The Equity of Local Sales Tax Distributions in Urban, Suburban, Rural, and Tourism Rich Counties in North Carolina

Abstract

The use of local options sales taxes (LOSTs) is creating largely unexplored equity concerns with regard to the revenue raising capabilities of different local governments. This article focuses on differences among urban, suburban, and rural counties; the impact of proximity to urban (or retail) centers; and the impact of LOST decisions on tourism rich counties, a new category of local governments. Using data from 2003 to 2009 on all 100 North Carolina counties and a spatial Durbin error panel model, I identify factors relating to LOST revenue raising capacity (RRC). The results indicate that tourism rich counties have the greatest LOST capacity, suburban counties have the least, and there is a penalty for bordering an urban county. However, statistically significant differences in the RRC of the four types of counties disappear once property taxes are included in the mix.