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In the 1920s and 30s, North Carolina modernized its tax system
to meet the needs of a changing economy.
North Carolina's budget — like most states' — depended heavily
on a statewide property tax.
In 1921, the state's economy was booming, generating demands
for improved roads, schools, and other infrastructure.
As property valuations went up, the property tax became unpopular.
Led by Governor Cameron Morrison, North Carolina became
one of the first ten states in the nation to adopt a personal
and corporate income tax, ending its reliance on the property tax.
The state assumed responsibility from the counties for building
and maintaining major roads. To help pay for it, a penny-per-gallon
fuel tax was levied. These new taxes also paid for reforms
in the elementary and secondary education system.
The minimum school year increased from four to six months,
and spending was increased significantly on all levels of education.
In the wake of the Great Depression, revenues plummeted,
along with commodity prices and factory production.
This crisis allowed North Carolina to complete
the modernization of its tax system.
Governor O. Max Gardner and the legislature assumed control
over county roads, prisons, and public schools,
providing tax and spending relief at the local level.
State agencies consolidated to save money.
The state reduced its workforce, cut employee salaries,
suspended road work, and slashed other forms of spending.
Such efforts were not equal to the severity of the crisis.
More revenue was needed to avoid default and to institute
the popular idea of extending the mandatory school term
to eight months.
In the face of strong lobbying for and against,
North Carolina joined a dozen other states in 1933 to adopt
one of the first sales taxes in the nation.
North Carolina and its leaders demonstrated an important trait
in any economic climate: a willingness to change with the times.