Guidelines for Article 3A Tax Credits
Tax Year 2002
I. Purpose
This document sets out guidelines for the tax credits in Article
3A of Chapter 105 of the General Statutes, also known as the William
S. Lee Quality Jobs and Business Expansion Act. The document applies
to tax years beginning on or after January 1, 2002. Article 3A has
been amended each year since its enactment. This document does not
attempt to review the law in effect prior to January 1, 2002.
This document is published by the North Carolina Department of
Revenue and is updated periodically as issues arise that require
clarification. The publication date of the document is set out at
the bottom of each page. The first publication date of the document
was June 2002. That publication applied to tax years beginning on
or after January 1, 2001 and before January 1, 2002.
II. Overview
The Article 3A tax credits are designed to attract certain types
of new businesses to North Carolina and to foster expansions of
certain types of businesses in North Carolina. The credits are based
on a system that divides the State into five enterprise tiers, with
tier one being the most economically distressed and tier five being
the least economically distressed. Eligibility requirements are
easier to meet and credits are increased for business expansion
occurring in the lower tiers. Each county is assigned a tier designation
by the Secretary of Commerce on or before December 31st of each
year. Generally, a designation applies only to the calendar year
following the designation. A tier one or tier two area, however,
may not be redesignated as a higher-numbered enterprise tier area
until it has been in its designated enterprise tier area for at
least two consecutive years. The Department of Commerce publishes
a list of the counties and their respective tier designations.
Within each tier, there may be designated development zones. These
designations recognize defined areas of economic need within a tier.
For purposes of the wage standard requirement, the credit for investing
in machinery and equipment, and the credit for worker training,
a development zone is considered an enterprise tier one area. Additionally,
credits for creating jobs are increased by $4,000 per job for jobs
located within a development zone. Upon the request of a taxpayer
or a local government, the Secretary of Commerce will determine
whether an area is in a development zone. The determination is based
on various economic factors. If an area is designated as a development
zone, the designation is effective for 24 months following the date
of the designation. The Department of Commerce publishes annually
a list of all development zones with a description of their boundaries.
For tax years beginning on or after January 1, 2003, a parcel
of property that is partially in a development zone is considered
to be entirely within the development zone if all of the following
conditions are met:
- At least fifty percent of the parcel is located within the
development zone.
- The parcel was in existence and under common ownership
prior to the most recent federal decennial census.
- The parcel is a portion of land made up of one or more
tracts or tax parcels of land that is surrounded by a continuous
perimeter boundary.
III. Credits Available
For tax years beginning on or after January 1, 2002, credits are
available for:
- Creating jobs
- Investing in machinery and equipment
- Technology commercialization
- Research and development
- Worker training
- Investing in central office or aircraft facility property
- Development zone projects
- Substantial investment in other property
IV. Substantiation (G.S. 105-129.7)
To claim a credit, the taxpayer must provide any information considered
necessary by the Secretary of Revenue to determine and verify the
amount of the credit to which the taxpayer is entitled. The burden
of proving eligibility for the credit and the amount of the credit
rests upon the taxpayer. The taxpayer must submit a portion of the
qualifying information with the tax return. That information is
reported on the Department of Revenue NC-478 form series. The taxpayer
must maintain additional documentation needed to substantiate the
credit and make it available for inspection by the Secretary of
Revenue.
V. General Eligibility Requirements (G.S. 105-129.4)
The taxpayer must satisfy all general eligibility requirements
in order to qualify for any of the credits listed in Section III,
except the credit for development zone projects. If a taxpayer is
uncertain about its eligibility for a credit, the taxpayer may request
specific advice in writing from the Secretary of Revenue.
The general eligibility requirements are listed below, followed
by a description of each specific requirement:
- Be an eligible business type
- Meet the wage standard specified for the credit
- Provide health insurance for employees as specified for the
credit
- Have a good environmental record
- Have a good Occupational Safety and Health Act (OSHA) record
VI. Eligible Business Types (G.S. 105-129.4(a))
Types
Article 3A allows tax credits only to certain types
of businesses. Under the Article, the taxpayer must meet one of the
following descriptions to be eligible for a credit. For definitions
of the business types described below, see G.S. 105-129.2.
- Central Office or Aircraft Facility. -- The taxpayer operates
a central office or aircraft facility that creates at least 40
new jobs and the jobs, investment, and activity with respect to
which a credit is claimed are used in that office or facility.
Generally, 40 new jobs are created if the taxpayer hires at least
40 additional full-time employees to fill new positions at the
office within 12 months after the taxpayer first uses the property
as a central office or aircraft facility. If a taxpayer uses temporary
space, however, for the central office or aircraft facility functions
during completion of the central office or aircraft facility property,
the jobs must be created during the period starting 24 months
before and ending 12 months after the completion of the property.
- Air Courier Services or Data Processing. -- The primary business
of the taxpayer is one of the following and the jobs, investment,
and activity with respect to which a credit is claimed are used
in that business:
- Air courier services
- Data processing
- Manufacturing, Warehousing, or Wholesale Trade. -- The primary
business of the taxpayer is one of the following and the jobs,
investment, and activity with respect to which a credit is claimed
are used in any of the listed businesses:
- Manufacturing
- Warehousing
- Wholesale trade
- Computer Services or Electronic Mail Order House. -- The primary
business of the taxpayer or the primary activity of an establishment
of the taxpayer is one of the following and the jobs, investment,
and activity with respect to which a credit is claimed are used
in that business:
- Computer services
- An electronic mail order house that creates at least 250
new jobs and is located in an enterprise tier one, tier two,
or tier three area.
- Customer Service Center. -- The taxpayer operates a customer
service center and meets all of the following conditions:
- The taxpayer's primary business is a telecommunications
or financial services company as defined by NAICS
- The primary activity of an establishment of the taxpayer
is a customer service center located in an enterprise tier
one, tier two, or tier three area
- The jobs, investment, and activity with respect to which
a credit is claimed are used in the operation of the customer
service center.
- Warehousing at Establishment. -- The primary activity of an
establishment of the taxpayer is warehousing and the taxpayer
meets both of the following conditions:
- The warehousing establishment is located in an enterprise
tier one, tier two, or tier three area and serves 25 or more
establishments of the taxpayer in at least five different
counties in one or more states
- The jobs, investment, and activity with respect to which
a credit is claimed are used in the warehousing establishment.
Determining Primary Business
For most of the eligible business types, the law specifies
that the taxpayer's primary business must be a designated business.
To claim a credit as a taxpayer that provides air courier services
or data processing services, for example, the provision of these
services must be the primary business of the taxpayer and not just
the taxpayer's primary activity at one establishment. Similarly,
to claim a credit as a customer service center, the taxpayer's primary
business must be telecommunications or financial services.
The determination of whether an activity of a company is its primary
business is based on the principal product or group of products
the taxpayer produces or distributes or the principal services the
taxpayer provides. The relative share of production costs and capital
investment reflects the principal product or service. The activities
at all the taxpayer's establishments are considered in determining
the taxpayer's primary business.
Determining Primary Activity at an Establishment
For a few of the eligible business types, the law only requires
the taxpayer's primary activity at an establishment to be a designated
business. The eligible business types for providing computer services,
operating an electronic mail order house, and engaging in warehousing,
for example, set requirements for the taxpayer's primary business
activity at an establishment but not the taxpayer's primary business
taken overall. The credit for a customer service center sets requirements
for the taxpayer's primary business activity at an establishment
and sets a different requirement for the taxpayer's primary business.
