Study: Sales tax won’t meet North Carolina’s transportation funding needs

Study: Sales tax won’t meet North Carolina’s transportation funding needs

Land-based taxes and fees are a better alternative, says a new report from NC Justice Center's Budget & Tax Center

With increased demand for transportation services during a time of diminished state budget coffers, local governments will likely need to significantly boost their own transportation budgets — but those governments should avoid sales taxes in favor of more stable, progressive revenue tools, says a new report.

"North Carolina needs better public transportation services and a steady revenue stream for other transportation improvements," said Steve Jackson, a public policy analyst with the NC Justice Center's Budget & Tax Center who authored the report. "Property taxation is less regressive than sales taxation, the revenue stream less volatile, and the tax obligation more evenly spread throughout the community."
Local responsibility in contributing to transportation infrastructure will only grow in importance. Compared to other states, North Carolina's local governments make only minor contributions to the construction and upkeep of roads. North Carolina's state government is responsible for maintaining a greater share of lane miles that any other U.S. state, and for more total lane miles than any state except Texas.

Besides this, intensifying calls for more public transportation will necessitate greater local contributions. Currently, federal rules require that 50 percent of the funding for public transportation projects be local in origin. 

Some have called for sales tax funds to be earmarked for transportation expenditures. This, says Jackson, is not the answer.

"The sales tax is a consumer tax on goods," said Jackson. "As such, the revenue is volatile and difficult to predict. When the economy slows, North Carolina can wind up missing its budgetary targets by significant amounts. We saw this during 2007-8, when the state saw sales tax revenue come in $76 million below projections."

Land-based taxes and fees, such as the property tax, are a better option. While the sales tax focuses on individuals, property taxes also include the business beneficiaries of transportation improvements.

While the property tax is the most important and viable revenue tool, Jackson said, reforms are needed to give local governments a more diverse menu of revenue sources.  New local transportation impact fees based on traffic counts would augment local tax revenue while ensuring that the funding responsibilities are shared more fairly.

The report is available online at: https://www.ncjustice.org/assets/library/1392_btcrpttrans4mar09.pdf