Understanding Local Government Taxes

Property Tax

Property tax is the largest revenue source for local government, generally amounting to approximately half of all revenues. The elected governing board sets the rate: Watauga County’s is 31.8 cents per $100 of property value. Property values are determined by periodic county-wide revaluations based upon local sales as required by NC law to be performed at least every 8 years. The revaluations are an attempt to align the property values with local market conditions.

Fire Taxes are a special type of property tax, included in the annual tax bill, used to support the Rural Volunteer Fire Departments. Rates are proposed by each fire district and approved by the County Commissioners. In Watauga County, the rates range from 5 cents to 8.5 cents per $100 of property value.

Sales Tax

Sales taxes are a significant revenue generator. The sales tax amount is set by the General Assembly, generally after a statewide referendum. Occasionally, the General Assembly grants authority to some or all local governments to increase sales tax for specific uses, generally after a local referendum. Sales tax proceeds are divided between state and local governments. See https://www.ncdor.gov for detailed information on sales taxes.

Occupancy Tax

Occupancy taxes are collected by operators of short-term rentals (<90 days) such as hotels, motels, and vacation rentals. Operators remit the funds to the local government in which they are located. Use of the funds is restricted by NC law to promoting tourism and constructing local infrastructure (sidewalks, greenways, river accesses, etc.) only. Most of the funds are required to be used for tourism promotion. Watauga County must spend 2/3 of the proceeds on advertising/marketing and 1/3 on infrastructure projects. So, for every $1,000,000 occupancy tax collected, approximately $660,000 would be spent on advertising and approximately $330,000 would be available for infrastructure projects. All 5 local governments in Watauga County have established a 6% occupancy tax rate, with the funds routed through Tourism Development Authorities (TDA) to be spent as prescribed by NC law.

Other miscellaneous taxes include: Franchise tax, excise stamps, ABC bottle tax, gross receipts taxes on vehicles and equipment purchases.

Fees, for solid waste, water, sewer, Parks and Recreation, Planning & Inspection, Fire Marshal, Register of Deeds, Court System, and others are paid by users of those services and collected by the departments that provide those services. Some examples are water and sewer bills, building permits, recreation center memberships and team fees, and deed recording fees. Solid waste, water, and sewer fees are deposited into “Enterprise Funds” with the goal of those services being funded entirely through fees with no support from property tax. The other mentioned services are funded with a combination of the fees and property tax.

Most of the preceding taxes and fees comprise the “general fund” from which the local governing board allocates funds for departments and services *. Property taxes and sales taxes are far and away the most significant revenue sources for local governments.

Emergency Telephone Surcharge (E911) is paid through telephone bills, collected by the State and distributed to local governments that operate Public Safety Answering Points (PSAPs). Those funds may only be used to support PSAP operation, including purchase of the necessary dispatching equipment.

Public Schools

The State provides most of the operating funds for public schools, while Counties are statutorily responsible for the construction and maintenance of public school facilities, though the amount is typically determined by the joint elected boards (Board of Commissioners and Board of Education). Counties often offer supplemental pay for teachers and other school expenses such as technology. The Federal Government provides funding as well, and typically it is restricted for the use of certain programs and activities. Funds have been decreasing. NC ranks among the lowest in state funding among all states for public school funding.

Roads and Highways

North Carolina Roads are primarily funded through a combination of state and federal gas taxes, vehicle registration fees, a highway use tax on vehicle sales, and a percentage of the sales tax. Gas taxes are continually decreasing due to increased vehicle fuel efficiency and increased use of hybrid and all-electric vehicles.

Municipal Roads: Cities and Towns construct, own, and maintain roads within their municipal limits that are not US or NC Highways/roads. Funds from the NC Highway Trust Fund, known as “Powell Bill”, are distributed to municipalities to augment local funds needed for that function. NC counties do not construct, own, or maintain roads.

Federal and State allocations and grants assist with funding a variety of local government services, primarily Social Services, Court System, Cooperative Extension Service, and Appalcart (public transportation).

NC Corporate Tax Rate is currently 2% (lowest state rate in the US), scheduled to be eliminated by 2030. The theory for having a low corporate tax rate is that it induces business and industry to a location.

Budget Reserves: Local governments are required to and prudently must maintain reserves, aka “rainy day fund”, to cover unexpected expenses, emergencies/natural disasters, and up-front costs for projects for which reimbursement from the federal or state governments are expected.

Watauga County Services

The four municipalities in Watauga County fund fire protection, police, planning & inspections, and public works and a variety of other locally desired services. The following services are provided or funded in part by Watauga County: