07Tax image 3North Carolina has a lower-than-average state sales tax rate of 4.75 percent, but actual combined sales tax rates are higher than average when local sales taxes from the state’s 322 local jurisdictions are taken into account. Cumberland County’s combined rate is 7 percent, which is a higher tax rate than 56 percent of North Carolina localities. Taxable sales in Cumberland County for fiscal year 2017 totaled approximately $4 billion, which represented a 5 percent increase over fiscal year 2016. 

The way sales tax receipts are distributed among local governments has been a contentious issue the last year and a half. State law says county governments choose how to divide the money based either on property taxes or population. An interlocal agreement between Cumberland County and the municipalities dates to 2003 and states sales tax receipts would be shared based on population. 

In 2005, Fayetteville annexed 42,000 county residents and 27 square miles of land, provoking the county board of commissioners to consider changing the way sales tax revenues are divided between the county, the city and towns. The county would get more money under the property tax formula and less under the population method, while the city and towns would get less with property taxes and more with population. 

The various jurisdictions eventually agreed to keep dividing the money based on population, with the city of Fayetteville reimbursing the other towns one-half of the additional sales tax revenue they get from annexed areas. Mayor Mitch Colvin has noted that most of the retail sale of goods and services take place in Fayetteville. 

The 2003 contract, which has been amended a couple of times, expires the end of June 2019, and leaders have tried to reconcile their differences since early 2017. “This has been a lingering issue,” Colvin said during a recent city council committee meeting. 

City Manager Doug Hewett came up with a proposal to renew the arrangement for 10 years. “The county wants certainty and a long-term agreement,” he said. The committee of five council members agreed to it. 

Beginning in year two, reimbursements made by the city to the smaller towns would be gradually reduced and would end in year six. Reimbursements to county government would continue as currently calculated over the first five years, after which repayments to the county would be capped at the dollar amount paid in year five. 

Fayetteville City Council and the Cumberland County Board of Commissioners each have internal subcommittees studying probable solutions to the sales tax allocation. They haven’t met publicly as a combined group in more than a year. 

Tax revenue reimbursements of $86 million have been made by the city to the county and small towns since 2004. 

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