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. Within each tier, there may be urban progress zones or agrarian growth zones, a list of which is 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 location 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 paying 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:  1) investing in renewable energy property; 2) construction of low-income housing; 3) construction of renewable fuel facilities; 4) North Carolina State Ports Authority wharfage, handling and throughput charges; 5) contributions of cash or property to improvement projects undertaken by development zone agencies; 6) rehabilitating historic structures and historic mills; 7) donations of real property used for public access, conservation, or conservation tillage equipment; 8) gleaned crops; 9) S&L supervisory fees; 10) construction of cogenerating power plants; 11) recycling of oyster shells; 12) certain telephone subscriber line charges; 13) investing in large or major recycling facilities; 14) construction of dwelling units for handicapped persons; 15) construction of poultry composting facilities; 16) certain holding company expenses related to dividends; 17) qualified film or television production expenses; 18) small business health insurance costs; 19) biodiesel producters; 20)expenses of research performed in the state or payments for research to universities in the state; and 21) construction or leasing of a railroad intermodal facility 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 single-member LLC may also be classified as a disregarded entity, meaning its income, losses, and income tax credits are reported on the owner's income tax return.  A LLC classified as a corporation (C or S) 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 $19,300 per employee per year in 2009. 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 2009 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

Privilege Taxes on Manufacturing Fuel and Certain Machinery and Equipment
A privilege tax of 0.5% of sales price is imposed on purchasers of fuel, other than electricity or piped natural gas, used to operate a manufacturing plant.  Effective July 1, 2009, the tax is scheduled to decreased to 0.3% and is scheduled to be repealed July 1, 2010.  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, specifed software publishing companies, industrial machinery refurbishing companies, and eligible data centers that purchase certain capitalized equipment.

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Sales and Use Tax
The State levies a general retail sales and use tax of 4.5%.  Effective October 1, 2009, the tax will increase from 4.5% to 4.75%.  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 on prescription, gasoline, coin-operated laundries, or motor vehicles.

As of October 1, 2008 eight counties (Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry) have levied an additional 0.25% local sales and use tax, bringing their local rate to 2.5%.  The local rate of tax in Mecklenburg County is 2.75% (due to a 0.5% local Public Transit Tax); the local rate of tax in the other counties remains at 2.25%. As a result, the combined general State and county tax rate in eight counties (Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry) is 7.0% and in all other counties the rate is 6.75%.  Mecklenburg County has a rate of 7.25%.

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 (other than certain bakery items sold by qualifying artisan bakeries).  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 farmers, manufacturing industries, and manufacturing plants are taxed at 1.4%.  This rate is scheduled to decrease to 0.8% on July 1, 2009.  Electricity sold to commercial laundries or to pressing and dry-cleaning establishments for use in machinery used in the direct performance of the laundering or the pressing and cleaning service is subject to the 2.83% rate of sales and use tax.  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 ancillary services, video programming and spirituous liquor are taxed at the combined general rate of 7%.

Purchases of the following items by manufacturers are exempt from sales tax: manufacturing fuel; mill machinery and mill machinery parts and accessories. “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 mill machinery by contractors or subcontractors for use in performance of contracts with a manufacturing industry or plant are also exempt.  Although these items are exempt from sales tax, purchasers of these items may be subject to the privilege taxes described previously.

Raw materials, containers, labels, packaging and shipping materials sold to manufacturers 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) air courier services, (2) aircraft manufacturing, (3) bioprocessing, (4) computer manufacturing, (5) motor vehicle manufacturing, (6) pharmaceutical and medicine manufacturing and distribution of pharmaceuticals and medicine, 7)  semiconductor manufacturing, (8) financial services, securities operations, and related systems development; and (9) solar energy generating materials manufacturing.  Others who may receive refunds include taxpayers engaged in analytical services, interstate passenger air carriers for taxes paid on fuels, certain 501 (c)(3) organizations, certain low enterprise or development tier businesses, utility companies, railroad intermodal facilities, interstate carriers, and motorsports racing teams or motorsports sanctioning bodies.

Individuals and businesses that purchase items of tangible property outside North Carolina and bring these items, or have them sent, into the State are subject to use tax on these items.  This tax is levied at the same rate as the sales tax that would have been charged had the item been purchase in-state.  The purchaser is responsible for calculating and remitting this tax.

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, sport or recreational equipment, and school instructional material.  There is another sales tax holiday for the purchase of certain Energy Star qualified products the first Friday, Saturday, and Sunday in November.

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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. Until July 1, 2008, this income maximum is $25,000. For taxable years on or after July 1, 2008, the income eligibility limit is the amount for the preceding year, adjusted each year by the cost-of-living adjustment.  The exclusion is equal to the greater of $25,000 ($20,000 until July 1, 2008) 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 and 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. Furthermore, 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 .044 (except City of Greenville).