The determination of whether an activity at an establishment is
the primary business activity is based on the proper classification
of the establishment under the NAICS Code. If more than one activity
is conducted at the same establishment, the primary activity of
the establishment is determined based on the same factors used in
determining the taxpayer's primary business.
Determining What Jobs, Investment, and Activity Qualify
for Credits
All the eligible business types require jobs, investment,
and activity to be used in a specified aspect of the taxpayer's
business. To satisfy this requirement, that aspect must be the primary
activity of the taxpayer at the establishment where the credits
are claimed.
For some eligible business types, the jobs, investment, and activity
that qualify for the credit must be used in the taxpayer's primary
business. For these eligible business types, the taxpayer's primary
business must be one of the eligible business types and, if the
taxpayer has more than one business establishment, the primary activity
at the taxpayer's establishment where the credits are claimed must
be the same as the taxpayer's primary business. When these conditions
are met, the jobs, investment, and activity at the establishment
are considered to be part of the taxpayer's primary business and
to satisfy the requirement of being used in that business. The eligible
business types for air courier services, data processing, manufacturing,
warehousing, wholesale trade, computer services, and electronic
mail order house fall into this category. The last five of these
also fall into other categories due to alternative ways to qualify
for the credits.
Some eligible business types have different requirements for primary
business and primary business activity at an establishment. For
these eligible business types, the taxpayer's primary business must
be the specified type of business, the taxpayer must have more than
one business establishment, the taxpayer's primary activity at the
establishment where the credits are claimed must be the specified
type of activity, and the taxpayer's primary business and the primary
business activity at the establishment must be different. When these
conditions are met, the jobs, investment, and activity at the establishment
are considered to be part of the taxpayer's primary business activity
at the establishment and to satisfy the requirement of being used
in that specified business activity. The eligible business types
for manufacturing, warehousing, wholesale trade, computer services,
electronic mail order house, and customer service center fall into
this category. The first five of these also fall into other categories
due to alternative ways to qualify for the credits.
Some eligible business types set no requirements on the taxpayer's
primary business and, instead, set requirements only on the primary
business activity at an establishment. For these credits, the primary
business activity at the establishment where the credits are claimed
must be the specified type of activity. This activity may also be
the taxpayer's primary business, but it does not matter if the primary
business activity at the establishment and the taxpayer's primary
business are the same or are different. If they are different, however,
the taxpayer must have more than one establishment. At the establishment,
if the primary business activity is the specified type of activity,
then the jobs, investment, and activity at the establishment are
considered to be part of the primary business activity and to satisfy
the requirement of being used in that primary business activity.
The eligible business types for computer services, electronic mail
order house, and warehousing at an establishment fall into this
category. The eligible business types for computer services and
electronic mail order house also fall into another category due
to alternative ways to qualify for the credits.
Two eligible business types set requirements for a business function
of the taxpayer rather than for primary business or primary business
activity at an establishment. These two eligible business types
are for a central office or an aircraft facility. For these eligible
business types, the jobs, investment, and activity must be used
in the central office function or the aircraft facility function.
In most cases, the establishment where the central office or the
aircraft facility is located will have a NAICS Code reflecting a
central office or aircraft facility, but a central office or aircraft
facility can be located in a building that includes various functions.
In summary, except for the eligible business types for a central
office or an aircraft facility, the determination of whether jobs,
investment, and activity qualify turns on the primary business activity
at an establishment plus, for some eligible business types, the
primary business of the taxpayer. When these conditions are met,
all the jobs, investment, and activity at the establishment are
considered to be used in the qualifying business, even though they
may be part of a support function at the establishment.
The following examples illustrate when jobs, investment, and activity
satisfy the requirement of being used in a business:
- ABC Manufacturing Company
ABC's primary business is manufacturing. In the 2002 tax
year, ABC constructs and begins operating a North Carolina manufacturing
facility. The new jobs, investment, and activity at the North
Carolina manufacturing facility are eligible for credits, subject
to the other requirements of Article 3A. This is because ABC's
primary business of manufacturing is an eligible business type
and its primary business activity at the North Carolina facility
is the same as its primary business. The jobs, investment, and
activity at the North Carolina establishment therefore satisfy
the requirement of being used in the manufacturing business.
- EFG Manufacturing Company
EFG's primary business is manufacturing. All of EFG's manufacturing
plants are located outside North Carolina. In the 2002 tax year,
EFG constructs and begins operating a North Carolina warehouse
facility. The new jobs, investment, and activity at the North
Carolina warehouse facility are eligible for credits, subject
to the other requirements of the Act. This is because EFG's primary
business is manufacturing, and the jobs, investment, and activity
are used in the warehousing business.
- XYZ Manufacturing Company
XYZ's primary business is manufacturing. XYZ has one manufacturing
plant located in the State. XYZ has previously qualified for credits
for new jobs, investment, and activity used in the manufacturing
business. During the 2002 tax year, XYZ purchases a facility in
North Carolina that conducts marketing, customer service, and
product repairs. Additionally, a retail outlet is on site at the
newly purchased facility. The new jobs investment, and activity
at the newly purchased facility are not eligible for credits.
This is because the primary business activity at the facility
is not manufacturing, wholesale trade, or warehousing.
VII. Wage Standard Test (G.S. 105-129.4(b))
For tax year 2002, the taxpayer must satisfy a wage standard test
with respect to each potential credit. The test is performed by
comparing the applicable wage standard for the taxpayer to the wage
standard for the relevant county. The county wage standard is obtained
from the Department of Commerce. If the taxpayer’s tax year
is other than a calendar year, the taxpayer must use the wage standard
for the calendar year in which the taxpayer’s tax year begins.
If the county is located in an enterprise tier one area, the taxpayer's
wage standard must equal or exceed 100% of the county wage standard.
If the county is located in an enterprise tier two, three, four,
or five area, the taxpayer's wage standard must equal or exceed
110% of the county wage standard.
For tax years beginning on or after January 1, 2003, the taxpayer
does not have to satisfy a wage standard test with respect to the
worker training credit and the credit for substantial investment
in other property. The wage standard test also does not apply to
any credit in a tier one or tier two area or in a development zone.
The wage standard test that applies depends on the credit, as explained
below.
Credit for Creating Jobs
For tax years beginning on or after January 1, 2002, the test is
a two-part test. The first part requires the combined average weekly
wage of the jobs for which the credit is claimed to meet the wage
standard. The second part requires the combined average weekly wage
of all jobs at the location with respect to which a credit is claimed
to meet the wage standard. The average wage for both parts of the
test is determined for the tax year in which the activity that qualifies
for the credit occurs, even if the taxpayer’s tax year is
not a calendar year. For part-time employees, a full-time equivalency
factor must be used. However, all part-time jobs for which the taxpayer
provides health insurance, as described in G.S. 105-129.4(b2), are
considered to meet the wage standard, regardless of the actual wages
for the job. If there are potential credits at more than one location,
both tests must be applied separately at each location. No credits
are allowed with respect to jobs at a location unless both tests
are met.
