In July, 2006, the NC General Assembly passed legislation (House
Bill 2170) that created a new tax credit program,
Article 3J Credits. Article 3J provides three types of
tax credits to eligible taxpayers that undertake qualifying
activities in North Carolina: 1) Credit for Creating
Jobs, 2) Credit for Investing in Business Property, and
3) Credit for Investment in Real Property (tier 1 only).
These credits may be combined to offset up to 50% of
the taxpayer’s state income and franchise tax liability,
and unused credits may be carried forward for up to five
years (15-year carry- forwards apply to the Credit for
Investing in Real Property and 20- year carry-forwards
exist for taxpayers that invest at least $150 million
over a two-year period).
Article 3J Credits should not be confused with William
S. Lee Credits. Although these tax credit programs
are similar, they are not the same. Article 3J is not
a revision to the Lee Act; it replaces the Lee Act.
The distinction is subtle, but significant.
In general terms, Lee Credits are repealed for business
activities that occur on or after January 1, 2007 and
Article 3J Credits take effect for taxable years beginning
on or after January 1, 2007. However, taxpayers will
have the option, after signing a letter of commitment
with the NC Department of Commerce, to utilize Lee Act
Credits in place of Article 3J Credits for qualifying
activity that takes place at a specific site in 2007.
If the taxpayer intends to claim Lee Credits for 2007
activity at more than one site, it must sign a separate
letter of commitment for each site. Taxpayers should
carefully review and understand the differences between
Lee Credits and Article 3J Credits before electing to
claim Lee Act Credits for 2007 activity
Letters of commitment must be submitted to
the Department of Commerce prior to January 1, 2007.
County Tier Designations (§143B-437.08)
The Department of Commerce annually ranks the state’s
100 counties based on economic well-being and assigns a
tier designation to each. The 40 most distressed counties
are designated as tier 1, the next 40 are tier 2, and the
20 least distressed are tier 3. This tier system is incorporated
into various state programs, including Article 3J Credits,
to encourage economic activity in the less prosperous areas
of the state.
Urban Progress Zones (UPZ) and Agrarian Growth Zones
(AGZ)
Municipalities with a population of at least 10,000 have
the ability to define qualifying areas of poverty as Urban
Progress Zones. Counties that do not have a municipality
with a population of at least 10,000, have the ability
to define qualifying areas of poverty as Agrarian Growth
Zones. Projects located within these zones receive enhanced
Article 3J Credits.
Eligibility (§105-129.83)
To qualify for Article 3J Credits, the following eligibility
require- ments must be met:
1. The primary activity at the business establishment must
be an eligible type of business, which includes:
aircraft maintenance and repair; air courier services
hub; company headquarters that creates at least 75
new headquarters jobs;customer service call centers;
electronic shopping and mail order houses; information
technology and services; manufacturing; motorsports
facility; motorsports racing team; research and development;
warehousing; and wholesale trade.
2. The average wage of all full-time workers employed by
the taxpayer at the establishment during the taxable year
must meet or exceed the applicable wage standard of the
county in which the establishment is located.
3. The taxpayer must offer qualifying health insurance
for all full-time positions at the establishment and pay
at least fifty percent (50%) of employee premiums.
4. The taxpayer must not have received any significant
environmental violations with the North Carolina Department
of Environment and Natural Resources within the prior five
years.
5. The taxpayer must not have received any “willful” or “failure
to abate” serious OSHA violations at the establishment
within the prior three years.
6. The taxpayer may not have overdue taxes.
Credit for Creating Jobs (§105-129.87)
Eligible taxpayers that meet a minimum threshold of new full-time
jobs created during the taxable year may claim a credit for
each new job created. The credit is taken in equal installments
over four years following the year the jobs are created.
The job threshold and the credit amount per job are determined
by the tier designation of the county in which the jobs are
created.
|
County
Tier Designation |
UPZ/AGZ |
| 1 |
2 |
3 |
| Threshold |
$0 |
$1million |
$2million |
$0 |
| Credit % |
7% |
5% |
3.5% |
7% |
Credit for Investing in Business Property (§105-129.88)
Eligible taxpayers may claim a credit based on a percentage
of the cost of capitalized tangible personal property
that is placed in service during the taxable year, in
excess of an applicable threshold. This credit is taken
in equal installments over four years, beginning the
year after the property is first placed in service. The
credit percentage and threshold are based on the tier
designation of the county where the property is placed
in service.
|
County
Tier Designation |
UPZ/AGZ |
| 1 |
2 |
3 |
| Threshold |
$0 |
$1million |
$2million |
$0 |
| Credit % |
7% |
5% |
3.5% |
7% |
Credit for Investment in Real Property (§105-129.89)
Eligible taxpayers that invest at least $10 million in real
property within a three-year period and create at least 200
new jobs within two years at an establishment located in
a tier 1 county are allowed a credit equal to 30% of the
eligible real property investment. This credit is taken in
equal installments over seven years, beginning the year after
the property is used in an eligible business. To qualify
for this credit, the taxpayer must obtain a written determination
from the Department of Commerce.
| This summary is not meant to be exhaustive.
Taxpayers should review the Article 3J statutes
prior to claiming credits. Taxpayers that are
uncertain about their eligibility or ineligibility
to claim credits after reviewing the Article
3J statutes should consult with the Department
of Revenue. No application is required to claim
Article 3J credits. |
NORTH CAROLINA'S SOUTHEAST
The Regional Economic Development Marketing Organization
For Southeastern North Carolina
707 West Broad Street, P.O. Box 2556, Elizabethtown,
NC 28337
Phone: 800-787-1333 Fax: 910-862-1482 |
