RALEIGH - The state Senate voted 37-9 to cut Fayetteville's tax revenue by more than $1 million per year starting July 1, 2015.

The legislation offers no replacement for the revenue, which comes from the privilege license taxes charged to most businesses. The city would have to resort to a property tax increase to make up the difference, said Mayor Nat Robertson. That upsets him.

"What the Senate is doing in this vote passing the burden onto the taxpayer, onto the local resident," Robertson said.

The cut looms as the City Council already is considering a property tax increase to hire more police officers. It is part of 54-page omnibus tax reform bill that would make many changes to state tax laws.

If the privilege license tax were to end, a person with a home valued at $150,000 would have to pay $12 more per year if the city were to raise property taxes to replace that revenue.

Fayetteville collects roughly $1.1million a year in privilege license fees. Statewide, legislative officials estimate that North Carolina cities and towns collect more $62 million annually with these taxes.

The fees vary widely within a community and from town to town. This variance is a source of complaint. In debates, critics have said a grocery store in one city may pay $50 while one in another city pays hundreds or thousands of dollars annually.

In Fayetteville, some small businesses pay as little as $10 per year, while large businesses may pay hundreds or thousands of dollars, depending on their revenue.

Robertson said he thinks that policy is fair because larger businesses put more demand on city services. But critics, including some legislators, think cities are misusing the business license taxes. The privilege licenses, they say, were intended to serve as a tracking tool to help local government staff and elected officials see what kinds of businesses operate in their communities.

"If there is a loss in revenue, you have another choice besides raising taxes," said Sen. Tommy Tucker, a Union County Republican. "You could reduce your budget accordingly, or not offer incentives for hotels or whatever else they do in Durham or any other city around the state: That they could reduce the size of their budget and still be able to operate."

Democratic Sen. Joel Ford of Charlotte offered an amendment that would create a three-tiered taxing scheme based on a company's number of employees to offset the losses to the cities. Charlotte stands to lose $17million with the repeal. This was rejected by the Senate.

Republican Sen. Bill Rabon of Brunswick County said Ford's amendment had good ideas, but it had not been properly reviewed by interested parties. He said it could be considered again.

Republican state Sen. Wesley Meredith of Fayetteville, who is a former Fayetteville city councilman, and Democratic Sen. Ben Clark of Hoke and Cumberland counties both voted for the tax bill.

Meredith said he has been told that Fayetteville will more than make up for the lost privilege license taxes because it is getting new taxes from piped gas and utility franchise taxes under the revised tax code that the legislature approved last year.

"I want to hold the towns and cities harmless. I want it to be a revenue-neutral swap. That's my goal," Meredith said.

Clark said he voted for the tax bill to protect the cities in fiscal 2015, which begins July 1. The legislature last year accidentally deleted the privilege tax from state law, and cities would have to stop collecting it starting July 1. The omnibus bill puts the tax back on the books for one year, which Clark supports.

Clark predicted that in the next year, the legislature will find an alternative. It could be similar to Ford's idea, and he has heard there are other ideas, "some sort of variation that takes into consideration that all businesses are not equal, but also reining in the cities somewhat so they don't abuse the system" with wildly disparate rates, he said.


Republicans defeated an amendment that Clark offered to link the excise tax to the concentration of nicotine in the cartridges. The excise tax would be higher and at times closely resemble the 45-cent tax on a pack of tobacco cigarettes.


The measure could receive a final Senate vote today. The House will have to accept the Senate changes or enter negotiations to find a compromise.

The Associated Press contributed to this report.

Staff writer Paul Woolverton can be reached at woolvertonp@fayobserver.com, 919-828-7641 or 486-3512.