If She’s Got a Ticket To Ride, Should the Government Care? | Eastern North Carolina Now

    Publisher's note: The author of this post is Mitch Kokai, who is an associate editor for the Carolina Journal, John Hood Publisher.

    RALEIGH  -  It's doubtful that any of the participants in a recent legislative debate meant to offer a free advertisement for the John Locke Foundation's proposed Unlimited Savings Allowance, or USA, Consumption Tax.

    But this observer couldn't help but think of the benefits of the USA Tax as both Democratic and Republican lawmakers debated exemptions from North Carolina's extension of the state sales tax to ticketed entertainment.

    Ticket taxes took up just 45 minutes of a much longer discussion during the Oct. 8 meeting of North Carolina's Revenue Laws Study Committee. Lawmakers sifted through a number of cases involving confusion or disagreement about the way in which the state's 2013 tax reform package would affect future application of the state's sales tax.

    When it comes to entertainment tickets, the tax reform law consolidated three different types of taxation. Instead of charging a 3 percent gross-receipts tax on live entertainment, a 1 percent gross-receipts tax on movies, and no tax for admissions to cultural attractions, all of these types of "entertainment activity" will face state and local sales taxes starting Jan. 1.

    With some exceptions.

    First, there is no sales tax on "participatory sports." Golfers and bowlers won't have to worry about adding sales tax to their bills.

    Second, lawmakers preserved this year four of 14 exemptions that had been added to the sales tax rules over the years. Agricultural fairs, elementary and secondary school events, "youth athletic contests," and programs from nonprofit groups that conduct no more than two events per year  -  neither of which lasts more than a week at a time  -  all maintain tax exemptions.

    Confused yet? Just wait.

    It was actually a new fifth exemption that generated the bulk of the discussion at the Oct. 8 meeting. The tax reform law now exempts "state attractions" from the sales tax. Lawmakers haggled over the rules detailing which groups, programs, or locations ought to be dubbed state attractions.

    Rep. Becky Carney, D-Mecklenburg, wondered why the sales tax exemption should not apply to groups like Charlotte-area community theaters, the Blue Ridge Orchestra, or the Asheville Choral Society.

    "These groups often operate with volunteers and maybe a staff of one or two," Carney reminded her colleagues. "Was there consideration  -  or do we even think about  -  how they're actually going to afford to collect that sales tax starting this quickly in January? Is there a valid return for the state? Are they really going to be collecting that much?"

    A chief architect of state tax reform, Sen. Bob Rucho, R-Mecklenburg, didn't buy the notion that the sales tax extension would create hardships. "We treat everybody the same, so we can get some simplicity into the process and consistency," he said. "You think about it. If one of the groups has a performance, and they collect $1,000, it's not hard: $1,000 times 6.75 [percent], and that is what is submitted to the state."

    The discussion did not break down along predictably partisan lines. Sen. Floyd McKissick, D-Durham, told colleagues that his "thoughts are actually somewhat similar to Sen. Rucho's."

    "I think the more we can keep this kind of level playing field, the better in terms of simplification in application to all types of entities," McKissick added, noting that he might support carving out a "very, very narrow exemption" for smaller nonprofit groups. McKissick did not see the need to exempt nonprofit groups large enough to sell $80 tickets to as many as 2,000 people at one time.

    House Republican Leader Edgar Starnes, R-Catawba, questioned whether the new system creates a level playing field. "We want all these entities to be treated fairly and equally," he said. "If everybody is treated the same, then nobody has an argument. But I can't see that they're all being treated the same."

    Of particular concern to Starnes was a rule that appeared to grant a "state attraction" tax exemption to local grass-roots science programs like the Catawba Science Center, while granting no exemption for the N.C. Symphony.

    The rules also puzzled Rep. Tim Moffitt, R-Buncombe. "Apparently, exemptions equal confusion," Moffitt said. "I think the more we can move toward minimizing exemptions or eliminating them altogether, we'll certainly have more clarity and more fairness across the spectrum."

    Despite that statement, Moffitt followed up with a question for legislative staff about whether city-owned attractions that advertise to national audiences could be exempted as "state attractions."

    Rather than haggle over what is and isn't a "state attraction" deserving of a sales tax exemption, Sen. Dan Clodfelter, D-Mecklenburg, said that exemption ought to be repealed.

    "They compete for consumers' entertainment dollar with all sorts of other institutions as well," Clodfelter said. "The mere fact that they get state dollars I don't think should exempt them from the sales tax on the admissions charges. That would clarify the problem."

    What's clear from the lawmakers' discussion is the inherent difficulty of leaving decisions about the sales tax to the political process. Should the N.C. Symphony get a sales tax exemption? What about Charlotte-area community theaters? An Asheville city-owned theater that regularly draws attendees from Georgia, Tennessee, and South Carolina? And why aren't golfers and bowlers forced to add to the state's tax coffers?

    There's no way to answer those questions without expressing a political preference of one group over another. If you're inclined to grant an exemption for any of the groups listed above, you're still granting them a preference over private-sector movie theaters and music venues.

    That doesn't mean state legislators should avoid a discussion of taxing consumption. On the contrary, they ought to be commended for recognizing that it makes more sense for North Carolina to tax consumption rather than income. Taxing income means taxing income-generating activity, one of the key drivers for economic growth and new jobs in the state.

    It's important to remember that the sales tax extension under discussion Oct. 8 came about only because North Carolina's 2013 tax reform plan also featured the dramatic positive steps of lowering top marginal rates on personal and corporate incomes. From the perspective of economic growth, the shift away from reliance on income tax makes sense.

    But lawmakers run into trouble when they try to decide which types of consumption ought to be taxed. Food? Clothing? School supplies? Entertainment? Luxury goods?

    Rather than focusing a consumption tax on what is consumed, North Carolinians would be better off with a tax system that focuses on whether a person decides to consume at all.

    In other words, the ideal consumption tax would work like this: If a person decides to spend a dollar, that dollar will be taxed - whether it's for a theater ticket, bowling outing, pair of shoes, jar of peanut butter, or new car. Exemptions should ensure that people are not taxed on the amount of income needed to cover basic necessities. Beyond that provision, there would be no exemptions for consumers spending their money with particular businesses, nonprofit groups, or cultural attractions.

    Save or invest your dollar instead of spending it, and there will be no tax. The tax kicks in only when the dollar is spent.

    If that sounds much simpler and less open to political influence than the state's current tax system, then you might want to give the USA Consmption Tax another look.