In my last blog post, I wrote about the difference it makes to local governments as to whether local sales and use tax revenues are allocated based on a point-of-sale basis or per capita basis. You may remember that I wrote about the difference between a “pure” point-of-sale basis allocation and a “pure” per capita allocation. I also gave a lot of caveats about things that weren’t included in my original analysis (i.e. the fact that some taxes are already allocated based on a per capita basis, the additional adjustment made to those per capita allocations, and the fact that the sales and use taxes on food are allocated separately). In this post I want to add some of that complexity back in. (To be completely accurate, I should write, “I want to account for some of that additional complexity.” I’d have to be a true sadist to want to add complexity to the tax code.)
First, let me remind you of some of the complexities that were put aside in the last post.
- Sales and use taxes on food are separated out from the general allocation of sales and use tax proceeds. Half of the net proceeds of local sales and use taxes collected on food are allocated to counties based on a per capita basis, subject to the adjustment discussed in 3 below. The remaining half of the net proceeds of local sales and use taxes collected on food are allocated to counties proportionally to each county based upon the amount of sales and use taxes collected on food under Article 39 of Chapter 105 of the General Statutes in the county (or Chapter 1096 of the 1967 Session Laws, in the case of Mecklenburg County) in the 1997-98 fiscal year relative to the total amount collected in all taxing counties that year. Confused yet? Essentially half of the proceeds of the local sales and use taxes on food are allocated based on a per capita basis, subject to an adjustment, and half are allocated based on the 1997-98 point-of-sale allocation.
- Local sales and use taxes collected under the first 1% local levy are allocated on a point-of-sale basis. Local sales and use taxes collected under the next 0.5% local levy are allocated based on per capita basis, subject to the adjustment discussed in 3 below. Any additional local sales and use taxes collected are allocated on a point-of-sale basis.
- Local sales and use taxes allocated on a per capita basis are subject to an adjustment. The adjustment was put in place in 1987 in order to address some issues that arose when there was a change to how sales were sourced. Although the manner in which sales were sourced was later changed, the adjustment remained in place.
Unfortunately, some of the complexities remain. First, my analysis in this post uses data from the Statistical Abstract of North Carolina Taxes 2012 published by the North Carolina Department of Revenue. These numbers look at the allocations of local sales and use taxes from State fiscal year 2011-12. So the numbers are a little (but only a little) out of date. Second, in order to compare apples to apples, the remainder of this post will only consider the impact of changing the current allocation of the local sales and use taxes collected under the first 2% local levy. I do this primarily because of the ease in working with the readily available data. Thus, the analysis does not address taxes levied under Article 43 (0.25% to 0.5% for public transportation, allocated to counties on a point-of-sale basis) or Article 46 (0.25% for general purposes, allocated to counties on a point-of-sale basis). The main reasons for omitting taxes levied under these Articles is that relatively few counties levy under these Articles (three counties under Article 43 and 27 counties under Article 46 currently) and some additional counties have begun levying taxes under each of these Articles since the 2011-12 fiscal year. Omitting taxes levied under these Articles from the analysis tends to understate the impact of converting from the current allocation system to a “pure” per capita system. Thus, the analysis here gets a closer to the true impact, but still doesn’t get you all the way there.
Once you account for these layers of complexity, a slightly different picture begins to emerge. Again, a majority of counties would benefit from moving to a “pure” per capita allocation from the hybrid allocation that is currently in place. However, the variations are less dramatic. In all, 76 counties would have received a greater allocation of local sales and use tax revenues in 2011-12 under a pure per capita allocation than they did under the existing allocation. Of those 76 counties, 47 would have seen their allocation increase by at least 25%. Under this analysis, Gates County remains the biggest winner, seeing its allocation increase by 118%. (This is notably less than the nearly five-fold difference between a “pure” per capita allocation and a “pure” point-of-sale distribution discussed in the last post.) Of the 24 counties that would have seen a lower allocation, only 4 would have seen the amount decrease by greater than 25%. Dare County remains the county with the most to lose. It would have seen its allocation decline by almost 66%.
