Pitt County Taxes

Tax Credits for Growing Businesses (Article 3J)
Effective for taxable years beginning on or after January 1, 2007 , Article 3J provides tax credits to growing businesses.  These credits replace the Article 3A credits, also known as the William Lee Act, which expired for taxable years beginning on or after January 1, 2007 , with some exceptions.  A taxpayer cannot take Article 3J credits and Article 3A credits with respect to the same establishment.

Credits are available for 1) creating jobs; 2) investing in business property; and 3) investing in real property (limited geographic availability).  The Article 3J tax credits are based on a system that divides the State into three development tiers, with tier one being the most economically distressed and tier three being the least economically distressed.  Each county is assigned an annual tier designation by the Secretary of Commerce.  The Department of Commerce publishes a list of county tier designations at www.nccommerce.com/finance/tiers/.  Within each tier, there may be urban progress zones or agrarian growth zones, a list of which also will be published by the Department of Commerce.

The amount of the creating jobs credit and the number of jobs that must be created to qualify varies by tier and whether the job is created in an urban progress or agrarian growth zone.  The business property credit is calculated as a percentage of the amount of investment over a threshold.  The threshold and percentage vary by the tier of the locations where the property is located, with urban progress and agrarian growth zones treated as being in tier 1.  The real property credit is available only for property in service in a tier 1 county.

To qualify for the Article 3J credits, job creation or investment must occur at an establishment whose primary activity is one of the following:  1) aircraft maintenance and repair; 2) an air courier services hub; 3) a company headquarters (creation of at least 75 jobs within 24 months); 4) a customer service call center; 5) an electronic shopping and mail order house; 6) information technology and services; 7) manufacturing; 8) a motorsports facility; 9) a motorsports racing team; 10) research and development; 11) warehousing; or 12) wholesale trade.

In addition, a taxpayer must satisfy general eligibility requirements by: 1) meeting wage standards published by the Department of Commerce; 2) providing health insurance for all full-time employees at the credit-qualifying establishment and cover at least 50% of health care premiums; 3) having a good environmental record; 4) having a good OSHA record; and 5) having no overdue tax debts with the State.

The creating jobs and business property credits are taken in four equal installments and the real property credit in seven installments, beginning with the taxable year following the year in which the qualifying activity took place.  The credits are allowed against the franchise tax, the income tax, and the gross premiums tax.  The taxpayer may divide a credit between the taxes against which it is allowed.  The total of all credits may not exceed 50% of the cumulative amount of taxes against which they are allowed for the taxable year, reduced by the sum of all other credits against those taxes.  Unused credits may be carried forward for the succeeding five years (15 years for the credit for investment in real property and 20 years for investments of $150,000,000 over two years).

Additional information on the Article 3J credits is available on the Department of Revenue website at www.dornc.com

Other Income Tax Credits
Income tax credits are also available for the following:  investing in renewable energy property; construction of low-income housing; construction of renewable fuel facilities; North Carolina State Ports Authority wharfage, handling and throughput charges; contributions of cash or property to improvement projects undertaken by development zone agencies; rehabilitation of historic structures and historic mills; donations of real property used for public access or conservation, conservation tillage equipment, gleaned crops; S&L supervisory fees; construction of cogenerating power plants; recycling of oyster shells; certain telephone subscriber line charges; investing in large or major recycling facilities; construction of dwelling units for handicapped persons; construction of poultry composting facilities; certain holding company expenses related to dividends; qualified film or television production expenses; small business health insurance costs; and expenses of research performed in the state or payments for research to universities in the state.

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Income Taxes for S Corporations
S Corporations are not subject to the corporate income tax. Each shareholder’s pro rata share of S Corporation income attributable to North Carolina is taxed under the individual income tax. A shareholder who is a resident of the State also takes into account his share of S Corporation income not attributable to North Carolina when computing his individual income tax.

An S Corporation incorporated or doing business in this State is required to file an information return with the Department of Revenue. The return should show the name, address, social security or federal identification number of each shareholder, and for each shareholder, income attributable and the amount of income not attributable to the State.

An S Corporation is required to file an agreement with the Department of Revenue for each nonresident shareholder whereby each nonresident shareholder agrees to file an income tax return, pay tax imposed by the State, and be subject to personal jurisdiction in the State for purposes of collecting unpaid taxes, penalties, interest, etc. However, an S Corporation may file a composite return and make composite payment of tax to the Department of Revenue on behalf of some or all of its nonresident individual shareholders.

