Marketplace Fairness Act: What does it mean for us?

marketplace fairness

Ever since the Senate voted with overwhelming support for the Marketplace Fairness Act, it has been a hotly debated topic for businesses, governments and consumers alike. Better known as the “Internet Tax” bill, the MFA aims to “level the playing field” between Main Street businesses and online retailers by allowing states and local governments to collect sales and use taxes from online merchants beyond their borders.

There are always contentions whenever a bill is introduced and mentions the word “tax,” but what exactly does this mean for our local NC governments and economies?

Not a “New” tax…

The MFA does not introduce a new tax. For decades, due to the court ruling in Quill vs. North Dakota, online retailers have avoided collecting sales tax for different states due to the lack of a physical presence of a store or “nexus” within those states. While consumers are supposed to report any purchases for sales tax purposes, a negligible percentage of taxpayers are aware of that and even fewer do so. The MFA will require online retailers to collect sales tax for the states and local governments regardless of a physical presence in their jurisdictions.

How much more money?

There is no argument that the MFA would produce an additional stream of revenue for states, but the key question here is: how much more revenue?

The total amount of uncollected taxes for 2012 has been estimated anywhere between $11.4 billion to $23 billion by the bill’s supporters.

Opponents of the bill feel that those estimations are overstated. They estimate that only $3 to $5 billion in lost internet tax revenue would potentially be collected. While any additional amount would prove beneficial, a portion of a $3 to $5 billion dollar pie would have a far lesser impact than the more optimistic estimates of $23 billion. This additional source of revenue, they caution, would also come with detrimental economic costs for local small to medium businesses.

Economic costs?

There would be a cost of compliance on small e-commerce businesses from the bill. However, the bill does have built-in measures to lessen such costs:

  • Exclusion of small businesses with gross revenues under one million dollars
  • Free tax software to help businesses deal with the 9600 tax jurisdictions nationwide
  • Simplification and streamlining of state tax policies

Nevertheless, opponents still argue that the model “mom and pop” business has evolved along with the drastic change in consumer habits. The MFA would in effect, discourage current brick and mortar businesses from participating in online commerce to avoid compliance costs. It would also discourage the growth of online businesses that approach the million dollar revenue threshold. If they pass the million dollar threshold, they risk expensive compliance costs that may affect their profitability.

Furthermore, they argue that the retail industry has a notoriously low profit margin. Even the online retail behemoth, Amazon, only produces a 1% profit margin. Smaller online retailers with far fewer resources to absorb compliance costs could be “regulated out of business” argue opponents of the bill. This notion could be supported by the fact that Amazon and Walmart, indisputable leaders in retail, are ardent supporters of the bill as it would be more detrimental to smaller market contenders.

The Price of Fairness

There is little doubt that the collection of Internet sales taxes will be a boon to the state and local government budgets. The MFA would allow dated policies to adapt to the increasingly Internet-centered landscape of commerce. However, as with all major reforms and changes, it should be one that is approached cautiously, especially in a recession economy. Small to medium online businesses should be allowed to grow without being crippled by regulation while Main Street businesses should be given a fair chance to compete with them on price.

Getting Grants: Proposal Budgeting Tips

getting grants

Federal and private grants can represent a significant funding resource for local governments and municipalities. They can help fund exciting new projects and enrich communities without burdening already tight budgets. These grants, however, often go uncollected by the very communities that need them most.

Grant writing is a difficult process. For smaller local governments, there can be a lack of resources or information on how to successfully navigate it. Larger organizations spend sizable amounts of money on professional grant writers and proposal experts to capitalize on available grants. This option is not always feasible for local governments.

However, there are simple steps that local governments and municipalities of any size can take to ensure a better chance of grant funding. One of the most important parts of a grant proposal will be the associated proposal budget. The proper preparation of a budget for any proposed grant project can easily turn a “maybe” project into a “probably” project for the grant maker.

Here are some important tips for persuasive budgeting:

Be specific: Guidelines may vary from grant to grant, but being specific with budget items and presenting calculations in worksheets for listed dollar figures will keep things transparent.  Grant makers, like citizens, love transparency.

Stay inside the lines: It is imperative to not stray from the provided guidelines for any grant.  Keeping budget allocations, such as the overhead and fringe benefits, within the acceptable range will save time on unnecessary revisions and increase receptiveness from grant makers.

Estimate Accurately: Don’t be too liberal or conservative with your estimates on project costs. The project must be able to operate under the proposed budget without necessitating additional funds from the donor. However, overestimating costs can reflect poorly on your budgeting ability and hurt reception of any future proposal budgets. There is no need to be perfect, but be consistent and reasonable in judging costs.

Have a Narrative: Budget narratives are useful in explaining listed items. Once again, it is best to be transparent by explaining why and how a particular dollar amount is being applied.  Depending on how unusual the item is, the budget narrative can be included in a footer-style or in a more extensive straight text explanation.

The grant proposal process is a daunting one that may deter many local governments and municipalities from getting access to available funds. However, with some attentive budgeting, the process can easily become a more plausible, less painful resource for bettering your community.

NonProfits Take Heat for NC Property Tax Exemptions

nps taking heat

Last month we examined the growing popularity of PILOTs across the U.S. Since that blog post, a firestorm has erupted over a recent investigative series sponsored by the News & Observer.

Reporters from the N&O examined the total value of charity care provided by some of NC’s top nonprofit hospitals, as well as how much each entity received in sales and NC property tax breaks and found that it’s debatable as to whether some of these entities are earning their nonprofit status.

