Weiss: Support remains for tax structure reform

The Tax and Finance Steering Committee met May 20 and heard a bleak budget report from Rep. Jennifer Weiss (Wake County), one of the chairs of the House Finance Committee. Rep. Weiss told committee members that personal income tax revenues were coming in below target and that the state had a revenue shortfall of around $800 million for 2010-11. She added that the state's debt capacity is almost non-existent. In response to a question, Rep. Weiss did say that she did not believe there would be any "major impacts on counties" from anything coming out of the revenue laws study committee.

When asked about the state's ongoing attempt to modernize the state revenue structure, Weiss reported that several committees had examined in recent years extending the sales tax to include various services.

"We got a tremendous amount of pushback," she said. "Anytime you talk about extending the sales tax to services, every business e-mails you."

Rep. Weiss said that many legislators are still in favor of reforming the current structure, but that it would be a "deliberate" process.

David Baker, director of the N.C. Department of Revenue's Property Tax Division, addressed the upcoming delay on the combined registration/property tax system for motor vehicles that was supposed to go into effect July 1, 2011. Legislation will be introduced during the short session, probably in a technical corrections bill, to push the implementation deadline back to July 1, 2013, or as soon as the system is operational.

"It became a reality that this was not going to be ready by July of next year," Johnston County Tax Administrator Pat Goddard told committee members. "There were lots of very difficult challenges to be overcome."

According to Baker, counties have been working on this issue since the 1970s. He said he believes the system will eventually come to fruition, but that stakeholders had decided that another delay was needed to address various concerns, including an issue with the Division of Motor Vehicles. DMV is likely to within a few years need an entirely new computer system that will feature a different operating system.

"I was asked by (Department of Revenue Secretary) Kenneth Lay if what we are doing is the best solution," Baker said. "And no, it's not. But it is probably the best one given the politics involved."

Baker said the department had put out an RFP for an IT consultant to review the current system and decide on how best to design the new system. The contract will be awarded by July 13. The vendor will then have three to four months to conduct the analysis and submit recommendations. Baker said he felt work on the project would resume in early 2011, after the consultant's report had been submitted and reviewed.

"With something like this, you get one shot at it," he said. "It's got to be done right."

Goddard and Henderson County Tax Administrator Stan Duncan provided the perspective of county tax administrators about potential issues that could arise during the 2010 short session. Of particular interest was S1325 (Homebuilder Property Tax Deferral Change), which would expand a tax deferral program for homebuilders that was passed during the 2009 long session.

According to Baker, the new bill addresses the concerns of homebuilders about the implementation of the deferral program. The new bill allows for the deferral to be granted in instances where the homebuilder is part of a larger group that also owns the property. Currently, a builder can only qualify for the deferral if he/she is also listed as the only owner of the property. Goddard and Duncan did not express concerns about the impact on counties if this extension is granted.

Goddard and Duncan relayed a couple of ideas the tax administrators would like to see the Association consider as it develops its 2011-12 legislative goals package: establish a hard deadline date for late applications for various exemptions, deferrals or other tax relief programs; and increase the January interest rate for unpaid property taxes to 5 percent, similar to the system that is now used for motor vehicles.

Goddard pointed out that when the interest rate increased from 2 percent to 5 percent for the first month for late motor vehicle property taxes, citizens voiced very few complaints. The additional 3 percent interest is being used to fund the technology upgrades needed to implement the combined registration-property tax system and has so far generated about $26 million, Baker said.

New Hanover County Vice Chairman Jonathan Barfield thanked committee members for the presentation at the February committee meeting on successful sales tax referendums. Barfield noted that New Hanover voters approved the quarter-cent sales tax option on May 6, and said he used a lot of the information he heard during the presentation to help educate the voters in his county about the need for the local-option revenue.

– Todd McGee