State Government

Two studies rate N.C. as a high-tax state

Two recent studies confirm that business taxes in North Carolina are higher than in most Southeastern states, which many economic developers say hurts North Carolina’s industrial recruitment efforts. In one study, N.C. State University economist Dr. Mike Walden found that the state’s tax burden ranks second highest in a six-state southeastern region where North Carolina faces its toughest competition in economic development.

In the second study, Fluor Corp.’s Global Location Strategies Group of Greenville, S.C., concluded that North Carolina business taxes for a typical manufacturing plant are third highest out of 13 states in a region that included Texas, Oklahoma and Missouri as well as the Southeastern states. 

“The reports’ techniques were different, but their conclusions are basically the same,” said Phil Kirk, president of NCCBI. “We’re a high tax state in our own region, which can hurt our economic development efforts.”

Dale Carroll, president of the N.C. Economic Developers Association, said a national survey indicates a state’s corporate income tax rate is top site selection factor.  “The importance of taxes and incentives have increased significantly, especially in our competition with border states,” he said. See Executive Voices column on page 43.

Walden’s report ranks the tax burden of the six southeastern states based on a percent of personal income. North Carolina was the highest in the region in individual and corporate income and second highest overall, which is up from third lowest in 1991.

Fluor took a different approach by measuring the tax burden related to industrial recruitment. It eliminated some tax categories that the company felt aren’t important to plant site considerations.

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 tax, property tax 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. 

When it came to incentives, the results were mixed, according to Fluor. North Carolina’s incentive package ranked first, but only if an industry qualified for the state’s new Job Development Investment Grant Program. As created by the General Assembly last year, 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 that the state can refund no more than $10 million in any one year.

The state approved its first grant under the Job Development Grant Program last month (see story, page 12). Without the job development investment grant, North Carolina’s incentive package drops from first to third worst of the 13 states.

In addition, Fluor also treated measurement of property taxes differently than many studies. On paper many southeastern states have higher average property tax rates than North Carolina. In reality, at least half of the states offer extensive property tax exemptions or abatements to new and expanding industry. North Carolina can’t make that offer except on a very limited basis.

 “We should realize that we have many of our eggs in one basket and make sure the program gets implemented as quickly as possible,” Kirk added.

Other findings included:

The state’s incentive program for R&D companies puts it about in the middle of the pack in the Southeast (Fluor).  Several bills have been introduced in this year’s General Assembly to expand tax credit incentives for information technology and biotechnology companies. In his State of the State address, Gov. Mike Easley supported a new R&D tax credit.

Business start-up costs among the southeastern states are very close (Fluor). For example, the capital investment for a model R&D project was highest in Missouri at $31.8 million. Yet, North Carolina was ranked second lowest with a projected $31.53 million, a difference of only $300,000 or less than 1 percent. 

Most states ranked within about 10 percent of each other when it comes to long-term recurring costs (Fluor).

“What both studies make clear is how close the competition is,” said Kirk.  “When it comes time for a company to pick between states, one slight difference can give a state the edge.”

For more information about the Fluor study, contact Bill Schaperkotter at 864-281-4228. Fluor is one of the world’s largest engineering, procurement, construction and maintenance services organizations.  Fluor’s Global Location Strategies Group has conducted more than 1,000 site location studies worldwide.

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