The fault appears to lie in the loose regulations surrounding and defining charity care. NC nonprofit hospitals are allowed a tremendous amount of leeway in the amount of charity care they choose to provide.

The N&O sites figures such as Duke Medical Center’s seemingly paltry 3.3% budget allotment for charity care compared with Thomasville Medical Center’s more generous 13%.

As mentioned in last month’s article, this is a touchy issue on both sides of the equation.

Hospitals fired back, stating that the figures reported as Charity Care are lower than actual contributions. Bad debt, differences between Medicare reimbursement and actual provider costs, and the treatment of the uninsured, they say, is often absorbed by the hospital, though it isn’t specifically defined as charity care. They also argue that other factors such as staff time and effort spent training and volunteering at community health clinics are not factored in.

The debate is likely to remain a heated one and one that could quite easily turn into more scrutiny of nonprofit hospitals and the NC property tax breaks they receive.

Tell Us What You Think!
Is your county considering a PILOT program? Do you think it should?

Source: http://www.newsobserver.com/2012/04/23/2018195/north-carolinas-hospitals-get.html

 

Could PILOTs be a Golden Goose for NC Property Tax?

PILOTs

North Carolina property tax collections account for the lion’s share of each county’s total revenue, but when cash-strapped counties face a budget shortfall, raising rates is not a popular option. That leaves many local governments seeking new revenue opportunities.

PILOT (payment-in-lieu of taxes) programs are one such strategy that is gaining popularity among local governments.

Under a PILOT program, a local government could seek a payment in lieu of North Carolina property tax from entities such as hospitals and universities, which are exempt from property tax collections. The logic is that these entities occupy property that would otherwise generate revenue for the municipality.

These programs can be particularly beneficial to counties where there is a large concentration of organizations exempt from North Carolina property tax. For example, half of all NC charities are located in just eight of the 100 counties. In Charlotte alone 4% of the total property value is owned by non-profits.

While municipalities in some states collect windfall amounts from PILOTs, the decision to launch your own shouldn’t be made without serious consideration.

First, consider who you should target for the PILOT program. Some municipalities target individual exempt organizations, while others call on all exempt entities of a particular type, such as all hospitals or all universities.

The deciding factor should generally relate to how much property is consumed by the organizations and how that will translate into actual North Carolina property tax revenue. For municipalities with few tax exempt organizations within their borders, the effort to collect a PILOT may not be worth the revenue received.

Second, consider the impact on the community. On the plus side, collecting PILOTs from entities exempt from North Carolina property tax laws means that the burden on individual tax payers will be lessened.

On the flip side, many of these exempt organizations argue that the services that they provide will be cut if they must pay North Carolina property tax, therefore putting the burden for providing those services back on local governments.

Finally, consider your approach. Some non-profits agree to PILOTs because they, too, have an interest in the services tax revenue provides. In many other cases, the non-profits only agree upon the threat of some other pressure.

An example of the first scenario played out between Providence, Rhode Island and Johnson and Wales University, where Johnson and Wales agreed to provide a $6.4 million PILOT upfront, with the promise of an additional $5 million over the next 5 years after the mayor called upon the seven largest exempt entities to help the struggling city.

An example of the second scenario played out in Philadelphia in 1994 when, then Mayor, Ed Rendell created a Voluntary Contribution Program. There wasn’t much interest in the program until he threatened to pursue a mandatory PILOT. After that, collections poured in in the amount of $27.3 million in volunteer services and $28.7 million in cash. But, after the court struck down the legality of a mandatory PILOT, the voluntary contributions dried up.

With the financial picture still uncertain, both nationwide and locally, PILOTs may continue to grow in popularity and become an acceptable method of supplementing North Carolina property tax revenue.

Recessionary Clouds Lifting for NC Local Government

recessionary clouds

NC local government continues to struggle under the weight of the economic downturn. However, some counties and municipalities are beginning to at least see the light at the end of the tunnel.

Like most Americans, NC counties and municipalities have had to take a hard look at their budgets. NC local government entities have been dealt a double blow by reduced revenue from taxes and reduced funding for many social service programs from the state.

It now looks like most NC Local Government entities have weathered the worst of the storm through a combination of budget cuts and increased revenue streams.

Cuts to the budget have been found by:

  • Closing or reducing the hours and/or staff in public libraries;
  • Instituting local government hiring freezes or eliminating vacant positions;
  • Freezing annual wage increases for county employees;
  • Delaying infrastructure improvements;
  • Cutting back on services.

On the flip side, many counties have supplemented their budgets by:

  • Enhancing property tax collection rates with new software;
  • Dipping into their local government fund balances from previous years;
  • Charging fees for services that were formerly free (such as fire service);
  • Raising the property tax rate.

Some local government entities are now looking to the future and preparing to take advantage of new revenue opportunities in the technology and energy sector.  For example, New Hanover County recently became the first in the nation to launch Super Wi-Fi, an innovation that will not only help to save taxpayers money, but make the area attractive to more businesses and even residents.

Meanwhile, Henderson County is looking towards the possibility of solar farms that could bring a new industry to the area and with it a larger tax base.

According to the NCACC’s 2011-12 Tax Rate Survey, it appears that most NC local government entities are using a combination of new revenue opportunities and trimmed budgets (and not tax rate increases) as they look toward the fiscal future for their counties and municipalities.