A proposed NC House bill may affect tax revenue in a big way. House Bill 168, Exempt Builders’ Inventory, could exempt from taxation any improvements made to existing residential or commercial property, for the purpose of resell.
According to the text of the bill:
The exclusion authorized by this subsection ends at the earlier of the following:
- Five years from the time the improved property was first subject to being listed for taxation by the builder.
- Issuance of a building permit.
- Sale of the property.1
If this new bill passes, the tax on the existing property will remain at the same amount for what the property is valued on January 1 of the year construction begins.
The exemption would apply to buildings under construction, or completed, as long as the property is for sale. However, the exemption should not exceed three years from the date of the property being listed for sale and must be applied for annually. If these changes were to go into effect, assessors must specify “what portion of the value is an increase attributable to subdivision or other improvement by the builder.”2
The bill does not limit the exemption to licensed general contractors; this exemption is allowed for any individual with improved property for sale. For example, John Doe buys a large house with the idea of turning it into apartments. He installs new appliances and rewires the entire house with updated, state of the art light switches and sockets. Mr. Doe would be exempt from paying taxes on any increase in valuation of his property as long as he keeps the building for sale as he makes the improvements.
Examples of improvements that would increase the value of the property and would apply for the builders’ exemptions are as follows:
- subdividing into separate units
- utility installation
- curb and gutter
Be sure to stay updated on the progress of this bill as it makes its way through the final review stages in the NC Senate. If the bill passes, it could have an impact the bottom line for your taxing jurisdiction.
1. GENERAL ASSEMBLY OF NORTH CAROLINA, SESSION 2015, HOUSE BILL 168http://www.ncga.state.nc.us/Sessions/2015/Bills/House/PDF/H168v4.pdf