Editor's Desk for June 2002

High taxes, weak incentives
Conventional wisdom holds that North Carolina is a low-tax state with strong economic development policies. But two new reports examined at length in recent issues of NCCBI’s weekly Legislative Bulletin pop that bubble. First, respected N.C. State university economist Dr. Michael Walden determined that North Carolina’s overall tax burden has risen from fourth highest among the six Southeastern states in 1990-91 to second highest in 1999-2000. Also, Fluor Corp., a leading site selection consultant, found that North Carolina’s business tax burden is one of the highest in the Southeast and its industrial recruitment incentive package will be one of the worst until the state’s new Job Development Investment Grant program is finally implemented.

Fluor said that North Carolina business taxes for a typical manufacturing plant are third highest out of 13 states in a region that includes Texas, Oklahoma and Missouri as well as the Southeastern states. Those states are North Carolina’s most regular competition for recruiting new industry.

Fluor’s approach for measuring tax burden eliminated some tax categories that the company felt aren’t important to plant site considerations. Also, when measuring incentives Fluor took into account that many Southeastern states offer new industry property tax exemptions, negating the on-paper advantage North Carolina has with a lower property tax rate.

The Fluor study applied the various states’ taxes to a typical industrial project. The study case was a $20 million, 100,000-square-foot plant employing 210 people on a 15-acre site. The 20-year corporate income, property and franchise tax burden for such a facility would be $18 million in North Carolina, or third highest of the 13 states. By comparison, those taxes for the same plant in Georgia and South Carolina would be about $3 million lower and in Texas nearly $7 million lower.

The Fluor study concluded that for a typical industry, the state’s incentive package ranked No. 1 in the Southeast. But most of that advantage was based on the state’s new Job Development Grant Program, which awarded its first grant recently.

The program offers qualifying companies rebates of up to 75 percent of the state income taxes paid by workers in new jobs such companies create. No more than 15 companies can qualify for the program in any one year and the state can refund no more than $10 million in any one year.

Thus far the state has not declared one industry eligible for the grants. Without the grants North Carolina’s incentive package drops from first to third worst in the 13-state region.

If you would like to know more about the studies, send us an e-mail at info@nccbi.org. -- Steve Tuttle

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