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.
If you have comments on any of the NCCBI positions
or other issues,
here for a feedback form
"Doing Business" In North Carolina
And Sales Tax
Change The Net
Economic Loss (Nel) Carryover
Balances From The Definition Of Unclaimed Property
Inventories From Franchise Tax Base
Unclaimed Property Act
Allow an R&D
Credit for the Actual Amount of N.C. Expenditure