting procedures. Critics of changes in the privilege license tax typically use inflated numbers because they do not include the expanded revenue they will receive from the broadening sales tax base in House Bill 998.

Taxes should be fair and simple. Policies that are crafted with these principles in mind will strengthen our economy and create an environment for growth. The privilege license tax should be a fair and flat tax policy for each business it affects. It’s people like Mr. McLamb who bring to light the inequities in our current tax system, and bring to light the unfortunate consequences of doing nothing.

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