The North Carolina General Assembly may have done businesses in North Carolina a favor when it removed from local governments the authority to levy business-license fees beginning with the 2015-2016 fiscal year, which begins July 1.

On May 29, 2014, the Legislature passed, and Gov. Pat McCrory signed, a law that affected business (or privilege) license taxes in North Carolina.

While the law will save businesses money, it does away with a revenue source for local governments, including the City of Washington.

As the city staff and the Washington City Council work on the city’s 2015-2016 fiscal year budget, they face a particular challenge — find a revenue source or sources to replace revenue that in past fiscal years has been generated by city-issued business licenses.

The new privilege license legislation mandated that only businesses physically located within a city or county were subject to the tax for the current 2014-2015 tax year. The legislation also repealed the authority of a city and county to levy future privilege license taxes beginning with the 2015-2016 tax year. As a result, this is the last fiscal year the privilege license tax will be levied, however, the tax collector remains empowered to collect delinquent taxes and audit prior year taxes beyond the next year.

During a recent City Council meeting, City Manager Brian Alligood said it would take an increase of 1.5 cents on the city’s property-tax rate to replace the revenue the city would lose when it no longer can impose business-license fees. Currently, the city’s property-tax rate is 50 cents per $100 valuation. A penny on the tax rate generates about $83,000 in revenue for the city, according to Matt Rauschenbach, the city’s assistant city manager and chief financial office.

The business-license fees used to bring in about $200,000 in revenue each year for the city, Rauschenbach noted. The amount fell to about $120,000 a few years ago after the city modified its fee schedule for business licenses, he said.

The city took in about $123,000 in such revenue during the 2013-2014 fiscal year, he noted.

During that recent meeting when the council was discussing setting goals for the city manager, council member William Pitt said one of the manager’s top goals should be finding a revenue source to replace the revenue generated by the business-license fees charged by the city. “We need a plan to fill in the lost revenue from the privilege-license tax if we don’t have one currently in place. That is something that will be coming to us before July of 2015 — to replace the dollar amounts we’re not going to have available to us because of the privilege-license tax being done away,” Pitt said.