by Julie Tisdale
City & County Policy Analyst
At last count, 12 North Carolina counties will include an increase in the local sales tax on their May ballots. In all 12 of those counties, it’s a bad idea. As I wrote last week,
[Empirical research suggests that] when there’s a difference in tax rates, the area with the lower rate sees a bump in sales, while the area with the higher rate sees a drop. That seems intuitive enough. They also found that proximity plays a role. That also makes sense. After all, if I can drive two miles down the road and pay less tax, then I will. If I am required to drive 50 miles to realize tax savings, the costs (in terms of time, fuel, etc.) likely exceed the benefits.
I concluded, “There’s a very real possibility that, rather than helping the local government’s balance sheet, they’ll actually end up hurting the local economy by reducing business activity and ultimately lowering employment.”
So, which counties will ask taxpayers to vote for a quarter-cent sales tax increase?
Bertie County commissioners have put this on the ballot in May and November 2014. It failed both times. Most of Bertie County’s neighbors have already imposed similar sales tax increases, which means that Bertie is a relatively low-tax county in the area. If voters approve this proposed increase, the county’s businesses may lose that advantage.
Clay County has put sales tax referenda on the ballot twice before, in 2010 and 2016, and it failed both times. Clay County is bordered by two counties, one with a higher tax rate and one with an identical rate. It’s also bordered by Georgia, which has a slightly higher sales tax rate than North Carolina. Clay County should be careful about giving up its low tax advantage.
Gaston County previously proposed a sales tax increase in 2008. It was defeated. A decade later, none of the counties that border Gaston has increased their sales tax, suggesting that, if passed, this increase would make consumer goods cost a bit more in Gaston County than across the border. That may harm local businesses.
Jones County voters rejected sales tax increase proposals in 2008 and 2016, and voters will see it on the ballot again this year. Jones County businesses currently enjoy the benefits of having a lower sales tax rate than most of its neighbors. That’s an advantage that a sales tax increase may wipe out.
Lenoir County voters also previously rejected a proposed increased sales tax twice, in 2007 and 2012. Lenoir County commissioners say that they want to use this revenue to compensate for lost property taxes related to last year’s property revaluation. But with local property owners already seeing a drop in the value of their largest asset, trimming spending would be a better approach than hitting their customers with an additional tax burden.
Lincoln County commissioners put a proposed sales tax increase on the ballot in 2008, and voters rejected it. Most of Lincoln County’s neighbors have not increased sales taxes, so this increase, if passed, would make Lincoln County a more expensive place to shop and do business compared to many of its neighbors. That may hurt local businesses and consumers.
This increase was rejected by Pasquotank County voters in 2012 and 2016. If it passes, Pasquotank will have a higher sales tax than its neighboring counties in the far northeastern region of the state. That may put Pasquotank retailers at a significant disadvantage.
Person County voters rejected a proposed sales tax increase in 2008 and 2010. Unlike most counties, which would use the funds for public schools, Person would like to use the additional revenue to fund volunteer fire departments. While fire departments are clearly important, Person County is bordered by Virginia, which has a lower state sales tax than North Carolina. Half of its neighbors have resisted increasing the sales tax. Person should keep that rate low to remain as competitive as possible.
This will be the fourth time Rockingham County has put this measure on the ballot. Voters wisely rejected it in 2008, 2014, and 2016. None of Rockingham County’s neighbors have the higher sales tax rate. It can only hurt local businesses to make Rockingham the county with the highest taxes in the region.
Rutherford County attempted to pass a sales tax increase in 2007 and 2016, and it failed both times. Five of Rutherford’s neighboring counties have resisted calls to increase sales taxes. So, if it passes, Rutherford County would become a less competitive and more expensive place to do business.
This measure failed in Washington County in 2016, and it’s on the ballot again. Washington is mostly bordered by counties that have not introduced a higher sales tax rate, so this may hurt local competitiveness and, ultimately, the local economy.
The majority of voters in Watauga County voted against this increase in 2010. Two of Watauga’s four neighboring counties have a higher sales tax rate, and two have a lower rate. Watauga County voters would do well to keep their rate competitive relative to its neighbors.