All tax rates are per $100 valuation. Last revaluation of property was 2008. A $71 landfill tax is also assessed on each household.

*If the taxpayer is married filing a separate return for federal income tax purposes and their spouse itimizes deductions, they are not entitled to a standard deduction.

If a taxpayer chooses to itemize deductions, the amount of state and local income taxes or general sales taxes deducted on his federal return must be added back to taxable income. A higher income taxpayer who was required to reduce itemized deductions claimed on his federal return must add back only the pro rata portion of these taxes deducted for federal tax purposes.

Aged or Blind Additional Deductions
An amount in addition to the basic standard deduction is allowed for a taxpayer who is 65 years old or older or blind (and/or whose spouse is 65 years old or older or blind, and a joint return is filed). The table below shows the dollar value of an additional amount for each filing status:

Tax Credits
There is a tax credit of $100 for each dependent child for which the taxpayer was allowed to claim a child tax credit on the federal return, provided that the taxpayer's federal adjusted gross income is less than the threshold amount for his filing status, as follows:

A nonresident or part-year resident may claim the credit, but must reduce it by multiplying the credit by the same fraction used to determine the portion of total taxable income subject to North Carolina tax. The credit may not exceed the amount of tax for the taxable year reduced by the sum of all tax credits.

A person who is allowed a credit against federal income tax is also allowed a credit against North Carolina income tax for expenses incurred for child or dependent care. This credit is based on the taxpayer's filing status and adjusted gross income. The credit ranges from 7% to 9% of employment-related expenses for a dependent who is seven years old or older. The credit ranges from 10% to 13% of employment-related expenses for a dependent, of any age, who is not physically or mentally capable of caring for himself or for a dependent who is less than 7 years old. The maximum amount of expenses for which a credit may be claimed for one dependent is $3,000; the maximum for more than one dependent is $6,000.

The credit for premiums paid on long-term care insurance was reenacted; however, the long-term care credit is allowed only to a taxpayer whose adjusted gross income is less than the amount shown below for the taxpayer's filing status.

If the taxpayer's adjusted gross income is less than the amount shown for their filing status, a tax credit is allowed for the qualifying premiums they paid during the tax year on a qualified long-term care insurance contract(s) (as defined in section 7702B of the Internal Revenue Code) that provides long-term insurance coverage for the taxpayer, their spouse, or a dependent for whom they are allowed to claim a personal exemption on the federal return.  The credit is 15% of the premiums paid but may not exceed $350 for each qualified long-term care insurance contract for which a credit is claimed.

No credit is allowed for payment that are deducted from, or not included in, federal gross income for the tax year.  For example, payments not included in federal gross income include premiums paid through an employer sponsored plan in which the payments are excluded from taxable wages (pre-taxed dollars).  If the taxpayer claimed a deduction for medical expenses on Federal Schedule A, Line 4, or if they claimed a deduction for self-employed health insurance premiums on Federal Form 1040, Line 29, they are not entitled to claim this credit.  However, the credit is allowed for any premiums paid for long-term care insurance that are not deductible on the federal return because of the age limitations contained in section 213(d)(10) of the Code.

A non-resident or part-year resident is allowed a prorated credit based on the percentage of the taxpayer's total income that is taxable for North Carolina income tax purposes.

There is a refundable Earned Income Tax Credit available to individuals but not to estates or trusts.  This credit is 3.5% of the amount of the individual's federal earned income tax credit for tax year 2008.  A nonresident or part-year resident must prorate this credit based on the portion of total income that is taxable in North Carolina.  The percentage increases to 5% beginning with tax year 2009.

Other income tax credits are available.  There is a tax credit for income taxes paid to other states on income taxable in North Carolina.  There is a credit for adoption expenses, effective January 1, 2007 and expiring January 1, 2013.  There are tax credits for the disabled, for property taxes paid on farm machinery, and a limited tax credit for charitable contributions made by taxpayers who claim the standard deduction.  Tax credits are allowed for construction of handicapped dwelling units, certain energy-saving equipment, conservation tillage equipment, constructing poultry composting facilities, and credits for individuals who purchase the equity securities of a qualified business directly from the business.

North Carolina law also allows several income tax credits intended to promote economic development which may be available to owners of businesses. Please see the section "Tax Credits for Growing Businesses (Article 3J)" for additional information.

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Other Taxes
Other State taxes the individual may be required to pay include: Occupational License Taxes, Sales and Use Tax, Piped Natural Gas Tax, White Goods Disposal Tax, Scrap Tire Disposal Tax, Highway Use Tax, Tobacco Products Tax, Alcoholic Beverage Taxes, Motor Fuel Taxes, and Estate Taxes. Additional local taxes that may be imposed include: Occupational License Taxes, Property Taxes, Real Estate Transfer Taxes, Sales and Use Tax, and Occupancy Tax.

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