The following example demonstrates the calculation of the wage
standard test when new jobs are created during the year at multiple
locations. Assume that the taxpayer meets all the other eligibility
requirements in Article 3A.
Taxpayer creates 75 new jobs at location one during the year
and 50 new jobs at location two. The combined average weekly wage
of the 75 jobs created at location one meets the wage standard
and the combined average weekly wage of the 50 jobs created at
location two meets the wage standard. The jobs at both locations
therefore meet the first part of the test.
The combined average weekly wage of all the jobs at location one
meets the wage standard. However, the combined average weekly wage
of all the jobs at location two does not meet the wage standard.
Consequently, the taxpayer is eligible to claim a credit for the
75 jobs created at location one, but not the 50 jobs created at
location two. This is because the jobs at location one meet the
second part of the test and the jobs at location two do not.
Credit for Worker Training
For tax year 2002. the test is the same two-part test as the test
for the credit for creating jobs. For tax years beginning on or
after January 1, 2003, the credit for worker training is not subject
to a wage standard test.
All Other Credits
For tax years beginning on or after January 1, 2002, only the second
part of the wage standard test for the jobs credit and the worker
training credit apply to the other credits. The other credits are
the credit for investing in machinery and equipment, the credit
for research and development, the credit for investing in real property
for a central office or an aircraft facility, and the credit for
substantial investment in other property. The credit for substantial
investment in other property is not subject to the wage standard
test for tax years beginning on or after January 1, 2003. The taxpayer
is eligible for these credits if the combined average weekly wage
of all jobs at the location with respect to which the credit is
claimed meets the wage standard. The average wages of the jobs at
the location are determined for the tax year in which the activity
that qualifies for the credit occurs, even if the taxpayer’s
tax year is not a calendar year. For part-time employees, a full-time
equivalency factor must be used.
VIII. Health Insurance (G.S. 105-129.4(b2))
Article 3A makes the provision of health insurance a condition
for qualifying for the credits. The reason for this is to ensure
that the credits are allowed only for quality jobs.
A taxpayer provides health insurance if it pays at least 50% of
the premiums for health care coverage that equals or exceeds the
minimum provisions of the basic health care plan of coverage recommended
by the Small Employer Carrier Committee pursuant to G.S. 58-50-125.
The specific health insurance requirements for each credit are described
below.
Credit for Creating Jobs and Credit for Worker Training
A taxpayer is eligible for a credit for creating jobs or for worker
training if the taxpayer provides health insurance for the jobs
for which a credit is claimed. The insurance must be provided at
the time the jobs are created or the workers are trained and must
be maintained in each year the taxpayer claims an installment or
a carryforward of the credit. To ensure that a taxpayer satisfies
this requirement, the taxpayer must provide with the tax return
a certification that the taxpayer provides health insurance for
the affected jobs. This applies to the return on which the taxpayer
qualifies for the credit, a return claiming an installment of the
credit, and a return claiming a carryforward of the credit.
All Other Credits
The health insurance requirement for the jobs credit and the worker
training credit differs from the requirement for all the other credits.
The other credits are the credit for investing in machinery and
equipment, the credit for research and development, the credit for
investing in real property for a central office or an aircraft facility,
and the credit for substantial investment in other property. The
taxpayer is eligible for these credits if the taxpayer provides
health insurance for all of the full-time positions at the location
with respect to which a credit is claimed. The insurance must be
provided at the time of the activity that qualifies for the credit
and must be maintained. The taxpayer must provide with the tax return
a certification that the taxpayer provides health insurance for
all the full-time positions at the location. This applies to the
return on which a taxpayer qualifies for the credit and a return
claiming an installment or carryforward of the credit.
IX. Environmental Impact (G.S. 105-129.4(b3))
Article 3A requires recipients of credits to have good environmental
records. The environmental requirements are the same for all credits.
A taxpayer is eligible for a credit only if the taxpayer certifies
that, at the time the taxpayer first claims the credit, the taxpayer
has no pending administrative, civil, or criminal enforcement
action based on alleged significant violations of any program
implemented by an agency of the Department of Environment and
Natural Resources, and has had no final determination of responsibility
for any significant administrative, civil, or criminal violation
of any program implemented by an agency of the Department of Environment
and Natural Resources within the last five years. A significant
violation is a violation or an alleged violation that does not
satisfy any of the conditions of G.S. 143-215.6B(d).
The Department of Revenue receives notification from the Department
of Environment and Natural Resources annually of every person
that currently has any of these pending actions and every person
that has had any of these final determinations within the last
five years. The Department of Revenue uses this information when
reviewing eligibility for the credits.
The time the taxpayer first claims a credit is the date the taxpayer
first files a tax return concerning the credit. The first tax
return concerning the credit is the tax return for the year in
which the taxpayer engaged in the qualifying activity.
X. Occupational Safety and Health Programs (OSHA)
(G.S. 105-129.4(b4))
Article 3A requires recipients of credits to have good occupational
safety and health (OSHA) records. The OSHA requirements are the
same for all credits. A taxpayer is eligible for a credit only
if the taxpayer certifies that, at the business location with
respect to which the credit is claimed, the taxpayer has had no
citations under the Occupational Safety and Health Act that have
become a final order within the past three years for willful serious
violations or for failing to abate serious violations. The certification
must be made at the time the taxpayer first claims the credit.
A "serious violation" is defined in G.S. 95-127.
The Department of Revenue receives notification from the Department
of Labor annually of all employers with citations that have become
final orders within the past three years. The Department of Revenue
uses this information when reviewing eligibility for the credits.
The time the taxpayer first claims a credit is the date the taxpayer
first files a tax return concerning the credit. The first tax
return concerning the credit is the tax return for the year in
which the taxpayer engaged in the qualifying activity.
XI. General Administration
- Expiration (G.S. 105-129.4(a2) and (b2))
This section addresses general expiration provisions applying
to all credits based on failure to continue to meet general
eligibility requirements. In addition, there are expiration
provisions that apply specifically to each credit. The specific
provisions are discussed in the sections devoted to each credit.
The general expiration provisions are listed below. When a credit
expires, the taxpayer may not take any remaining installments
of the credit.
The expiration of a credit may also affect the taxpayer's ability
to take carryforwards of a credit. Under the first two circumstances
described below, the taxpayer may continue to claim carryforwards
of previous installments when a credit expires. Under the third
circumstance, the carryforwards as well as the installments
expire. See the section on Carryforwards of Unused Credits for
additional information.
Circumstances That Result in Expiration of a Credit
- During the period that installments of a credit accrue,
the taxpayer no longer meets one of the conditions for an
eligible business type.
- During the period that installments of a credit accrue,
the number of jobs of an eligible business falls below the
minimum number required. When this happens, any credit associated
with that business expires; the expiration is not limited
to the jobs tax credit.
- The taxpayer ceases to provide health insurance for its
employees.
- Forfeiture (G.S. 105-129.4(d))
A taxpayer that forfeits a credit is liable for all past taxes
avoided as a result of the credit plus interest at the rate
established under G.S. 105-241.1(i), computed from the date
the taxes would have been due if the credit had not been allowed.
The past taxes and interest are due 30 days after the date the
credit is forfeited. A taxpayer that fails to pay the past taxes
and interest by the due date is subject to the penalties provided
in G.S. 105-236. Forfeiture provisions are listed below.
