Mooresville briefed on new state tax law’s hit to local revenue; council urged caution in 2026 budgeting

Paige, a town presenter, told the Mooresville Town Council on June 1 that recent state legislation intended to deliver property-tax relief will reduce Mooresville’s net assessed value, change local income-tax distributions and push difficult budgeting choices onto the town in coming years.

The presentation said the state changes will phase out the current residential homestead standard deduction (about $48,000 in 2025) by 2031 while increasing supplemental homestead deductions so that, by 2031, roughly two-thirds (66.7%) of a residential homestead’s value could be deducted. New credits will also begin next year: a supplemental homestead credit (the lesser of $300 or 10% of the net tax bill), a $150 credit for taxpayers 65 and older and a separate disabled homeowner credit.

Why it matters: those reductions lower the town’s net assessed value and therefore curb growth in the property-tax base. Paige said lower assessed values typically push tax rates higher, and the town could face sharply different revenue mixes as older supplemental local income-tax distributions are discontinued and a new municipal local income tax (LIT) structure takes effect.

The presentation outlined several concrete effects and near-term deadlines. Mooresville currently receives three streams that together totaled about $4,138,000 in 2025 estimates (certified shares ~$2,640,000; public-safety LIT ~$879,000; LIT economic development ~$619,000). An early estimate — subject to updated Department of Revenue data and a Baker Tilly model still under development — puts municipal LIT receipts if Mooresville adopts the full 1.2% municipal services LIT at roughly $2.0 million (preliminary). Paige said the town should expect a reduction in distributions compared with current combined LIT buckets and that the town’s 2026 estimated shortfall from the state law (Senate Enrolled Act 1) is about $228,000 compared with what growth would have yielded without the law.

Paige warned that shifting current public-safety and economic-development expenditures from separate LIT funds into the general fund could create a structural mismatch. Using current receipts and early estimates, she said the town’s budget could grow toward roughly $8 million in 2027 while available general-fund revenue is projected nearer $7 million by 2028 — a potential $1 million to $2 million shortfall if no offsetting actions are taken.

Key points from the presentation (as stated by the presenter): - Business personal property under $2,000,000 would become non‑taxable by 2027, and the 30% floor on equipment depreciation for new property is removed, potentially reducing assessed value further. - The maximum levy growth quotient for 2026 is capped at 4% (a change from earlier proposals that would have set it to 0%), but future years revert to a formula tied to the six‑year average of nonfarm personal income unless the legislature acts again. - For levy growth in 2029 (budget year 2030), any levy growth will require an additional public hearing (two hearings prior to adoption). - The state creates a new municipal services LIT (maximum 1.2%), a county services LIT (maximum 1.2%), a fire protection/EMS LIT (maximum 0.4%) that counties must adopt and distribute to fire districts/municipal departments at the county’s discretion, and a non‑municipal LIT (maximum 0.2%) for townships, libraries and similar units. The law caps combined local income‑tax rates by residence at 2.9%. - Mooresville may adopt the 1.2% municipal services LIT beginning in 2027 (statute effective for adoption in 2027) and would start receiving proceeds in 2028 if adopted on the statutory timetable; the town must adopt by Oct. 1, 2027 to receive revenues in 2028, Paige said. - Wheel tax (vehicle-registration surtax) is separate: towns must submit adoption to the state by Sept. 1 to receive revenue the next calendar year. If Mooresville adopted the wheel tax at the maximum town rate ($25 per vehicle) and the county also adopted a wheel tax, plate fees would stack; the presenter estimated a town‑maximum wheel tax could generate about $771,000 and the minimum rate about $149,000 (town estimates). The town could shift roughly $700,000 currently raised by an MBH (motor‑vehicle/highway) levy into the general fund if it adopts the wheel tax and uses that revenue to replace the levy. - Community Crossings match for towns under 10,000 population will see the local match drop from 25% to 20%. The road‑rating threshold for moving a greater share of MVH to nonrestricted use was noted; presenter said the threshold and town’s rating will be confirmed and, if met, allow 60% nonrestricted/40% restricted use beginning in 2026. The statute also makes municipalities responsible for bridges under 20 feet within corporate limits that are not on the state highway system.

During Q&A council members asked about timing and next steps. Paige recommended caution in adding recurring costs in the 2026 budget because those costs would have to be sustained in 2028 and beyond if revenues decline as projected. She said the Department of Revenue has not yet provided adjusted gross income by municipality (AGI by municipality) and that the town’s estimate of municipal LIT receipts is therefore preliminary; Baker Tilly is building a detailed model to refine local impacts and expected losses and that work should be available by the end of the month.

Council discussion touched on alternative revenue options (wheel tax, food‑and‑beverage and other local surtaxes) and on outreach to the county council to coordinate any county wheel‑tax decision that would stack with a town wheel tax. Council members also noted potential disruption to township and volunteer fire funding, which under the new law will depend on county decisions about the distribution of the fire/EMS LIT.

Votes at a glance: Council approved a motion to adjourn at the end of the meeting; the motion passed unanimously.

What’s next: Staff advised the council to treat 2026 as a cautious year for recurring spending, to track the Baker Tilly revenue model when it is delivered, to monitor Department of Revenue AGI data releases, and to decide whether to submit a wheel‑tax adoption by the Sept. 1 deadline if the council wants that revenue source for 2026 receipts. Paige reiterated that because the municipal LIT statute does not take effect for adoption until 2027, the council cannot adopt that tax until after Jan. 1, 2027.