North Carolina's state House and Senate Finance Committees are taking a careful look at overhauling the state's sales tax code. Lawmakers face a conundrum, because the income tax rate in North Carolina is relatively high, and the sales tax is already at 7.75 percent in most counties, but the state still is not earning enough tax revenue to pay for basic services. So legislators are considering broadening the sales tax base by taxing services -- such as self storage -- that previously were not subject to taxation. Expert witnesses testifying before the finance committees told legislators that North Carolina currently taxes less than one quarter of the services that could be taxed.
Jack Betts, of the Charlotte Observer, summarized legislators' concerns in a nutshell when he wrote: "Almost every state commission that has studied the sales tax has concluded that if the state were to broaden the sales tax base to include more services, it could also pare the rate substantially -- perhaps trim other tax rates, too."
According to the North Carolina Self Storage Association, the tax reform being considered by the NC legislature would place a four percent sales tax on self storage. Legislators argue that self storage owners will not be harmed by the tax, because people will be paying less in sales tax on other products and services. But the North Carolina Self Storage Association disagrees. Its owners and operators are fighting the new tax, arguing that the occupancy rates in North Carolina self storage units have been falling because of the recession, and that the sales tax would cause rates to fall even further. The NCSSA further argues that other sectors of the real estate market would not be subject to a sales tax. For example, rented apartments, offices, and houses are not taxed. They also point out that self storage tenants tend to have lower than average household incomes (less than $30,000 per year), and that many self storage tenants are single heads of households (they are widowed or divorced) -- so of all North Carolina households, they feel their tenants are the least able to bear the burden of a new tax.
In addition, the NCSSA argues, 90 percent of self storage operators are small business owners. The new tax reform legislation, if passed, will place the burden on small business owners to collect and pay a new tax to the state, one that will require them to raise their rates and to explain to tenants that rates are being raised. The tax legislation will also immediately reduce the value of self storage facilities by imposing an additional expense -- which will make it harder to sell self service businesses in North Carolina.
If you are interested in learning more about the NCSSA's attempt to fight North Carolina's proposed tax reform legislation, visit the NCSSA website to find a copy of the proposal, sales tax talking points, a sales tax fact sheet, and emails that can be copied and sent to legislators.