All Credits
A taxpayer forfeits a credit allowed if the taxpayer was
not eligible for the credit for the calendar year in which the
taxpayer engaged in the activity for which the credit was claimed.
Worker Training
If a taxpayer forfeits the credit for creating jobs, the technology
commercialization credit, or the credit for investing in machinery
and equipment, it also forfeits any credit for worker training
claimed for the jobs for which the credit for creating jobs
was claimed or the jobs at the location with respect to which
the technology commercialization credit or the credit for investing
in machinery and equipment was claimed.
Substantial Investment in Other Property
A taxpayer forfeits the credit for substantial investment
in other property if it fails to timely make the required level
of investment or fails to timely create the required number
of new jobs.
Technology Commercialization Credit
A taxpayer forfeits the technology commercialization
credit if it fails to timely make the required level of investment
or if it fails to meet the terms of its licensing agreement
with a research university. If a taxpayer claimed a 20% technology
commercialization credit and fails to make the required level
of investment for the 20% credit, but does make the required
level of investment for the 15% credit, the taxpayer forfeits
one-fourth of the 20% credit.
Large Investment Enhancements
A taxpayer forfeits a large investment enhancement of
a tax credit if it fails to timely make the required level of
investment.
- Change in Ownership of Business (G.S. 105-129.4(e))
The sale, merger, consolidation, conversion, acquisition, or
bankruptcy of a business, or any transaction by which an existing
business reformulates itself as another business does not create
new eligibility in a succeeding business with respect to credits
for which the predecessor was not eligible. A successor business
may, however, take any installment of or carried-over portion
of a credit that its predecessor could have taken if it had
a tax liability. The acquisition of a business is a new investment
that creates new eligibility in the acquiring taxpayer under
Article 3A if any of the following conditions are met:
- The business closed before it was acquired.
- The business was required to file a notice of plant closing
or mass layoff under the federal Worker Adjustment and Retraining
Notification Act, 29 U.S.C. § 2102, before it was acquired.
- The business was acquired by its employees through an
employee stock option transaction or another similar transaction.
The term "business" means a taxpayer or an establishment.
For example, a taxpayer that purchases one of five plants from
an unrelated entity has acquired a business, and must meet one
of the three conditions described above in order to create new
eligibility for its investment.
- Tax Election (G.S. 105-129.5)
The credits are allowed against the franchise tax, the income
tax, or the gross premiums tax. The taxpayer elects the tax
against which a credit will be claimed when filing the return
on which the first installment of the credit is claimed. This
election is binding on all future installments and carryforwards
of that credit. A special election is provided for the technology
commercialization credit. A general election applies to all
other credits.
Technology commercialization credit
The technology commercialization credit may be divided
between the taxes against which it is allowed. The taxpayer
elects the percentage of the credit that will be taken against
each tax when filing the return on which the credit is first
taken. This election is binding. The percentage of the credit
elected to be taken against each tax may be carried forward
only against the same tax.
All Other Credits
The taxpayer must take a credit against only one of
the taxes against which it is allowed.
- 50% Cap on Credits (G.S. 105-129.5(b))
The total of all credits may not exceed 50% of the tax against
which they are claimed for the taxable year, reduced by the
sum of all other credits allowed against that tax, except tax
payments made by or on behalf of the taxpayer.
- Carryforward of Unused Credit (G.S. 105-129.5(c))
Generally, any unused portion of a credit may be carried
forward for the succeeding five years. Several credits have
longer carryforward periods, however. Those credits and their
carryforward periods are listed below.
20-Year Carryforward
Any unused portion of the following credits may be carried
forward for 20 years:
- Technology commercialization.
- Substantial investment in other property.
- Credits concerning a "large investment" ($150,000,000).
A taxpayer is eligible for the large investment enhancement
if the Secretary of Commerce makes a written determination
that the taxpayer is expected to purchase or lease, and
place in service in connection with the eligible business
within a two-year period (seven years for interstate air
couriers), at least $150,000,000 worth of one or more of
the following: real property, machinery and equipment, or
central office or aircraft facility property. If the taxpayer
fails to make the required level of investment within the
two-year period (seven years for interstate air couriers),
the taxpayer forfeits the longer carryforward period.
15-Year Carryforward for Research and Development
For tax years 2002 and later, any unused portion of
a research and development credit may be carried forward for
the succeeding 15 years. This extended carryforward applies
to qualifying research and development activity conducted during
taxable years beginning on or after January 1, 2002.
10-Year Carryforward for $50,000,000 Investment
Any unused portion of a credit may be carried forward
for the succeeding 10 years if the taxpayer is expected to purchase
or lease, and place in service in connection with the eligible
business within a two-year period (seven years for interstate
air couriers), at least $50,000,000 worth of one or more of
the following: real property, machinery and equipment, or central
office or aircraft facility property. The Secretary of Commerce
must issue a written determination that the required investment
is expected to be made in order for this extended carryforward
period to apply. If the taxpayer fails to make the required
level of investment within the two-year period (seven years
for interstate air couriers), the taxpayer forfeits the longer
carryforward period.
- Advisory Ruling (G.S. 105-129.4(g))
A taxpayer may request in writing from the Secretary of Revenue
specific advice regarding eligibility for a credit. G.S. 105-264
governs the effect of this advice.
- Statute of Limitations (G.S. 105-129.4(d))
A taxpayer must claim a credit within six months after the
date set by statute for the filing of the return that coincides
with the year that the taxpayer qualified for the credit, including
any extensions of that date. The following example illustrates
this requirement:
A calendar year taxpayer creates 10 new qualifying
jobs in 2002. The taxpayer files a timely extension on March
15, 2003, which extends the due date of the tax return to
October 15, 2003. Applying the six-month statute of limitations,
the taxpayer has until April 15, 2004 to file the NC-478A
and report the 2002 credit for creating jobs. If the taxpayer
had not filed a timely extension by March 15, 2003, the NC-478A
would have had to be filed by September 15, 2003.
- Application (G.S. 105-129.6)
For business activities occurring before January 1, 2002, taxpayers
were required to file an application with and to pay any required
fee to the Department of Commerce. The Department of Commerce
marked “paid” on the application to indicate that
the fee had been paid and returned the application to the taxpayer.
The taxpayer must attach a copy of the application marked "paid"
to the appropriate NC 478 Department of Revenue forms and submit
this information with the relevant tax return. The relevant
tax return is the first return on which the credit is claimed
if that return is an amended return. In all other cases, the
relevant return is the return for the year in which the taxpayer
engaged in the activity that qualifies for the credit.
Effective January 1, 2003, the Department of Commerce will no
longer accept applications or the required fees. For business
activities occurring on or after January 1, 2002, or for business
activities occurring before January 1, 2002 for which no application
has been filed with the Department of Commerce as of January
1, 2003, the taxpayer is not required to file an application.
Instead, the taxpayer pays any required fee to the Department
of Revenue with the relevant tax return. The fee is due at the
same time as the tax return and the credit will not be allowed
until the fee is paid.
- Fees (G.S. 105-129.6)
The fee is $500.00 for each credit the taxpayer intends to claim
with respect to a location that is in an enterprise tier three,
four, or five area, subject to a maximum fee of $1,500.00. There
is no fee for a credit in an enterprise tier one or tier two
area. There is also no fee for a credit with respect to a location
that is in a development zone. If the taxpayer intends to claim
a credit that relates to locations in more than one enterprise
tier area, the fee is based on the highest-numbered enterprise
tier area.
