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Posted on August 4, 2016 at 2:15 PM by Paige Worsham
again local governments saw strong sales tax collections in May,
gleaning $247.8 million. This is essentially flat compared to April
collections, with an overall decline of less than $2.0 million. Year
over year, that is an increase of $28.92 million. While substantial,
that is less than the $44.59 million year over year increase we enjoyed
In the short term, it appears that sales tax revenues will remain
relatively strong. This strength will come from the continuing impact of
the recent and ongoing base expansion and steady economic growth.
For us, the largest areas of employment growth have continued to be
“business and professional services,” “trade, transportation and
utilities,” and “construction” (although we are below the national
growth rate in construction employment). Most of these industry sectors
tend to be strongest in our more urban areas. With the decline in oil
prices, domestic production has slumped more than 16.1% since the
beginning of 2015. While North Carolina is still experiencing some
growth in this industry, it is depressed compared to expectations.
This slow but steady growth is also reflected in the rolling national
Gross Domestic Product or GDP. Each week the Richmond Federal Reserve
prepares a rolling national Gross Domestic Product (GDP) growth
estimate. Throughout the month of June, that estimate hovered at 2.7% for
the quarter. Even after the Brexit vote on June 24th, that number only
dropped to 2.6%. Suggesting, at least at this point, that the vote is
not expected to make a tremendous change in the value of our nation’s
goods and services.
All of these factors contribute to slow but steady economic growth,
which will support sales taxes statewide. Although the greatest increase
will continue to be in more urban communities.
Beyond the immediate and near term, however, the future becomes less clear.
In previous writings we have mentioned the uncertainty surrounding
the US election, which has caused some overall softening in the economy. This
is normal and not unexpected in open, Presidential election years.
However, Britain’s vote on June 24 to exit the European Union will have
long lasting and unknown impacts on the global and national economies.
Most commentators agree that the financial sector is the most likely
to see the greatest impact, at least for some time. Current stock market
activity for two of the state’s top five employers, Wells Fargo and
Bank of America, suggest this is true.
The change could also impact North Carolina in terms of exports.
According to the US Census Bureau, the United Kingdom is our state’s
7th largest trade partner for North Carolina exports.
In 2015 the United Kingdom received more than $1.0 billion in North
Other Sales Tax Changes
The budget passed by the General Assembly this week makes a
number of changes to the sales tax statutes that will impact county
revenues. Most of the changes are expected to increase sales tax revenues, although
areas with particular industries may see less of an expansion than other
counties on their point-of-sale revenues.
The bill expands the types of retailers that must levy the recently
enacted sales tax on repair, maintenance and installation services.
Previously some retailers who provided those services were excluded in a
legislative attempt to limit a substantial expansion of the number of
business that would have to register for a sales tax number. However,
during the interim, the Revenue Laws Study Committee heard from several
businesses who felt this was unfair, as businesses providing similar
services were not being taxed similarly. The Fiscal Research Division estimates this
change will net $22.4 million for the state, and a proportionate amount
for local governments. This portion of the legislation has a January 2017
The legislation also repeals the sales tax on automotive service
contracts and limits the tax on the repair and maintenance of airplanes
Finally, legislators eliminated the $17.6 million State contribution
to the local sales tax distribution. The commitment to provide this
funding was included as a part of last year’s sales tax redistribution
agreement, and was designed to hold all counties harmless for the first
year of the new plan.