AGENDA #5e

 

MEMORANDUM

 

TO:                  Mayor and Town Council

                       

FROM:            W. Calvin Horton, Town Manager

                        Ralph D. Karpinos, Town Attorney

 

SUBJECT:       Local Electric Utility Tax

 

DATE:             September 23, 2002

 

The purpose of this memorandum is to provide further information regarding the issue of a possible local utility franchise tax. 

 

The following documents are attached:

 

  1. A previous report on this subject, dated August 26, 2002.
  2. A newspaper article from September 17, 2002, reporting on a lawsuit filed by some North Carolina Counties and Municipalities.
  3. A copy of House Bill 1490, which has been ratified and has been sent to the Governor for signature.
  4. An e-mail message received September 19, 2002, from Ellis Hankins, Executive Director of the N.C. League of Municipalities.

 

DISCUSSION

 

  1. Payment Received from State:

 

As we recently reported to you, during the week of September 16 the Town did receive from the State Department of Revenue the most recent quarterly distribution of utility tax revenue.  This payment represents the fourth quarterly payment for Fiscal Year 2001-02.  Thus, of the payments the Town was expecting to receive for that fiscal year, we have now received the first and fourth quarterly payments.  The second and third payments were withheld by the State. The first payment for Fiscal Year 2002-03 is due in December.

 

  1. House Bill 1490

 

House Bill 1490, entitled “An Act to Provide that Local Revenues May Not Be Withheld or Impounded by the Governor and to Clarify the Franchise Tax on Electric Power Companies” was ratified September 12, 2002, and has been sent to the Governor.  (Please see the attached message from Ellis Hankins.)

 

House Bill 1490 has two key provisions relevant to the merits of considering a local tax on electric companies. 

 

First, the bill contains language expressly stating the General Assembly’s intent that the utility tax revenues are local revenues and not a State expenditure for purposes of the Constitution.  Therefore, the Governor may not withhold the distribution, according to the legislation.  Elsewhere, this language is qualified by a provision that would allow such distributions to be withheld after “all other sources of revenue of the State, including surplus remaining in the treasury at the beginning of the fiscal year” have been exhausted.

 

Second, and perhaps most importantly, under a separate section of the Bill, if an electric company has collected  and paid to the State a utility tax, it is not subject to any additional such tax imposed by any city or county.  Thus, if enacted, the Bill would effectively invalidate those local utility franchise tax ordinances that have been recently enacted across the State, as well as possibly end the litigation that electric utility companies have initiated against some localities. 

 

CONCLUSION

 

            In light of the information discussed above and the comments in the attached message from the League of Municipalities, we recommend that no action be taken at this time to join in the pending litigation or to enact a local tax on Duke Power. 

 

We will continue to provide you updates and provide further advice and comments as events warrant. 

 

ATTACHMENTS

 

  1. August 26, 2002 Memorandum to Town Council (p. 3).
  2. September 17, 2002 News and Observer article (p.18).
  3. House Bill 1490 (p. 21).
  4. Ellis Hankins e-mail (p. 25).