- Forms
The Form NC-478 series is used to calculate and report tax credits,
including the Article 3A tax credits, that are limited to 50%
of the taxpayer's tax less the sum of all other credits that
the taxpayer claims. Forms NC-478A through NC-478H are used
to calculate the specific credits without regard to the 50%
limitation. Form NC-478 is used to total the specific credits,
to determine if the 50% limitation applies, and, if so, to allocate
the limited total credit among the specific credits. Form NC-478V
is used to report the fee that is due.
The table below lists the tax credits that are subject to the
50% of tax limitation and the NC-478 series form on which the
credit is reported. The table also indicates if the credit is
an Article 3A credit.
| Credit |
File Form NC-478 plus Form: |
Article 3A? |
| Creating Jobs |
NC-478A |
Yes |
| Investing in Machinery and Equipment |
NC-478B |
Yes |
| Research and Development |
NC-478C |
Yes |
| Worker Training |
NC-478D |
Yes |
| Investing in Central Office or Aircraft
Facility Property |
NC-478E |
Yes |
| Investing in Business Property (Note –
this credit expired for investments made after December
31, 2001; however, remaining installments and carryforwards
may still be taken) |
NC-478F |
No; in Art. 3B. |
| Investing in Renewable Energy Property |
NC-478G |
No; in Art. 3B. |
| Low-income Housing |
NC-478H |
No; in Art. 3E. |
| Contributing to Development Zone Projects |
No additional form. Use NC-478, line 11 |
Yes |
| Technology Commercialization |
No additional form. Use NC-478, line 9. |
Yes |
| Investing in Non-hazardous Dry-cleaning
Equipment |
No additional form. Use NC-478, line 10. |
No; in Art. 3B. |
| Use of North Carolina Ports |
No additional form. Use NC-478, line 11. |
No; in Art. 4. |
| Renewable Energy Equipment Facility - Article
4 |
No additional form. Use NC-478, line, 11
|
No; in Art. 4. |
| Manufacturing Cigarettes for Export |
No additional form. Use NC-478, line, 11 |
No; in Art. 4. |
Both Form NC-478 and any applicable Form NC-478 series form
must be filed for any taxable year in which the taxpayer is
eligible to claim a credit or an installment of a credit against
the taxpayer's tax liability for that year. This requirement
applies even if the taxpayer's tax liability for that year is
not large enough for the taxpayer to benefit from the credit.
If the taxpayer engages in activities that qualify for the credit
for creating jobs, the credit for investing in machinery and
equipment, or the credit for investing in central office or
aircraft facility property, the taxpayer must complete Part
1 of Form NC-478A, Form NC-478B, or Form NC-478E and file the
form with the taxpayer's return for the taxable year in which
the taxpayer engages in the activity, even though the first
installment of the credit will not be claimed until the following
year.
For further information about the Form NC-478 series, see Form
NC-478 INST, Instructions for 2001 Form NC-478 Series.
- Overdue Tax Debts (G.S. 105-129.4(b6)
For tax years beginning on or after January 1, 2003, a taxpayer
is ineligible for an Article 3A tax credit if the taxpayer has
an overdue tax debt at the time the taxpayer claims an installment
or carryforward of a credit. An overdue tax debt is defined
in G.S. 105-243.1(a)(1) as “[a]ny part of a tax debit
that remains unpaid 90 days or more after the notice of final
assessment was mailed to the taxpayer. The term does not include
a tax debt, however, if the taxpayer entered into an installment
agreement for the tax debt under G.S. 105-237 within 90 days
after the notice of final assessment was mailed and has not
failed to make any payments due under the installment agreement.”
XII. CREDIT FOR CREATING JOBS (G.S. 105-129.8)
- Eligibility
To be eligible for a credit for creating jobs, a taxpayer must
meet the following conditions:
- Meet all general eligibility requirements described in
Section V.
- Have five or more full-time employees.
- Hire an additional full-time employee during the year
to fill a position located in this State.
- Terms Used
Creating a new full-time job. -- A taxpayer creates a new full-time
job if the taxpayer has an additional full-time employee in
this State at the end of the current tax year when compared
to the end of the previous year.
Full-time job. -- A position that requires at least 1,600 hours
of work per year and is intended to be held by one employee
during the entire year.
Location of a job. -- A job is located in an area if more than
fifty percent of the employee's duties are performed in the
area.
- Credit Amount
The amount of credit allowed is based upon the enterprise
tier of the area in which the position is located as shown below:
| Area Enterprise Tier |
Amount of Credit for Each Job |
| Tier One |
$12,500 |
| Tier Two |
4,000 |
| Tier Three |
3,000 |
| Tier Four |
1,000 |
| Tier Five |
500 |
| Development Zone in Any Tier |
$4,000 plus the amount for the Tier |
- Taking the Credit
The credit is taken in four equal installments over the four-year
period beginning the year after the taxpayer qualifies for the
credit. If a taxpayer is required to file more than one tax
return during a year, each return constitutes a year for purposes
of taking installments of the credit.
- Expiration
If, in one of the four years in which an installment accrues,
the number of the taxpayer's full-time employees falls below
the number of full-time employees the taxpayer had in the year
in which the taxpayer qualified for the credit, the credit expires
and the taxpayer may not take any remaining installments of
the credit. This calculation is illustrated by the following
example:
Taxpayer is claiming a credit for forty jobs in tier 4
at $1,000 per job. The installments are $10,000 each over
four years. During the year that the third installment of
the credit accrues, the taxpayer loses twelve jobs. The
third and fourth installments must be recalculated to recognize
the loss of the jobs. After the recalculation, the third
and fourth installments that remain to be taken are $7,000
each, rather than $10,000 each, computed as follows:
(40 - 12) x $1,000
4
If the taxpayer has carryforwards from the first and second
installments attributable to the 12 lost jobs, the taxpayer
can continue to take the carryforwards for these even though
the installments have expired. When a credit expires, the
taxpayer can still take the portion of an installment that
accrued in a previous year and was carried forward.
- Movement of Jobs
Jobs transferred from one area in the State to another area
are not considered new jobs. If a job qualifies for the credit
in one tier, but is moved to another enterprise tier, the credit
is recomputed as if the job had been created initially in the
area to which it was moved.
- Planned Expansion
A taxpayer that signs a letter of commitment with the Department
of Commerce to create at least 20 new full-time jobs in a specific
area within two years (seven years for interstate air couriers)
of the date the letter is signed qualifies for the credit in
the amount allowed based on the area's enterprise tier and development
zone designation for that year even though the employees are
not hired that year. The credit is available in the taxable
year after at least 20 employees have been hired if the hirings
are within the two-year (seven years for interstate air couriers)
commitment period. If the taxpayer does not hire the employees
within the two-year (seven years for interstate air couriers)
period, the taxpayer does not get the benefit of the letter
of commitment.
XIII. Credit for Investing in Machinery and
Equipment (G.S. 105-129.9)
- Eligibility
To be eligible for a credit for investing in machinery and equipment,
a taxpayer must:
- Meet all general eligibility requirements described in
Section V.
- Purchase or lease eligible machinery and equipment.
- Place the eligible machinery and equipment in service
during the taxable year.
