Adjusting the Sales Tax

There is a peculiar and rarely mentioned anomaly in how North Carolina has, for years, allocated sales taxes to different counties.

We have heard a lot (actually more than a lot) recently about the State Senate’s plan to change how the state allocates sales taxed between counties. In a nutshell, the Senate shifts sales tax revenue from twenty urban counties to rural counties. And we’ve had a long, acrimonious debate with almost everyone pounding the table demanding more money. But we’ve had almost no debate about the most fundamental question of all: What is fair?

Additionally, in the 16 pages of the Senate version of House Bill 117, there’s one change that hardly a soul has mentioned: The elimination of what’s called the “adjustment factor” – a key but little known part of the previous plan.

The adjustment factor worked like this: Let’s say that Alexander County sent $100 in sales tax collections to the state. The state then applied a 100% adjustment factor and returned $100 to Alexander County.

But with Catawba County, the state applied a different adjustment factor – 99%. So when Catawba sent $100 to the state it only received back $99. Less than it sent.

Applying the adjustment factor meant counties like Mecklenburg took a big hit – every time Mecklenburg sent $100 to the state it only got back $89. But other counties, like Dare, were well rewarded. Every time Dare County sent in $100 to the state it got back $149.

One would hope that, years ago, there was some rational theory at work when the state set those adjustment factors – but it may also be what was at work was politics. After all, the leader of the State Senate for years was Marc Basnight from Dare County.

Reforming an unfair tax system is inevitably a painful process. Every county, naturally, wants more money. And there are always winners and losers. But still, when you cut through the politics, the fundamental question is still: What’s fair? After that it’s simply a matter of legislators having the courage to follow an old adage: Doing the right thing is the right thing to do.

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