The N.C. Senate is expected to vote today on its version of House Bill 998, a bill that could possess negative traits for residents of Kinston.
On Thursday, the N.C. Senate approved HB 998 — also known as the Tax Simplification and Reduction Act — after a 30-17 vote. According to a statement by the General Assembly in the bill, North Carolina’s current tax structure hadn’t been completely revised since the Great Depression — although there have been amendments throughout the years — and no longer reflected the 21st century economy of the state.
The main purpose of the bill is to establish a flat tax, lower personal income taxes and phase out the corporate income tax in the state. The personal income tax rate would decrease from 6-7.75 percent, depending on income to 5.25 percent within the next two years, along with creating a zero tax bracket for the first $15,000 of income for married couples filing under joint status. Corporate income taxes will also be phased out by Jan. 1, 2017, according to the language of the bill.
Based on the Senate version of the budget however, the city of Kinston is projected to lose about $393,000 in the 2014-15 fiscal year. Kinston will also lose $725,000 the following year and a combined $1.84 million over the next three.
As a result, the tax rate is projected to increase by 3.99 percent, including a 6.1-percent rise in tax bills to property owners. Kinston Mayor B.J. Murphy said there wouldn’t be any discussion about raised rates until the city receives its budget, but he expressed his feelings about the deficiency of funds.
“This is a significant loss of revenue in addition to our rural center and hope harmless funds being eliminated,” he said. “It’s going to be crippling to municipalities.”
On Monday, Murphy released a statement reiterating his dislike of the bill because of the possible conflict between cities and counties.
“The state of North Carolina cannot expect municipalities to lose considerable funding by being stripped of funding mechanisms that are now being given to counties without having a significant impact on property taxes within city limits,” Murphy stated. “Just because counties can implement those funding mechanisms, it doesn’t correlate to cities being reimbursed for significant losses of revenue which just begs for a contentious feud between cities and counties across our state. It’s an unnecessary feud.”
Murphy also said that no member of the N.C. Senate called the city of Kinston to discuss the impact of the budget. City Manager Tony Sears — who is also against the bill — said there was nothing the local government could do about the projected hikes in taxes.
“This legislation made it known that cities are creatures of the state and they can do whatever they want to us,” Sears said. “They’re forcing local government to raise taxes and by the time we can review the bill, it’s going to be too late.”
The budget for the 2013-14 fiscal year won’t be altered because it has been passed already, but upcoming years will provide more of a financial strain for the city.
“We had to make cuts to stabilize the budget for this year and now we have to deal with this,” Sears said. “When you add that to health care, fuel costs, inflation and external pressures, it’s going to be very difficult for next year.”
With Kinston about to lose almost $2.96 million in revenue over the next five years, the grim reality of additional taxes could happen as soon as next year.
“We can’t rob Peter, give Paul the money and realistically expect for Paul to give the money back or for Peter not to raise taxes on everything that’s left,” Murphy said.
Junious Smith III can be reached at 252-559-1077 and at Junious.Smith@Kinston.com. Follow him on Twitter at @JuniousSmithIII.
Breakout box:
What HB 998 will do:
n Lowers personal income tax rate from 6-7.75 percent (depending on income) to 5.25 percent within next two years
n Creates a zero tax bracket for first $15,000 of income for married couples filing under joint status
n Phases out corporate income taxes by 2017 and franchise taxes by 2018
n Initiates a new business privilege tax with flat tax amount of $400 in 2015, $600 in 2016 and $750 afterwards for all limited liability entities, except C corporations
Sources: ncleg.net and lexology.com