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Report: NC Sales Tax Needs Overhaul

September 28, 2012

RALEIGH, N. C. – There is talk in Raleigh, by Republican gubernatorial candidate Pat McCrory and others, of shifting away from the state's personal income tax system and increasing the sales tax. But a report released Thursday by the NC Budget and Tax Center says lawmakers should think twice about such proposals.

Center Director Alexandra Sirota says the state's current sales tax system is unfair to a majority of taxpayers and shouldn't be relied upon for revenue.

"While it might appear that everybody is paying the same amount, the reality is that low- and moderate-income families spend more of their income on items that the sales tax rate applies to."

McCrory argues that the income tax rates should be reduced to make North Carolina more competitive with neighboring states.

Sirota recommends applying the sales tax to services such as landscaping, tailoring and others that are currently not taxed, which would allow lawmakers to lower the sales tax a little more than one percent. She says eliminating the state's personal income tax would force North Carolina to put in place the highest sales tax in the country, at almost 14 percent.

"The sales tax really is a source of taxes that is outdated and unstable. Shifting to a reliance on that will create a whole host of problems."

According to the NC Budget and Tax Center, the state sales tax generated almost $6 billion in state revenue in 2011, but accounted for only 30 percent of state revenue.

The report is online at

Reporting for this story by North Carolina News Connection in association with Media in the Public Interest. Media in the Public Interest is funded in part by Z. Smith Reynolds Foundation.

Stephanie Carson/Stephanie Carroll Carson, Public News Service - NC