Special Tax Provisions for Limited Liability Companies
A LLC is subject to taxation as a partnership if it is classified as a partnership for federal income tax purposes or as a corporation if it is classified as a corporation for federal income tax purposes. A LLC classified as a c-corporation for federal income tax purposes is subject to the franchise tax, but all other LLCs are exempt. However, it is the intent of the law that the franchise tax applies equally to assets held by corporations and assets held by corporate-affiliated LLCs.  A non-corporate LLC’s assets are attributed to a controlling corporation if the corporation or affiliated group of corporations owned 50% or more of the LLC’s assets. This is to avoid the possibility of corporations reducing their franchise tax by transferring assets to their LLC.

Withholding Income Tax
Employers are required to withhold individual income tax from wages and salaries of their employees.  A pension payer that must withhold federal income tax from a pension payment to a North Carolina resident is required to withhold State income tax. A pension recipient may elect not to have taxes withheld and certain pension payments are exempt.

Employment Security Tax
Business entities are subject to a payroll tax under the North Carolina Employment Security Law if they have one or more employees for 20 different weeks during a calendar year or pay $1,500 in wages in any calendar quarter during a calendar year in this State. The tax is payable quarterly and applies to wage payments up to $16,270 per employee per year in 2005. Entities commencing business in North Carolina are subject to a tax rate of 1.20% during the first two years. The rate may be changed after the entity comes under experience rating. The minimum tax rate allowed in 2005 under the experience rating tables is 0% of taxable payrolls; the maximum tax rate, 6.84%.

The tax is administered by the Employment Security Commission of North Carolina.  Information regarding the tax is available at www.ncesc.com/business/default.asp

Privilege Taxes on Manufacturing Fuel and Certain Machinery and Equipment
A privilege tax of 1% of sales price is imposed on purchasers of fuel, other than electricity or natural gas, used to operate a manufacturing plant.  A privilege tax of 1% of sales price, with a maximum of $80 per article, is imposed on purchasers of manufacturing machinery, parts, and accessories stored, used, or consumed in the state.  A privilege tax of 1% of sales price, with a maximum of $80 per article, also is imposed on purchasers of crane systems, port or dock facilities, rail equipment, and material handling equipment if they are used in connection with a major recycling facility in the state, and on research and development companies in the physical, engineering, and life sciences that purchase certain capitalized equipment.

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Sales and Use Tax
The State levies a general retail sales and use tax of 4.25% which is scheduled to return to 4% effective July 1, 2007). The general rate applies to purchases of tangible commodities, room and cottage rentals, and laundry and dry cleaning services. The tax does not apply to prescription drugs, insulin, false teeth, eyeglasses, gasoline, coin-operated laundries, or motor vehicles.

Counties are allowed to levy a 2.5% local sales and use tax on items taxed by the State at its general rate. As a result, the combined general State and county tax rate is 6.75% in all counties except Mecklenburg County, which has a rate of 7.25% (due to a 0.5% Public Transit Tax). The State exempts food from sales and use tax except for certain classifications including dietary supplements, food sold from vending machines, soft drinks, candy, and prepared food.  Alcoholic beverages are not food items.  A local sales and use tax of 2% applies to all food that is exempt from the State sales and use tax.

Sales of electricity to manufacturers, farmers, and commercial laundries and dry cleaners for non-residential use are taxed at 2.83%. The rate for manufacturers is scheduled to decrease to 2.6% as of July 1, 2007.  Electricity sold to an aluminum smelting facility for use in connection with the operation of that facility and measured by a separate meter is taxed at a rate of 0.17% until September 30, 2007, at which time it will be taxed at the same rate as sales to other manufacturers. Sales of electricity for all other purposes are taxed at a 3% state rate. Aircraft and boats are taxed at 3% with a $1,500 maximum tax on each item. Manufactured (mobile) homes are taxed at a 2% rate; the maximum tax per section of manufactured home is $300. Modular homes are taxed at 2.5%.

Telecommunications services and cable and satellite television services are taxed at the combined general rate of 6.75%. Prepaid telephone calling arrangements and satellite radio are subject to the general state and local sales tax rates.

Purchases of the following items by manufacturers are exempt from sales tax: coal, coke, and fuel oil used in manufacturing; manufacturing machinery and equipment; and parts and accessories to manufacturing machinery. “Accessories” include most supplies used in the manufacturing process but not becoming a part of the manufactured product and also include pollution abatement equipment. Purchases of manufacturing machinery by contractors or subcontractors for use in performance of contracts to construct manufacturing facilities are also exempt.  Although these items are exempt from sales tax, purchasers of these items may be subject to privilege taxes.

Raw materials, containers, labels, packaging and shipping materials are exempt from sales and use tax. Motor vehicle sales are exempt from the sales tax, but are taxed under the Highway Use Tax (see below).

