RESPONSES TO CITIZEN COMMENTS
At the Public Forum
March 28, 2001
Speaker – Pam Alexander
Comments: Ms. Alexander was concerned that only a portion of her insulation business revenues came from Chapel Hill and did not feel that it was appropriate that she should be charged gross receipts on all her business. Because some businesses fell under Schedule B and others did not, the system is inherently uneven. Further she was uncertain how her business would be charged and referenced the following code sections: 10-5.4, 10-1A.2.5, 10-1A.3.5, and 10.1A.2.1.
Response: Since Ms. Alexander’s business is not located in Chapel Hill she would not be subject to gross receipts tax whether the Town adopted it or not. She is correct is her explanation that because of the way the State law is written, some businesses have been given exemptions or reduced maximum charges. Because her business is in building trades, she could be required to pay a $10 fee for doing business in Chapel Hill.
Speaker – Mark Ponds
Comments: Mr. Ponds was concerned that the Town might be creating an atmosphere unfavorable to business if it established a gross receipts tax, because many large businesses had lobbied the State to get special, low Schedule B rates, leaving primarily “Mom and Pop” businesses as potentially subject to gross receipts.
Response: Mr. Ponds is correct in his assertion that certain business types are exempt from privilege licenses or subject to very low maximums based upon the way the State drafted the regulations. Gross receipts do not only affect “Mom and Pop” businesses, but the pattern of those potentially affected by gross receipts is a result of the State’s decisions to permit taxation of various businesses in different ways.
Speaker – Charlie Nelson
Comments: Mr. Nelson acknowledged that a fair increase to the privilege license tax is due and would be acceptable. He was concerned about the undue burden caused by requiring businesses to prepare accounting reports under a gross receipts tax option. Mr. Nelson asserted that this burden would be particularly heavy on businesses with multiple locations in the area, some of which may be located outside Chapel Hill and not subject to a Chapel Hill tax. Mr. Nelson was additionally concerned that the Town’s fiscal year (July 1 – June 30), for which the Town would be generating a gross receipts tax, does not coincide with the calendar and tax year (January 1 – December 31) that most businesses use as an accounting year. Mr. Nelson acknowledged the Manager and Finance Director’s assertion that a maximum should be implemented under a gross receipts tax and mentioned maximums of several cities, ranging from $450 to $1,200. He suggested that a flat tax be instituted for each business location.
Response: Businesses with multiple locations usually maintain some record of gross receipts by each individual location, although this would not be a part of the business; state tax forms. The gross receipt proposal was written with the difference between the fiscal year and tax year in mind. The gross receipts proposal states that the sales used to generate the gross receipts tax assessment would be based on the sales tax data from the most recent tax year, eliminating the need for a business to determine sales based on the Town’s fiscal year.
Speaker – Alan Cohen
Comments: Mr. Cohen related the hardships (high rent, lack of parking, development fees) involved in owning a small business in Chapel Hill. He said that a gross receipts tax would be an additional burden to small businesses in Chapel Hill and would be a deterrent for new businesses considering locating in the town. Mr. Cohen asserted that businesses have varying profit margins and that a gross receipts tax would be inequitable for businesses with a low profit margin.
Response: The gross receipts proposals were designed with equity for small business in mind. Very small businesses would pay less, while large businesses would carry most of the privilege license tax burden. Mr. Cohen is correct that a gross receipts tax does not take into account profit margin; however, the Town does not have the power to institute an income tax under North Carolina General Statute.
Speaker – Nina Ligh
Comments: Ms. Ligh, a licensed massage therapist related that the state licensing board told here she had to pay Chapel Hill a $50 privilege license fee, while massage therapists have historically been charged a $10 fee in Chapel Hill. There is some confusion on the part of the state Licensing Board. Ms. Ligh clarified that a privilege license fee is a tax, not a fee, if based on income. She said that the fee/tax distinction should be clarified in the ordinance. She also recommended that the privilege license tax be a simple flat fee of $25-$50.
Response: In the updated Schedule B privilege license provisions of North Carolina General Statutes, licensed massage therapists are considered medical professionals and will be exempt in the new fiscal year.
Speaker – Aaron Nelson
Comments: Mr. Nelson, the new Executive Director of the Chapel Hill-Carrboro Chamber of Commerce, related concerns over the sliding scale of a gross receipts tax. He said that a gross receipts tax misses the objective to a tax bigger businesses more, if that is the objective. He said that large chain stores would not pay gross receipts under the Chain Store section of Schedule B privilege license limitations mandated by the State. Mr. Nelson asserted that the certification of businesses’ gross receipts would prove difficult for the Town. He questioned the Town’s enforcement ability in collecting the privilege license tax for businesses do business Chapel Hill, but which are located outside the town. He related the difficulty in determining the correct category for each business. Mr. Nelson related no objection to an increase in a flat miscellaneous fee from 10 to $50.
Response: The Institute of Government has advised Staff that the chain store provision of the State’s Schedule B does not preclude chain stores from being taxed under gross receipts. Chain stores would not have a taxation advantage over small businesses.
Speaker – Nelda Lay
Comments: Ms. Lay asserted that the sliding scale involved a gross receipts tax is not fair. She related her hope that the Town would not create a new tax and felt that an increase in a flat privilege license tax is reasonable.
Response: The Council will take Ms. Lay’s recommendation under consideration.
Speaker – Briggs Wesche
Comments; Ms. Wesche asserted that a privilege license tax on gross receipts is unfair. She related that a gross receipts tax incorrectly equates profits with gross receipts. Ms. Wesche suggested that a gross receipts tax could potentially be larger than a state or federal income tax in some situations. She expressed concern over the burdens placed on business in reporting gross receipts and asserted the need for a cap for a gross receipts tax. Ms. Wesche asserted the difficulty of determining a privilege license tax when a business performs multiple functions, Schedule B limiting some and a gross receipts tax being applied to others. She expressed concern about the accounting burden for businesses having to split sales for different aspects of a business.
Response: The Manager previously expressed the need for a cap for any gross receipts tax. The Town recognizes the problem of one business performing multiple functions and would produce a privilege license application making instructions under this situation as clear as possible.
Speaker – Jarod Resneck
Comments: Mr. Resneck was concerned about the affect a gross receipts tax would have on the Town’s ability to attract new businesses. He said that an increase in the privilege license tax to $50 -$200 is reasonable. Mr. Redneck asserted that the Town has an enforcement problem, in that many local businesses do not apply for a privilege license and pay the applicable fee.
Response: Every North Carolina tow of equal or greater size research by staff has some form of a gross receipts tax. For this reason, a gross receipts tax, alone, would probably not affect a business’s decision to locate in Chapel Hill. Staff is currently performing a privilege license compliance check to pinpoint businesses not paying the required privilege license tax.
Speaker – Joseph Mack
Comments: Mr. Mack expressed confusion as to whether a privilege license is a fee or a tax and questioned what services he receives for payment of a privilege license fee.
Response: The privilege license is a tax, but it has been historically referred to as a business license fee, resulting in some confusion.
Speaker – Robert Humphries
Comments: Mr. Humphries asserted that a gross receipts tax, coupled with possible elimination of dumpster garbage pick-up by the Town, would be too large a burden on small business. He suggested that the Chapel Hill Town Council would have to consider affordable business options in the future, in addition to affordable housing, if this track is pursue. Mr. Humphries suggested that a flat fee increase is reasonable and should be instituted incrementally; being raised to $25 on year and $50 the next.
Response: The Council will take Mr. Humpries’ concerns under consideration.