Machinery Tax And Sales Tax

Position: North Carolina should not increase the rate or remove the $80 cap on the tax on sales of machinery. Additionally, the sales tax on utilities used in manufacturing and farming needs to be reduced from 2.83 percent rate to one percent to be consistent with the tax on machinery and equipment.

Explanation:  There are no states contiguous to North Carolina that impose a sales tax on machinery and equipment used in manufacturing. This tax has not been opposed by business because of an $80 cap which the General Assembly wisely placed on this tax. The moderation with which this tax has long been applied has helped North Carolina’s attractiveness to industry.

When a company is considering North Carolina as a place to locate or expand, it looks at many factors: transportation, availability of skilled labor, wage rates, quality of life, utilities, educational and cultural opportunities, land and building costs, and overall tax climate. When it is building a plant, it must equip that facility with the tools that will enable that company to produce the goods and services profitably. A tax on the purchase of machinery, without the $80 cap could be significant enough to cause a company not to build a facility in the state-resulting in a loss of jobs and tax revenues.

Likewise, utilities (electricity) are a major cost to manufacturers and farmers. All the southeastern states, except North Carolina, exempt electricity and natural gas used in manufacturing from the sales tax. For North Carolina to be competitive, this tax rate should be reduced to one percent.

Larger companies and some company divisions often operate under a system called “contention manufacturing.” Under this system, divisions of the same company compete against other divisions and plants within the company for the right to manufacture a given product. Decisions are based on cost, quality, and other criteria. Competition is often very close. If the cost for purchasing equipment to manufacture the product or the cost of utilities are higher for a plant in North Carolina because of these taxes, this fact may tip the scale against the product’s being manufactured in our state.

Furthermore, a tax on machinery to manufacture goods that ultimately will be sold at retail contradicts the notion of a tax aimed only at retail sales themselves.

From an economic standpoint, taxing the tools or utilities of production will only serve to decrease the level of economic activity and growth in North Carolina, and will decrease the level of revenues to the State in the long run.

Continue N.C. Budget Reform

Contingent Fee Audits

Defining "Doing Business" In North Carolina

Property Tax Exemptions For Construction In Progress And Product Samples

Change The Net Economic Loss (Nel) Carryover

Remove Credit Balances From The Definition Of Unclaimed Property

Remove Inventories From Franchise Tax Base

Sales Tax Discount

Single Sales Factor

Proposed Model Unclaimed Property Act
Allow an R&D Credit for the Actual Amount of N.C. Expenditure