Certain industries may receive a refund of sales taxes on purchases of building materials, fixtures and equipment purchased for new facilities meeting specific cost thresholds.  These thresholds vary by county and are either $50 million or $100 million. The qualifying industries are (1) bioprocessing, (2) pharmaceutical and medicine manufacturing and distribution, (3) aircraft manufacturing (4) computer manufacturing, (5) motor vehicle manufacturing, (6) semiconductor manufacturing, (7) air courier services, and (8) financial services, securities operations, and related development.

The general State and local sales tax rate applies to the sales price of mixed beverages. The rate is 6.75% on spirituous liquor other than mixed beverages.

There is an annual sales tax holiday the first Friday, Saturday, and Sunday in August. During this time, State and local sales and use taxes do not apply to certain articles of clothing, school supplies, computers, computer supplies, and sport or recreational equipment.

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Property Taxes
The principal source of local revenue is a property tax on real estate and tangible personal property, including all machinery and equipment. The State does not levy a tax on such property.

Property Tax Assessment
There is only one assessment in each county. The value as determined by the county assessor constitutes the base for all levies, including those of cities and towns on property located within the municipality. Property is to be assessed at 100% of appraised value. Although appraised value is to be “full value,” this is a standard not always achieved for real property. This is largely because real property is required to be revalued every eight years, although counties may revalue earlier. Property appraised at full value at the time of appraisal may appreciate until appraised value is only 50 or 60 % of true value by the end of the eight-year period. Actual ratios vary from county to county.

Real property owned by businesses and individuals consists of land and buildings and is permanently listed for property tax.  The owner is only required to list the construction or acquisition of improvements on and separate rights in real property.

Household tangible personal property in the personal residence of the owner is exempt from property taxation. A homestead exemption is allowed if the property owner is age 65 or over, or is totally and permanently disabled, and the combined income of owner and spouse does not exceed a maximum amount that is adjusted each year for inflation. For 2005, this income maximum is $19,700. The exclusion is equal to the greater of $20,000 or 50% of the appraised value of the residence. The homestead exemption is applicable only to the owner’s permanent residence. A separate exclusion of $38,000 applies to the assessed value of housing and land owned and used as a residence by a disabled veteran who receives benefits under U.S.C. 2101, but this exclusion must be the total exclusion applicable to the property.

Every business is required to list their tangible personal property during January with the county assessor of the county in which the property is located.  In order to receive the standard forms and other listing information, businesses should contact the county assessor to make sure they are on the roster of taxpayers or “tax roll.”

Non-business owners and individuals are also required to annually list, during January, certain tangible personal property including unregistered motor vehicles, multi-year or permanently registered trailers, watercraft, engines for watercraft, and aircraft.  A mobile home (single or double-wide) also must be listed if it meets any one or more of the following conditions:  1) is not placed on a permanent foundation; 2) is on land owned by someone other than the owner of the mobile home; or 3) still retains the moving hitch, wheels, and axles.

New manufacturing machinery is generally appraised at cost and is depreciated annually until it reaches a minimum value, frequently 25% of cost. The annual depreciation varies but a common figure is 10% per year. Most counties have adopted the “trending” procedure to value machinery and equipment. Under this procedure the machinery is valued at replacement cost each year and then depreciated according to its age and expected life.

Property taxes are based on assessments as of January 1, are due September 1, but may be paid at par as late as January 5 of the following year.

Tax Rates
The tax rates vary from county to county and from town to town. In much of the State, only county-wide rates apply outside of cities and towns.

Property Tax Exemptions and Exclusions
Excluded from property taxation are manufacturers’ inventories (raw materials, goods in process, finished goods, materials or supplies consumed in processing, crops, and other agricultural or horticultural products held for sale), contractors’ inventories (goods held by contractors to be furnished in the course of building, installing, repairing, or improving real property), livestock, poultry, and feed used in production of livestock and poultry, and inventories of retail and wholesale merchants (tangible personal property held for sale and not manufactured, processed, or produced by the merchant).

Computer software is exempt from taxation. This exemption does not apply to embedded software and capitalized software purchased or licensed from an unrelated entity.

Property which has been imported from a foreign country and is stored at the seaport terminal while awaiting further shipment is exempt for the first year of storage.

“Bill and hold” goods manufactured in North Carolina and held by the manufacturer for shipment to a nonresident customer are exempt.

Motor vehicle chassis belonging to nonresidents which enter the State temporarily for the purpose of having a body mounted thereon are exempt from taxation.

Nuclear materials held for the purpose of, or in the process of, manufacture or processing, or held by the manufacturer for delivery are exempt from taxation.

