North Carolina House lawmakers have introduced a package of tax incentives designed to lure more businesses, particularly large businesses, to the state. House Bill 117, or the “North Carolina Competes Act”, is the first major jobs bill this session. Written by a group of House Republicans, including Mecklenburg county’s Charles Jeter, and supported by Gov. Pat McCrory, the bill aims to modify tax codes for companies that spend $1 billion to build a plant in North Carolina. It would also create a special $20 million fund to help communities run water lines, electricity, or other major utilities to develop sites for such a companies. Although the bill itself is sprawling, the highlights are:
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Rename the current JDIG (Job Development Investment Grant) and the One NC discretionary incentive programs to more accurately describe them. Job GRO – People replaces JDIG. Job GRO – Capital replaces One NC.
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Make $22.5M available for new commitments in 2015 to invest in growing jobs in North Carolina. The bill increases the amount of Job GRO People funds available for new agreements by immediately making $7.5M that would otherwise become available beginning in July, and by adding $15M of additional capacity in 2015. Currently, the fund has been depleted and there is $25,000 available for projects until July 1.
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Extend new Job GRO People commitments until 1/1/2020. Currently, commitments are set to expire 1/1/2016.
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Transfer $20M that was appropriated last year for the Job Catalyst Fund into the Site Acceleration Fund, the fund that provides grants or forgivable loans to state agencies, non-profit corporations, locals, or businesses for acquisition and/or improvement of land land and to lease property to a business that (i) will invest at least $100M in private funds in a project and (ii) will employ at least 100 new employees at the project.
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Modify the current statute for Single Sales Factor Apportionment for qualified capital intensive corporations. Single Sales Factor is one method of apportioning the business income of multi-state corporations for state income tax purposes. Most states use an apportionment formula based on a composite of three factors: property, payroll and sales. NC uses a double-weighted sales factor apportionment formula. Currently NC has adopted the single sales factor for “qualified capital intensive corporations” that invest at least $1B in a single facility in a Tier 1 or Tier 2 county over a 9 year period. HB 117 maintains the $1B investment threshold but eliminates the location requirement and the exclusion of coupling with other Job GRO programs.
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Extend the sales tax refund for passenger air carriers. Currently passenger air carriers are allowed a sales tax refund of sales tax paid on fuel in excess of $2.5M. This is set to expire 1/1/2016. HB 117 extends the current tax benefit for 4 years to 1/1/2020. Without legislative action North Carolina will have the 5th highest jet fuel tax in the country next year. Thirty five states already exclude commercial jet fuel from tax.
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Data Center Infrastructure Act: Under current law, data centers pay 1% ($80 cap per article) privilege tax in lieu of a sales tax on certain equipment purchases if certain conditions are met: (i) $150M investment in Tier 1 or (ii) $225M investment in Tier 2 area over a 5-year period; $250M investment over 5 years to be exempt from sales tax on electricity. HB 117 creates an additional sales tax exemption for data center equipment and electricity if $75M is invested over a 5-year period.
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More help for Tier 1 and Tier 2 Counties: Depending on the tier of the county where a project locates, a portion of the Job GRO ‘reimbursement’ is used to fund the Utility Account for infrastructure improvement projects that are reasonably anticipated to create jobs in Tier 1 and Tier 2 areas.
Left out of the package are features sought by Gov. Pat McCrory, including an expansion of the historic preservation tax credit program for old mill buildings and a measure to create crowd-funding regulations that would facilitate small investors putting money into startups. There is also no mention of the state's film grant program, which industry advocates say is under-funded.
Conservatives initially blasted the bill for spending government money on private businesses, and more liberal lawmakers decried the fact it would give money to businesses that they said could be better spent on schools and families. Many see it as corporate welfare. Still, the bill sailed through the House in early March and many believed it was a done deal. But it’s now stalled in the Senate -- blocked by the Senate’s own proposal for boosting economic development. Senate leaders have proposed their own bill that offers tax cuts for all corporations and would cap job development grants at $30 million. Senate Bill 338 was filed March 18, passed March 19, and is working its way through committees now. As that bill gains traction, Bill 117 stands still. It seems the legislature is literally competing against itself in a competition to improve North Carolina’s business climate.
It’s uncertain what will come of these two incentives packages or if they hold all the answers for North Carolina. In an ideal world perhaps we wouldn’t need them at all. But other states, including our border states, do provide enticing incentives to businesses. North Carolina simply must position its business climate competitively to draw investment that keep, attract, and grow good jobs for the future. Much of North Carolina’s recent job growth can be attributed to pro-business policies of reduced taxes, regulatory reform, and strategic investments. 200,000 new jobs have been created in the private sector since 2013 and unemployment has dropped from 8.9% to 5.5%. NC is now ranked 15th best by Business Insider as one of the fastest growing economies in the country. That’s not progress we want to halt. How we continue, however, remains to be seen.