- Terms Used
Cost. -- In the case of property owned by the taxpayer,
cost is determined pursuant to regulations adopted under section
1012 of the Internal Revenue Code. In the case of property the
taxpayer leases from another, cost is valued at eight times
the net annual rental rate as described in G.S. 105-130.4(j)(2).
Eligible machinery and equipment (G.S. 105-129.2(10)).
-- Machinery and equipment are eligible if they are capitalized
by the taxpayer for tax purposes under the Internal Revenue
Code and are not leased to another party. Property expensed
under Section 179 of the Code is not eligible. In the case of
a qualifying large investment, machinery and equipment that
are not capitalized by the taxpayer are eligible if the taxpayer
leases them from another party.
Machinery and equipment. -- Engines, machinery, equipment,
tools, and implements used or designed to be used in the business
for which the credit is claimed. The term does not include real
property as defined in G.S. 105-273 or rolling stock as defined
in G.S. 105-333."
- Credit Amount
For tax year 2002, the credit is 7% of the excess of the
eligible investment amount over the applicable threshold. For
tax years beginning on or after January 1, 2003, the credit
is 7% if the investment is placed in service in a tier one or
tier two area, 6% for tier three, 5% for tier four, and 4% for
tier five. The decrease in credit percentage does not apply
to business activities subject to a letter of commitment applied
for before January 1, 2003.
The eligible investment amount is the lesser of the following:
- The cost of the machinery and equipment.
- The amount by which the cost of all of the taxpayer's
machinery and equipment that is in service in North Carolina
on the last day of the taxable year exceeds the cost of
all of the taxpayer's machinery and equipment that was in
service in North Carolina on the last day of the base year.
The base year is that year, of the three immediately preceding
taxable years, in which the taxpayer had the most machinery
and equipment in service in North Carolina.
The threshold is based on the enterprise tier of the area where
the machinery and equipment are placed in service during the
taxable year. For tax year 2002, thresholds for Tier One through
Tier Five are as follows:
| Enterprise Tier Area |
Threshold |
| Tier One |
$-0- |
| Tier Two |
100,000 |
| Tier Three |
200,000 |
| Tier Four |
500,000 |
| Tier Five |
1,000,000 |
For tax years beginning on or after January 1, 2003, the threshold
for tier four is increased to $1,000,000 and the threshold for
tier five is increased to $2,000,000. The threshold increases
do not apply to business activities subject to a letter of commitment
applied for before January 1, 2003. If the taxpayer places eligible
machinery and equipment in service in an area over the course
of a two-year period, the applicable threshold for the second
taxable year is reduced by the eligible investment amount for
the previous taxable year.
For tax years beginning on or after January 1, 2002, if machinery
and equipment are placed in service at two or more establishments
within the same tier during the taxable year, the threshold
must be applied to each establishment.
- Taking the Credit
The credit is taken in seven equal installments beginning the
year after the taxpayer qualifies for the credit. If a taxpayer
is required to file more than one tax return during a year,
each return constitutes a year for purposes of taking installments
of the credit.
- Expiration
Generally, if machinery and equipment are disposed of, taken
out of service, or moved out of North Carolina prior to the
end of the seven-year period in which the credit is claimed,
the amount of credit that relates to the machinery and equipment
no longer in service expires and a taxpayer may not take any
remaining installment related to this machinery and equipment.
However, a taxpayer that replaces or otherwise disposes of machinery
and equipment for which a credit was claimed can continue to
take the remaining installments of the credit that relate to
the machinery and equipment no longer in service if the net
reduction in the cost of the taxpayer's eligible machinery and
equipment in the enterprise tier does not exceed 20% of the
cost of the disposed property. If the net reduction exceeds
20%, the remaining installments of the credit expire. If a taxpayer
places machinery and equipment in service during the taxable
year and claims a credit for the machinery and equipment under
Article 3B, Business and Energy Tax Credits, the taxpayer must
exclude the cost of this property from this calculation. If
during a single tax year the taxpayer disposes of machinery
and equipment with respect to two or more credits in the same
tier, costs are calculated based on all credits affected.
The "net investment reduction" calculation is illustrated
by the following example:
- Taxpayer has $10,000,000 of eligible machinery and equipment
in service in Tier 1.
- During the tax year, a piece of equipment with a cost
of $2,500,000 is taken out of service.
- There are remaining installments of a credit related to
the equipment taken out of service.
- Replacement equipment is placed into service during the
same tax year at a cost of $1,500,000.
- Total cost of eligible equipment at the end of the tax
year is $9,000,000.
- No Article 3B credits are being claimed.
The net investment reduction in Tier 1 is $1,000,000 ($10 million
- $9 million). Twenty percent of the cost of the equipment taken
out of service is $500,000 ($2,500,000 x .20). The net reduction
in total eligible equipment ($1 million) is greater than 20%
of the cost of the equipment taken out of service ($500,000).
Therefore, the installments related to the $2,500,000 piece
of equipment expire.
If a taxpayer disposes of a portion of the machinery and equipment
for which a credit is claimed, and the taxpayer is not entitled
to continue taking the installments of the credit in accordance
with the "net investment reduction" calculation illustrated
above, the amount of the credit associated with the machinery
and equipment no longer in service expires. This calculation
is illustrated by the following example:
- Taxpayer has $10,000,000 of eligible machinery and equipment
in service in tier 1 where the threshold is $0.
- Taxpayer is claiming a credit of $700,000 at $100,000
per installment based on its $10,000,000 investment.
- During the year that the third installment of the credit
accrues, a piece of equipment for which the credit is claimed
with a cost of $2,500,000 is taken out of service.
The remaining installments beginning in year three are $75,000
each, computed as follows:
$10,000,000 - $2,500,000 x .07
7
When a credit expires, a taxpayer can still take a portion of
an installment that is related to the machinery and equipment
no longer in service and accrued in a previous year and was
carried forward.
- Movement to Higher Tier (G.S. 105-129.9(d))
If machinery and equipment for which a credit has been claimed
is later moved to a higher-numbered tier, the credit is recomputed
as if the machinery and equipment had been placed originally
in the area to which it was moved.
- Planned Expansion (G.S. 105-129.9(e))
A taxpayer that signs a letter of commitment with the Department
of Commerce to place specific eligible machinery and equipment
in service in an area within two years (seven years for interstate
air couriers) after the date the letter is signed may, in the
year the eligible machinery and equipment are placed in service
in that area, calculate the credit for which the taxpayer qualifies
based on the area's enterprise tier and development zone designation
for the year the letter was signed. If the taxpayer does not
place part or all of the specified eligible machinery and equipment
in service within the two-year (seven years for interstate air
couriers) period, the taxpayer does not qualify for the benefit
of the letter of commitment with respect to the machinery and
equipment not placed in service within the two-year (seven years
for interstate air couriers) period.
XIV. Credit for Technology Commercialization
(G.S. 105-129.9A)
The credit for technology commercialization is similar to the credit
for investing in machinery and equipment, but with higher rates
of credit, and with more difficult eligibility requirements. Consequently,
except as provided in this section, the provisions that apply to
the credit for investing in machinery and equipment also apply to
the technology commercialization credit. A taxpayer cannot take
the machinery and equipment credit and the technology commercialization
credit with respect to the same asset.
