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North Carolina Movie Theatres: Ending Our Special Treatment is “Crippling Blow”

3 min readBy: Liz Malm

You wouldn't know it from the outrageous prices movie theatre charge for snacks and drinks, but apparently North Carolina theatre-owners are really concerned about how much patrons have to pay to enjoy a cinematic adventure. In a response to the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. legislation signed into law today by Governor Pat McCrory, the National Association of Theatre Owners of North and South Carolina (NATO) put out a press release stating that "movie theatres are being dealt a potentially crippling blow this week that will have moviegoers paying more at the box office and many theatres struggling to stay in business."

What's causing this "crippling blow?" Instead of paying the current 1 percent tax, movie theatres will now have to collect a 4.75 percent state tax on the sales of movie tickets.

I called a random Raleigh movie theater to inquire about their ticket prices in order to figure out just how much this supposed crippling blow would be. Here's what I found. A movie ticket (in the evening–not a matinee) will cost you $10. Since the current 1 percent tax is built into the price of the ticket, that implies a theatre cost of approximately $9.90 and a tax of $0.10.

Under the new law, the 1 percent privilege tax is repealed and the movie ticket sale will now be subject to the state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. of 4.75 percent. If we assume that this new sales tax is also fully passed on to the final consumer, the new ticket price will now be about $10.37 ($9.90 ticket price + $0.47 sales tax). That's a difference in ticket price for consumers of 37 cents.

There are two important points to make here. First, this change takes away an unjustifiable tax carve-out while simplifying the sales tax a bit. Sales of movie tickets and sales of DVDs are both sales, so why create two completely different tax systems instead of one? The purchase of movie tickets should be subject to the sales tax, and any excuse for excluding it from the sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. is indefensible. Just because it's the status quo, doesn't mean it's good policy.

Second, I find this more than a bit of theatrics (thank you) on the part of the theatre-owners. In their press release, they claim to worry about the prices their customers pay, which I find hard to believe based on their insane mark-ups on snacks and drinks. When I called that theatre in Raleigh to ask about ticket prices, I also asked how much they charge for certain snacks. A large popcorn runs $8, a large soda is $6.75, and a bottle of water is $5.75. It’s not just this Raleigh theatre: CNN Money reported in 2011 that "a medium bag of popcorn costs just 60 cents to make but retails for $6, a whopping 900% markup." ABC News put out a similar story in 2008: "the small bucket of popcorn you enjoy while you're watching will cost around $5.50–that's more per ounce than filet mignon" and reflects a markup of "a whopping 1,300 percent."

To be fair, there has been research arguing that movie theatre owners don't make much of a profit at all on actual ticket sales, since much of that goes back to production companies and overhead. Their mark up on concessions is how they make a profit.

But that doesn’t mean we should preserve an unjustified, complicated tax preference for them. Maybe there is someone out there who won’t buy a movie ticket because they now have to pay 37 cents more in sales tax, but we can’t forget that Tar Heel residents will now have a few more dollars in their pockets from the income tax cuts—likely enough to offset that 37 cents.

More on North Carolina here.