Property Tax Exemptions For Construction
In Progress And Product Samples

POSITION: North Carolina counties should not subject construction in progress to the business personal property tax. Further, product samples should be considered as inventory and should be exempt from the property tax.

EXPLANATION: North Carolina counties are taxing construction in progress at 100% of its cost throughout the construction phase. This approach, while of questionable validity under North Carolina's law, creates a disincentive for businesses for building or expanding in North Carolina. In addition, it is creating administrative difficulties for counties and taxpayers. Finally, the inconsistent approaches used to tax this property among North Carolina's 100 counties and even within a county are creating a sense of unfairness and lack of uniformity in our taxing system.

“Construction in progress” is the accounting category for property while it is being built and prior to its being used. Depending on the size of the project, construction in progress can be accounted for on the books of a company for several years. Several counties are taking the position that construction in progress should be taxed at 100% of its cost until the asset is placed in service. Once it is placed in service, then it can be depreciated, but prior to that, it is a continually increasing aggregation of costs.

The approach of 100% of cost is not supported by our statutes which require that applying property be taxed at its true value in money or money's worth. This definition is difficult for counties and taxpayers alike, as they struggle to determine the true value of a partially completed facility. Thus, if this property is to be taxed at all, a simple, fair method of assessing the true value for construction in progress is needed.

But more fundamentally, this property should not be taxed at all, prior to its producing income to do so is discouraging businesses from constructing additional facilities in North Carolina. Such practice is not used by our surrounding states. Therefore, a reduction or elimination in the taxation of construction in progress would be advantageous for future economic development in our state.

As for product samples, these are the same ingredients as inventory products but packaged in smaller containers. Since the samples are not sold, they are not considered inventory. Hence the inventory exemption for the state's personal property tax does not apply. However, since the product samples are similar to inventory, it makes sense to extend the property tax exemptions to them as well.

Continue N.C. Budget Reform

Contingent Fee Audits

Defining "Doing Business" In North Carolina

Machinery Tax And Sales Tax

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