North Carolina Basic Business Taxes 2011
North Carolina's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include income taxes, sales and use taxes, and an inventory tax exemption.
A credit against the income tax and franchise tax is available for 12 specified industries, including manufacturing and processing; warehousing and distribution; data-processing industries; and air courier services. If a company meets the eligibility requirements and applicable thresholds, the company may earn a credit for each new job created and for additional investment in business property placed in service. The company will take the credits beginning in the year after the jobs are created or the property is placed in service and are taken in four equal installments. The amount of credit for each job or for the investment in business property and the applicable thresholds is determined by the tier the company resides in. Generally, there is a five year carry-forward of each installment.
If a corporation does business in North Carolina and in one or more other states, North Carolina taxes a fraction of its income based on the amount of sales, payroll, and property it has within the state. In calculating the fraction, the amount of sales counts twice as much as the amount of payroll or property. Income tax credits are also available for performing research and development, constructing or installing solar equipment, constructing a cogenerating power plant, or utilizing the Wilmington or Morehead City ports.
Corporations subject to corporate income tax must pay an income tax surcharge of 3 percent on its North Carolina income tax due before deducting any tax credits or payments.
Sales and use tax:
The tax is 5.75 percent on most tangible property; exclusions include certain food items (subject to a two percent local rate), motor vehicles, prescription, and medical supplies sold on prescription. All 100 counties levy a two percent local tax (14 counties levy an additional 0.25 percent tax and Mecklenburg County levies an additional 0.5 tax) for a combined sales tax of 7.75 percent (eight percent in the fourteen counties and 8.25 percent in Mecklenburg County). Municipalities do not levy additional taxes; refunds are available for specified capital investments in certain industries.
North Carolina has a state sales tax of 5.75 percent and a local sales tax of two percent in all 100 counties. Fourteen counties levy an additional 0.25 percent tax and Mecklenburg County levies an additional 0.5 percent local tax for public transportation. Exceptions:
• Reduced rates are allowed for certain business items. Industrial equipment and machinery is taxed at 1 percent with a maximum tax of $80 per item. These items are exempt from sales tax, but purchasers of these items are subject to privilege tax at this rate. Manufacturers purchasing fuel, other than electricity or piped natural gas used to operate a manufacturing plant, are exempt from sales and use tax and privilege tax.
• Raw material for production, packaging, and shipping materials, and items bought for resale are exempt. Commercial motor vehicles are taxed at three percent with a maximum tax of $1,000 per vehicle. Aircraft, boats, railway cars, and mobile offices are taxed at three percent with a maximum tax of $1,500 per item.
• The sales for electricity sold to qualifying manufacturing industries and plants are exempt from sales and use tax.
• A new 50 percent sales tax refund for motorsports racing teams was enacted, while the refund they enjoy on aviation fuel was extended.
• Certain industries may receive a refund of sales tax on purchases of building materials, fixtures, and equipment if the facility costs at least $50 million in a Development Tier 1 and $100 million in other tiers. The qualifying industries are bioprocessing; pharmaceutical and medicine manufacturing and distribution; aircraft manufacturing; computer manufacturing; motor vehicle manufacturing; semiconductor manufacturing; air courier services; financial services, securities operations, and related development; professional motor racing vehicles; railroad intermodal facilities; paper from pulp manufacturing; and turbine manufacturing. A taxpayer engaged in analytical services may also get a refund of sales taxes.
• Sales of eligible machinery and equipment to be located and used in an eligible datacenter that is capitalized for tax purposes are subject to a privilege tax. This tax rate is 1 percent with a maximum tax of $80 per article. In order to qualify for the 1 percent privilege tax, the eligible machinery and equipment must be used for: (1) The provision of datacenter services, including equipment cooling systems for managing the performance of the datacenter property; hardware and software for distributed and mainframe computers and servers; data storage devices; network connectivity equipment and peripheral components and systems. (2) For the generation, transformation, transmission, distribution, or management of electricity, including exterior substations and other business personal property used for these purposes. A minimum capital investment of $150 million for a facility located in Tier 1 county and a minimum investment of $300 million in a Tier 2 or 3 county is required. This investment must be made within five years of the date on which the first qualifying improvement is made. The sunset for this exemption is for sales occurring on or after July 1, 2013.
• Mill machinery is exempt from sales and use tax and subject to a 1 percent privilege or excise tax with an $80 per article cap.
Inventory tax exemption:
Inventories owned by contractors, manufacturers, and merchants (retail and wholesale) are exempt from property tax. Inventories are defined as goods held for sale in the regular course of business by manufacturers, retail and wholesale merchants, and construction contractors. For manufacturers, the term inventory includes raw materials, goods in process, and finished goods, as well as other materials or supplies that are consumed in manufacturing or processing or that accompany and become part of the sale of the property being sold.
Software tax exemptions:
There is no sales tax on custom computer software or digital property that becomes a component part of other computer software or digital property that is offered for sale or of a service that is offered for sale.
North Carolina State Contact:
North Carolina Department of Commerce
301 N. Wilmington Street
4318 Mail Service Center
Raleigh, NC 27699-4318
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.