- Eligibility
To be eligible for a technology commercialization credit, the
taxpayer must meet all of the requirements for the credit for
investing in machinery and equipment. In addition, the taxpayer
must meet all of the conditions listed below:
- The eligible machinery and equipment must be directly
related to production based on technology developed by and
licensed from a research university; or be used to produce
resources essential to the taxpayer's production based on
technology developed by and licensed from a research university.
- The eligible machinery and equipment must be placed in
service in a tier one, two, or three enterprise area.
- The eligible investment amount must be at least $10,000,000
for the taxable year.
- If qualifying for a 20% credit, the taxpayer must invest
at least $150 million in eligible machinery and equipment
by the end of the fourth year after the year in which eligible
machinery and equipment are first placed in service in the
area.
- If qualifying for a 15% credit, the taxpayer must invest
at least $100 million in eligible machinery and equipment
by the end of the fourth year after the year in which eligible
machinery and equipment are first placed in service in the
area.
- No more than nine years has passed since the first taxable
year the taxpayer claimed a technology commercialization
credit with respect to the same location.
- Terms Used
Eligible machinery and equipment. -- Unlike the requirement
for the credit for investing in machinery and equipment, a leased
piece of machinery and equipment does not have to be capitalized
in order to be "eligible" for this credit.
Research university. -- An institution of higher education classified
as a Research I university or a Research II university in the
most recent edition of "A Classification of Institutions
of Higher Education," the official report of The Carnegie
Foundation for the Advancement of Teaching.
- Credit Amount
The credit is a percentage of the excess of the eligible
investment amount over the applicable threshold for the tax
year. For a taxpayer whose level of investment is at least $100
million, the percentage is 15%. If the level of investment is
at least $150 million, the percentage is 20%.
In calculating the eligible investment amount, machinery and
equipment that were transferred to another taxpayer or were
taken out of service during the three years preceding the tax
year may be considered the taxpayer's machinery and equipment
if certain conditions are met. See G.S. 105-129.9A(b) for the
conditions. If the taxpayer wants to include machinery and equipment
under the exception in G.S. 105-129.9A(b)(2), the taxpayer must
first request a ruling by the Department of Revenue as to whether
the taxpayer meets the conditions.
- Taking the Credit
The credit is taken for the taxable year in which the machinery
and equipment are placed in service. The credit is not taken
in installments.
XV. Credit for Research and Development (G.S.
105-129.10)
- Eligibility
To be eligible for a credit for research and development, a
taxpayer must:
- Meet all general eligibility requirements described in Section
V.
- Claim for the taxable year the federal income tax credit
for research and development under section 41(a) or section
41(c)(4) of the Internal Revenue Code.
- Terms Used
Base amount and qualified research expenses. -- Defined
under section 41 of the Code.
Code. -- The Internal Revenue Code enacted as of January 1,
1999.
- Credit Amount
General Research and Development Credit
A taxpayer that claims for the taxable year a federal
income tax credit under section 41(a) of the Code for increasing
research activities is allowed a credit of 5% of the State's
apportioned share of the taxpayer's expenditures for increasing
research activities. The State's apportioned share of a taxpayer's
expenditures for increasing research activities is the excess
of the taxpayer's qualified research expenses for the taxable
year over the base amount, multiplied by a percentage equal
to the ratio of the taxpayer's qualified research expenses in
this State for the taxable year to the taxpayer's total qualified
research expenses for the taxable year.
Alternative Research and Development Credit
A taxpayer that claims the alternative incremental credit
under section 41(c)(4) of the Code for increasing research activities
is allowed a credit equal to 25% of the State's apportioned
share of the federal credit claimed. The State's apportioned
share of the federal credit claimed is the amount of the alternative
incremental credit the taxpayer claimed under section 41(c)(4)
of the Code for the taxable year multiplied by a percentage
equal to the ratio of the taxpayer's qualified research expenses
in this State for the taxable year to the taxpayer's total qualified
research expenses for the taxable year. The amount of the alternative
incremental credit claimed by a taxpayer is determined without
regard to any reduction elected under section 280C(c) of the
Code.
- Taking the Credit
The credit is taken for the taxable year in which the taxpayer
qualifies for the credit. The credit is not taken in installments.
XVI. CREDIT FOR WORKER TRAINING (G.S. 105-129.11)
- Eligibility
To be eligible for a credit for worker training, a taxpayer
must:
- Meet all general eligibility requirements described in Section
V.
- Provide worker training for five or more of its eligible
employees during the taxable year.
- Terms Used
Eligible employee. -- An employee who is in a full-time
position classified as non-exempt under the Fair Labor Standards
Act and who meets one or more of the following conditions:
- Meet all general eligibility requirements described in
Section V.
- Provide worker training for five or more of its eligible
employees during the taxable year.
Location of a job. -- A job is located in an area if more than
50% of the employee's duties are performed in the area.
- Credit Amount
The credit is equal to the wages paid to the eligible
employees during the training. Wages paid to an employee performing
his or her job while being trained are not eligible for the
credit. For positions located in an enterprise tier one area,
the credit may not exceed $1,000 per employee trained during
the taxable year. For positions located in other tiers, the
credit may not exceed $500 per employee trained during the taxable
year.
- Taking the Credit
The credit is taken during the taxable year the wages are paid
to the eligible employees during training. The credit is not
taken in installments.
XVII. CREDIT FOR INVESTING IN CENTRAL OFFICE
OR AIRCRAFT FACILITY PROPERTY (G.S. 105-129.12)
- Eligibility
To be eligible for the credit, a taxpayer must:
- Meet all of the general eligibility requirements described
in section V.
- Purchase or lease real property in North Carolina.
- Begin to use the property as a central office or an aircraft
facility during the taxable year.
- Terms Used
Cost. -- In the case of property owned by the taxpayer,
cost is determined pursuant to regulations adopted under section
1012 of the Code. In the case of leased property, cost is considered
to be the taxpayer's lease payments over a seven-year period,
plus any expenditures made by the taxpayer to improve the property
before it is used as the taxpayer's central office or aircraft
facility if the expenditures are not reimbursed or credited
by the lessor.
- Credit Amount
The credit is 7% of the eligible investment amount.
The eligible investment amount is the lesser of the following:
- The cost of the property.
- The amount by which the cost of all the property the taxpayer
is using in North Carolina as central offices or aircraft
facilities on the last day of the taxable year exceeds the
cost of all the property the taxpayer was using in North
Carolina as central offices or aircraft facilities on the
last day of the base year. The base year is that year, of
the three immediately preceding taxable years, in which
the taxpayer was using the most property in North Carolina
as central offices or aircraft facilities.
The maximum credit is $500,000 per taxpayer. The basis in any
real property for which a credit is allowed must be reduced
by the amount of credit allowable.
- Mixed Use Property
If the property is used for more than one purpose, the credit
is allowed only with respect to the portion of the property
that is used as a central office or aircraft facility. This
determination is made using the following fraction:
square footage of the property used as central office or
aircraft facility
total
square footage of the property
- Taking the Credit
The credit is taken in seven equal installments beginning the
year after the taxpayer qualifies for the credit. If a taxpayer
is required to file more than one tax return during a year,
each return constitutes a year for purposes of taking installments
of the credit.
- Expiration
The credit expires in the following circumstances:
- When the property for which the credit is claimed is no
longer used as a central office or an aircraft facility.
