Town of Boone Files Lawsuit Against Watauga County Over Sales Tax Distribution

Published Friday, February 21, 2020 at 5:29 pm

On Thursday, February 20, 2020, the Town of Boone filed legal action in Watauga County Superior Court in an effort to stop Watauga County from continuing to utilize a sales tax distribution scheme that is not allowed under state law. Multiple requests by the Town of Boone to the Watauga County Commission to return to a more equitable basis for dividing sales tax receipts have resulted in no changes by Watauga County. Due to this refusal, the Boone Town Council has authorized the town attorney, Allison Meade, to proceed with legal action.

Without specific permission from the North Carolina General Assembly, North Carolina law prescribes only two ways that sales taxes can be divided, and county commissions are given the authority to choose between these on an annual basis. The per capita distribution divides the sales tax based on the population of the county and its municipalities, which the ad valorem method divides it based on the taxed property values. In April of 2013, in a split vote of 3-2, the Watauga County Commission voted to change the sales tax distribution method from per capita to ad valorem. The commission chair at that time said that the change was motivated by the refusal of the Boone Town Council to repeal an ordinance intended to increase affordable housing in Boone.

This change resulted in a major decrease in sales tax revenue for the Town of Boone, where a majority of all sales taxes are collected in Watauga County. Historically, 60 to 70 percent of the sales tax collected yearly in Watauga County has been collected in the Town of Boone. However, under the current method of distribution, the Town of Boone only receives 12.29 percent of sales tax revenues. Even under the per capita method, the town received far less than it collected. Overall, the Town of Boone saw a decrease in collections of $3.7 million in 2013 and $2.1 million in 2014. Since the change, the Town of Boone has averaged $2.36 million less in sales tax revenue each year for a total loss in excess of $16 million to date.

The change from per capita to ad valorem method also resulted in a reduction in sales ta collection for Watauga County. However, the county commission at the time negotiated what the town asserts are illegal kickbacks from the smaller jurisdictions in Watauga County to return a portion of their sales tax revenue back to Watauga County so that the county itself would not lose money. This resulted in Watauga County being made whole and smaller resort communities where property values are extremely high enjoying a huge increase in their portion of the sales tax. Boone, where the majority of the sales tax is collected, was the only jurisdiction that realized a major reduction in revenue. The Town of Boone also had to make major budget cuts involving its operations and capital improvement projects and raised the tax rate by .04 cents in order to maintain services. These budget cuts and tax increase directly impacted Watauga County residents who reside in the county seat of Boone and other Watauga County residents who are part of our daytime population due to their employment, all of whom are reliant upon Town of Boone services and infrastructure. The town asserts that if the county had not received the illegal payments back from the other communities, it would never have made this change because it, too, would have lost substantial amounts of revenue.

The Town of Boone believes that a change back to sales tax distribution based on the per capita method is both warranted and just. Infrastructure supporting jobs and services supporting tourism drive the success of the local economy, which in turn results in increased sales tax collections. The town has made major commitments to enhance the viability of its commercial districts, and these investments continue to result in a vibrant community, which produces the sales tax revenue. The Town of Boone believes that it is only fair to distribute sales tax revenue based on where investments have been made to ensure that success.

It is time to move forward; it is time to level the playing field, and it is time to end retaliatory sales tax distribution methods that violate state law. The decision to file this legal action was not taken lightly and was determined to be the best alternative when all options were weighed. The Boone Town Council takes this matter seriously and will do what is right for the citizens of Boone. Our residents and our visitors deserve the safety and services everyone expects.

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