Tax Credits

Tax Credits

More than 1,000 corporate taxpayers in North Carolina avoided paying a total of almost $32 million in taxes to the state last year. However, the number of eligible companies taking tax credits and the amount of those credits taken were significantly lower in 2007 than in past years as economic activity slowed and the state's tax-credit system began transitioning to a more narrowly focused program. Corporate tax credits claimed under the William S. Lee Quality Jobs and Business Expansion Act declined by more than 65 percent in 2007 from the year before, to less than $32 million, according to a state Department of Revenue report released May 1. Lee Act tax credits generated for claims that can be taken in future years declined by 67 percent from the year prior, to $57.5 million.

Bill Spencer with the Department of Revenue's Policy Analysis and Statistics Division, which compiles the annual report for lawmakers, said the likely reason for the decline in participation is the transition to the new Article 3J tax credit program, which went into effect Jan. 1, 2007. Most of the tax returns processed in 2007 were generated from the 2006 tax year, which still fell under the old Lee Act rules. Approved in the mid-1990s, The Lee Act was designed to help the state become more competitive as other states were beginning to offer lucrative grants, loans and other incentives. Since then, North Carolina legislators have created the Jobs Development Investment Grant and expanded the One North Carolina Fund. Those programs offer cash grants and rebates for big economic development deals.

The Lee Act allows credits to be taken for a company's investment in new jobs, machinery and equipment, research and development, and worker training based on the tier level of the county in which the company is located. The Article 3J tax credits enacted in 2006 are more narrowly focused on job creation and property investment in more distressed regions.

(Amanda Jones Hoyle, TRIANGLE BUSINESS JOURNAL, 5/09/08).