- When the total number of employees the taxpayer employs
at all of its central offices or aircraft facilities in
North Carolina drops below 40.
- When a portion of the property for which the credit is
claimed is no longer used as a central office or an aircraft
facility. In this circumstance, the amount of the credit
associated with the portion no longer used as a central
office or an aircraft facility expires. The remaining installments
are computed by multiplying the total credit times the fraction
described above for mixed-use property.
When a credit expires, the taxpayer can still take the portion
of an installment that accrued in a previous year and was carried
forward.
XVIII. CREDIT FOR SUBSTANTIAL INVESMENT
IN OTHER PROPERTY (G.S. 105-129.12A.)
- Eligibility
This credit is effective for taxable years beginning on or after
January 1, 2002. It applies to property that is first used in
an eligible business on or after that date.
To be eligible for the credit, the taxpayer must receive a written
determination from the Secretary of Commerce that the Secretary
expects the taxpayer to purchase or lease and use in an eligible
business at a specific location within a three-year period at
least $10,000,000 of real property, and to create 200 new jobs
at that location within two years of the time that the property
is first used in an eligible business. This requirement is set
out in G.S. 105-129.4(b5). Additionally, the taxpayer must meet
all of the eligibility requirements listed below:
- Meet all of the general eligibility requirements described
in section V.
- Purchase or lease real property in an enterprise tier one
or two area.
- Begin to use the property in an eligible business during
the taxable year.
- Terms Used
Cost. -- In the case of property owned by the taxpayer,
cost is determined pursuant to regulations adopted under section
1012 of the Internal Revenue Code. In the case of leased property,
cost is considered to be the taxpayer's lease payments over
a seven-year period, plus any expenditures made by the taxpayer
to improve the property before the taxpayer uses it if the expenditures
are not reimbursed or credited by the lessor.
Property located in an enterprise tier one or two area. -- Property
is located in an enterprise tier one or two area if the area
is designated as tier one or two at the time the taxpayer requests
the required written determination from the Secretary of Commerce
regarding its expected investment.
- Credit Amount
The credit is 30% of the eligible investment amount.
The eligible investment amount is the lesser of the following:
- The cost of the property.
- The amount by which the cost of all of the real property
the taxpayer is using in this State in an eligible business
on the last day of the taxable year exceeds the cost of
all of the real property the taxpayer was using in this
State in an eligible business on the last day of the base
year. The base year is that year, of the three immediately
preceding taxable years, in which the taxpayer was using
the most real property in this State in an eligible business.
When an investment is phased in over the course of more than
one tax year, the taxpayer may claim a credit in each year based
on the eligible investment amount of the property that is first
used in an eligible business for the current tax year. The basis
in any real property for which a credit is allowed must be reduced
by the amount of credit allowable.
- Mixed Use Property
If the property is used for more than one purpose, the credit
is allowed only with respect to the portion of the property
that is used as a central office or aircraft facility. This
determination is made using the following fraction:
square footage of the property used as central office or
aircraft facility
total
square footage of the property
- Taking the Credit
The credit is taken in seven equal installments beginning the
year after the taxpayer qualifies for the credit. If a taxpayer
is required to file more than one tax return during a year,
each return constitutes a year for purposes of taking installments
of the credit.
- Expiration
The credit expires in the following circumstances:
- When the property for which the credit is claimed is no
longer used in an eligible business.
- When the total number of employees at the property with
respect to which the credit is claimed drops below 200.
- When a portion of the property for which the credit is
claimed is no longer used in an eligible business. In this
circumstance, only the amount of the credit associated with
the portion no longer used in an eligible business expires.
The remaining installments are computed by multiplying the
total credit times the fraction described above for mixed-use
property.
When a credit expires, the taxpayer may not take any remaining
installments of the credit. The taxpayer can still take the
portion of an installment that accrued in a previous year and
was carried forward.
XIX. CREDIT FOR DEVELOPMENT ZONE PROJECTS
(G.S. 105-129.13)
- Eligibility
The general eligibility requirements do not apply to this credit.
To be eligible for a credit for a development zone project,
the taxpayer must meet the following requirements:
- Contribute cash or property to a development zone agency
for an improvement project in a development zone.
- Not control, be controlled by, or be under common control
with an affiliate of the development zone agency. The taxpayer
may not have one of the relationships defined in section 267(b)
of the Internal Revenue Code with the development zone agency.
- File an application with the Department of Revenue on or
before April 15 of the year following the calendar year in
which the contribution was made. The Secretary may grant an
extension for filing the application if a taxpayer makes a
timely request for an extension. An extension allows the taxpayer
to file the application by the following September 15.
- Include with an application submitted a certified appraisal
of the value of the property contributed, if the contribution
was of property rather than cash.
- Terms Used
Control. -- A person controls an entity if the person owns,
directly or indirectly, more than 10% of the voting securities
of that entity. The term "voting security" means a
security that confers upon the holder the right to vote for
the election of members of the board of directors or similar
governing body of the business or is convertible into, or entitles
the holder to receive upon its exercise, a security that confers
such a right to vote. A general partnership interest is a voting
security.
Development zone agency. -- Any of the following agencies that
the Department of Commerce certifies will undertake an improvement
project in a development zone will qualify:
- A community-based development organization qualified under
24 C.F.R. section 570.204.
- A community action agency that has been officially designated
as such pursuant to section 210 of the Economic Act of 1964,
Public Law 88-452, 78 Stat. 508.
- A community development corporation.
- A community development financial institution certified
by the United States Department of the Treasury under the
Community Development Banking and Financial Institutions
Act of 1994, 12 U.S.C. section 4701.
- A community housing development organization qualified
under the HOME Investment Partnerships Act, 42 U.S.C. section
12701 and 12704, and 24 C.F.R. section 92.2.
- A local housing authority created under Article 1 of Chapter
157 of the General Statutes.
Improvement project. -- A project to construct or improve real
property for community development purposes or to acquire real
property and convert it for community development purposes.
Construction or improvement includes services provided by a
development zone agency directly related to the construction
or improvement, and project development fees charged by a developer
for the construction or improvement.
- Credit Amount
The credit is equal to 25% of the value of the contribution
of cash or property to a development zone agency for an improvement
project in a development zone. A contribution is for an improvement
project if the agency receiving the contribution contracts in
writing to use the contribution for the project and agrees in
the contract to repay to the taxpayer, with interest, any part
of the contribution not used for the project.
- Taking the Credit
The credit may not be taken in the year in which the contribution
is made. Instead, the credit must be taken for the taxable year
beginning during the calendar year in which the application
to the Department of Revenue for the credit becomes effective.
- Ceiling
The total amount of all credits for contributions made in a
calendar year may not exceed $4,000,000. If the total amount
of credits claimed exceeds $4,000,000, the Secretary of Revenue
must allocate the $4,000,000 in tax credits in proportion to
the size of the credit claimed by each taxpayer. If a credit
is reduced because of this ceiling, the Secretary must notify
the taxpayer of the amount of the reduction of the credit on
or before December 31 of the year the application was filed.
- Forfeiture
A taxpayer forfeits the credit to the extent the development
zone agency uses the taxpayer's contribution for any purpose
other than an improvement project.
Last modified on:
10/31/07 03:53:01 PM
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