Lawmakers say tax changes are fair; Clayton disagrees

ndunn@newsobserver.comMay 30, 2014 

Since 2010, KV Internet Cafe at 11651 U.S. Business 70 in Clayton has paid the town more than $40,000 in privilege-license fees.

NASH DUNN — ndunn@newsobserver.com

  • By the numbers

    Here’s are Clayton’s privilege license tax collections for recent years.

    2012-13: $124,372

    2011-12: $105,122

    2010-11: $101,310

    2009-10: $32,061

    2008-09: $43,214

    Source: Town of Clayton end of year financial statements

A bill signed into law on Thursday will cost Clayton thousands of dollars by ending the town’s power to levy a special tax on businesses.

While Republican lawmakers say the change will ease the financial burden on business owners, town leaders argue that the state shouldn’t tamper with local finances.

Like most towns, Clayton has long made business owners obtain a privilege license each year to operate in town. Receipts from the fee, which ranges from $2.50 for barber shops to $2,500 for sweepstakes parlors, totaled $124,372 in fiscal 2012-13, or about 0.7 percent of all town revenue. The money goes into the town’s general fund, where it helps pay for such services as police and fire protection.

The new, wide-ranging law repeals the tax, starting July 1, 2015.

The change doesn’t sit well with Clayton Mayor Jody McLeod, who owns a flower shop in town.

“They are taking away our power, plus telling us how to do our money,” said McLeod, who also serves on the board of the N.C. League of Municipalities.

A House version of the so-called omnibus tax bill would have capped the privilege-license fee at $100. But the Senate introduced a measure this week eliminating the tax altogether, and the two chambers agreed to that plan. Gov. Pat McCrory quickly signed the tax changes into law on Thursday.

N.C. Rep. Leo Daughtry, a Johnston County Republican who supported the $100 cap, said the proposed change would have created a standard fee. “This was a way to equalize it,” the Smithfield attorney said of the $100 cap. “It will hurt some towns, but it won’t be extreme.”

A legislative analysis found that the $100 cap would have cost Clayton about $13,721 annually. The town was the only one in Johnston County projected to lose money, while other towns, like Selma, would have profited by up to $40,000.

In the end, Daughtry voted for repeal.

Sen. Brent Jackson, a Sampson County Republican, said the provisions were directed at larger cities, which lean on the privilege tax so heavily that they create a sour business climate. On Wednesday, the senator said he supported change but was not sure about the push to nix the tax altogether.

“Many of our smaller municipalities have not abused this authority and have benefited greatly from having it as an additional revenue stream,” Jackson said.

However, a legislative tally shows Jackson also voted for repeal.

Clayton Town Manager Steve Biggs said any cuts to the town’s revenue stream would be problematic.

“During the recession, we cut to the bone and cannot absorb any loss of revenue,” Biggs said. “We would have to look at other fees or taxes to make up the loss.” Without more study, Biggs said, it would be hard to say which fees or taxes Clayton would need to consider.

“A more diverse revenue stream is more equitable and hardy,” he said.

Sweepstakes issue

In the past four years, Clayton’s yearly revenue from privilege licenses has increased from about $32,000 to $124,000, or 287 percent. Much of that increase flowed from the town’s largest privilege-license taxpayer – sweepstakes parlors.

The town started charging the electronic gaming businesses in 2010 and currently levies a $2,500 base fee, plus $350 per gaming device. In fiscal 2012-13, Clayton collected $90,100 from sweepstakes parlor, or about 72 percent of all privilege-license fees taken in that year.

But future revenue from sweepstakes parlors was uncertain anyway, as authorities appear ready to enforce a ban on the businesses that state lawmakers approved four years ago. That ban, upheld by the N.C. Supreme Court, outlawed sweepstakes games with entertaining displays.

However, towns including Clayton have continued to collect taxes, as many sweepstakes parlors have remained open, arguing that they have tweaked their gaming software to comply with N.C. law.

Most police departments and sheriff’s offices have been hesitant to enforce the ban, deferring to N.C. Alcohol Law Enforcement agents. The ALE shuttered at least two Internet cafes in Johnston County in early May.

At least three sweepstakes parlors are still operating in Clayton, and the town is still collecting their privilege-license taxes, including $45,100 this fiscal year, according to town data.

“It’s not up to the town to decide whether these are legal or not,” said Stacy Beard, the town’s public information officer. “We will continue to collect the privilege license taxes from them until they are not businesses.”

Dunn: 919-553-7234, Ext. 104

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