Improvements on brownfields properties are partially excluded from property taxation. The exclusion is for a five-year period beginning when the improvements are made and declines during the period from 90% of the appraised value for the first year to 10% for the fifth year. The improvements are fully taxable in the sixth and subsequent years after the improvements are made. The property must be subject to a brownfields agreement entered into by the owner with the Department of Environment and Natural Resources pursuant to G.S. 130A-310.32.

Property used to reduce air or water pollution receives special treatment under the tax laws of North Carolina if the Board of Environmental Management or local air pollution control program certifies that the property complies with the requirements of the Board.

Such real and tangible personal property is exempt from taxation under the property tax laws and is subject to the preferential 1% state sales tax rate as “accessory” to manufacturing machinery. Further, the cost may be excluded from the three alternate bases in computing the franchise tax and may be amortized over 60 months for corporation income tax purposes.

Personal property used exclusively for the prevention or reduction of dust in textile plants is also exempt from local property taxes.

Equipment or facilities installed for the purpose of recycling solid waste or resource recovery from solid waste receives the same treatment under the tax laws as that given to pollution abatement equipment described above

Rescue District Taxes:  County-wide rescue tax of .04 (except City of Greenville).

All tax rates are per $100 valuation. Last revaluation of property was 2004. A $68 landfill tax is also assessed on each household.

Personal Income Tax
North Carolina taxable income is taxable income as calculated for federal income tax purposes, with certain adjustments.

Adjustments to Taxable Income
Deductions:  An amount is deducted from taxable income to the extent each item listed below was included in gross income or was not deducted from gross income.

Interest upon obligations of the United States; its possessions; the state of North Carolina; political subdivisions of the state of North Carolina; or nonprofit educational institutions organized or chartered under the laws of the State.

Interest upon obligations which are exempt from tax under North Carolina law. For example, interest on obligations of the North Carolina Housing Finance Agency and the North Carolina Educational Facilities Finance Act are exempt from the personal income tax.

Social Security benefits and Railroad Retirement Act benefits.

Refunds of state, local, and foreign income taxes.

20% of the amounts added to North Carolina taxable income in taxable years 2002 through 2004 as accelerated depreciation.

Generally retirement benefits received by retirees of the state of North Carolina and its local governments or by retirees of the United States government (including military) are exempt if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the State’s §401(k) and §457 (deferred compensation) plans if the retiree contributed to the plan prior to August 12, 1989.

Up to $4,000 in state, local, or federal government retirement benefits if the retiree did not have five years of creditable service as of August 12, 1989, OR if the benefits are received from another state and its local governments, and up to $2,000 in private retirement benefits received by an individual taxpayer. (Note: No more than $4,000 in total retirement benefits can be deducted for each taxpayer in this group.)

The amount by which a taxpayer's federal tax deductions were reduced because of a federal tax credit, when a similar state tax credit does not exist.

Severance wages received by a taxpayer from an employer as a result of the taxpayer's permanent, involuntary termination from employment through no fault of the employee.  The amount of severance wages deducted as the result of the same termination may not exceed $35,000 for all taxable years in which the wages are received.

Inheritance tax and estate tax paid to North Carolina on an item of income in respect of a decedent.

For taxpayers below certain income thresholds, up to $750 per taxpayer ($1500 per married couple) of amounts contributed to the Parental Savings Trust Fund, effective for tax years beginning on or after January 1, 2006.

Additions: An amount is added to taxable income to the extent each item listed below was not included in gross income or was deducted from gross income.

Interest upon obligations of other states and their political subdivisions.

Lump-sum distributions from a pension or profit-sharing plan.

Any state, local, or foreign income tax deducted on the federal return.

Any amounts deducted from gross income and taxed under the Internal Revenue Code by a tax other than the tax imposed in Section 1.

Income from domestic production activities.

Personal Exemption Amounts
North Carolina allows a personal exemption of $2,500 for the taxpayer (unless he is claimed as a dependent on someone else's return) and $2,500 for each dependent if the taxpayer's federal  adjusted gross income is less than the threshold amount for his filing status, as shown below.

A taxpayer whose federal adjusted gross income is equal to or greater than the threshold amount for his filing status is allowed a personal exemption of $2,000 (unless he is claimed as a dependent on someone else's return) and $2,000 for each dependent.  Unlike the federal system, North Carolina does not index personal exemptions for inflation.  An addition to the federal taxable income must be made for the difference between the federal and State personal exemption amounts.

Standard Deduction Amounts
North Carolina allows a basic standard deduction which does not include the cost-of-living adjustment permitted under federal law. This adjustment amount must be added back to taxable income. The standard deduction amounts are: