Subject: Refunds for Low Enterprise Tier Businesses
Tax: Sales and Use Tax
Law: G.S. 105-164.14(h)
Issued By: Sales and Use Tax Division
Date: December 7, 1999
This Directive explains the annual refund available to low enterprise tier businesses for certain State and local sales and use tax paid on machinery and equipment. G.S. 105-164.14(h) authorizes these refunds, effective January 1, 2000, and applies to taxes paid on or after that date.
Refund Amount and Period
The tax for which a refund can be claimed is State sales and use tax paid at the general 4% rate plus any local sales and use tax paid. State tax paid at the rate of 1%, with or without an $80 cap, or at any other rate that is not the general rate of 4% is not eligible for a refund. Tax paid on machinery and equipment used in an enterprise tier one or an enterprise tier two area qualifies for a refund. Tax liability incurred indirectly for tax paid on this machinery and equipment also qualifies for a refund.
The annual refund period is the State's fiscal year, which is from July 1 to June 30. A claim for refund for a fiscal year is due by December 31 following the close of the fiscal year. A refund claim filed after the December 31 due date cannot be accepted; G.S. 105-164.14(h) prohibits the Department from accepting a late claim for refund.
A claim for refund submitted by December 31, 2000 applies only to taxes paid from January 1, 2000 through June 30, 2000. It does not apply to taxes paid from July 1, 1999 through December 31, 1999. This is a result of the January 1, 2000 effective date of the new refund.
A taxpayer is eligible for a refund if the taxpayer is engaged primarily in one of the businesses listed in G.S. 105-129.4(a) and the business is located in an enterprise tier one or an enterprise tier two area. The businesses listed are defined in the North American Industry Classification System (NAICS) and are the same businesses that qualify for the "Lee Act" income and franchise tax credits. They are:
(1) Air courier services.
(2) Central administrative office that creates at least 40 new jobs.
(2a) Customer service center located in an enterprise tier one or two area.
(3) Data processing.
(3a) Electronic mail order house that creates at least 250 new jobs and is located in an enterprise tier one or two area.
(6) Wholesale trade.
Enterprise Tier Designation
An enterprise tier one or tier two area consists of any county that is designated as a tier one or tier two area by the Secretary of Commerce in accordance with G.S. 105-129.3. There are five enterprise tiers. Each year, before December 31, the Secretary of Commerce assigns each county in the State to one of the five enterprise tiers based on a formula. Enterprise tier designations are listed on the Department of Commerce's website at www.commerce.state.nc.us/finance/lee/leemenu.html.
The enterprise tier designation of a county can change each calendar year. Consequently, a business can be in an enterprise tier one or two area for all, part, or none of the July 1 to June 30 refund period. If a business is in an enterprise tier one or two area for only part of the refund period, the business is eligible for a refund of taxes paid while it was designated as a tier one or two area. For example, if a business is in an enterprise tier two area for calendar year 2000 and is in an enterprise tier three area for calendar year 2001, the refund claim of the business for the period from July 1, 2000 until June 30, 2001 can include only tax paid from July 1, 2000 until December 31, 2000. Conversely, if a business is in an enterprise tier three area for calendar year 2000 and is in an enterprise tier two area for calendar year 2001, the refund claim of the business for the period from July 1, 2000 until June 30, 2001 can include only tax paid from January 1, 2001 until June 30, 2001.
For purposes of the sales and use tax refund for tier one and tier two businesses, a development zone has the same tier designation as the county in which the zone is located. A development zone is not automatically considered an enterprise tier one or tier two area for purposes of the sales and use tax refund.
Machinery and Equipment
The term "machinery and equipment" means engines, machinery, equipment, tools, and implements used or designed to be used in one of the businesses listed in G.S. 105-129.4(a). Tax paid on this machinery and equipment is eligible for the refund if the taxpayer places the machinery and equipment into service in an enterprise tier one or tier two area, capitalizes the machinery and equipment for income tax purposes, and does not lease the machinery and equipment to another party.
Procedure for Requesting Refund
To claim a refund, a taxpayer must complete Form E-585S, Incentive Claim for Refund, State and County Sales and Use Taxes, and submit it to the North Carolina Department of Revenue, Post Office Box 25000, Raleigh, North Carolina 27640-0001. Form E-585S is available on the Department's website at www.dor.state.nc.us or by calling the Department of Revenue's Forms Line at (919) 715-0397.
If you have questions about this Directive, you may call the Office Services Division, Taxpayer Assistance Section, North Carolina Department of Revenue, at (919) 733-3661. You may also write to the Taxpayer Assistance Section at Post Office Box 25000, Raleigh, North Carolina 27640-0001.
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