Tax Exemption Bill Working Its Way Through the NC General Assembly

tax exemption builder

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

2. Ibid.

Prepare Taxpayers for the Supply vs. Inventory Distinction

suppy v inventory

As we gear up towards the end of yet another calendar year, put plans in place now to give a little PR time to the taxable, yet confusing, differences between Business Personal Property “supplies” and “inventory” for manufacturers, wholesalers, retailers, and contractors.

Why advertise this distinction?
While we may know and understand the ins and outs of the NC tax statutes, not all taxpaying citizens share in our enthusiasm for a thorough-read of the Machinery Act.

With NC on a 10 year population gain streak, it’s more important than ever to clearly advertise on the key differences in our state BPP laws versus some of the surrounding states in our southeast region. Virginia, West Virginia, Kentucky, Tennessee, Mississippi, and Georgia – all DO include business inventory in their tax base – where NC has chosen to keep it exempt.

Sounds straightforward enough, right?

Unfortunately, problems arise when what is defined as “inventory” from the taxpayer’s perspective differs from the legal definition of inventory for taxing purposes – especially those taxpayer’s who are new NC, and therefore new to making that distinction.

According to the NCDOR, the following are commonly reported issues county appraisers have with business owners concerning supplies & inventory:

  • Taxpayers call supply items their inventory!
  • Taxpayers don’t know how to list their supplies
  • Taxpayers don’t keep up with the amounts that are on hand
  • Taxpayers wants to exclude certain items when their business is not manufacturing, retail, wholesale, or contractor related

Year after year, as NC continues to draw in new business, you receive the same questions and spend more time and resources on discoveries for those taxpayers who fail to list their taxable business property “supplies” by confusing them for exempt “inventory.”

Save yourself time and increase your revenue pool: Don’t leave room for interpretation. 

Making the plans to highlight on these key differences now will save you time in the future. So cut down on unnecessary office calls and questions by hosting and highlighting the information on your website and in your office.

Online: Make links readily available on your county homepage, again on your tax department page, and again alongside any information related to BPP tax listings/payments.

In office: Place the information in convenient, easy-to-access locations around your office. Hang signs and offer brochures.

Don’t make business taxpayers hunt for information you want them to find. Make use of bold lettering and larger fonts to draw attention to details that need to stand out. And don’t leave room for interpretation – try offering examples that typically fall under each category and keep your taxpayers from guessing come listing period.

Need a refresher yourself on the differences between BPP “supplies” and “inventory”? Read The Taxable Difference Between Supplies & Inventory for a quick summary.

Sources:

Duty, David. “Cross Section of Business Personal Property Issues.” 2013 Advanced Personal Property Seminar. Sheraton Four Seasons Hotel, Greensboro, NC. 23 September 2013. PowerPoint Presentation.

The Taxable Difference Between Supplies & Inventory

taxable difference

NC is one of the few states in the Southeastern US to offer a tax exemption on BPP inventory; and to taxpayers, there is often a thin and confusing line between what counts towards inventory versus supplies, and which types of businesses can benefit from this exemption.

Even more confusing, what is seen as supplies for one business, can count as inventory for another.

Why does the difference matter? It matters because while inventory is exempt from the tax base, supplies most certainly are not. Business supplies are required by NC General Statutes to be listed and taxed annually.

Supplies that are mistakenly viewed by taxpayers (and their accountants) as inventory go unreported and are left off the tax rolls. That’s yearly revenue lost for your tax office – and more time that will be spent on discoveries down the road.

Save time and resources by educating business owners! See below for a summarized refresher on the NCGS definitions of “supplies” versus “inventory” and the business types this distinction applies to.


Which businesses are exempt?

Manufacturers, retailers, wholesalers, & construction contractors are exempt while in the regular course of business.

Inventory: Items in stock, which are held for sale during the regular course of business, and any packaging materials that go with, and become a part of the goods sold.

Examples include: 

  • Manufacturers  – Raw materials, goods in process, finish goods, or other materials that accompany and become a part of the sale of the property being sold
  • Construction Contractors – Goods held to be furnished in the course of building, installing, repairing, or improving real property
  • Crops, livestock, poultry, feed used in the production of livestock and poultry, orr other agricultural or horticultural products held for sale.
  • Cars, trucks, tires, etc. sold in the automobile industry
  • TVs, computers, mobile phones, etc.  sold in the electronics

Supplies: Items used to help conduct and maintain a business, but are not the direct source of the income – and are not held for sale by the business.

For example, purchasing coffee and popcorn to have on-hand daily for customers at a car dealership may contribute to the business and play a part in retaining customers, but those items are not held for sale and are therefore categorized as supply verses inventory.

Additional examples include:

  • Cleaning/Janitorial items
  • Office items (paper clips, note pads)
  • Maintenance items (oils & lubricants)
  • Fuels (consumed in vehicles owned or leased by the business)
  • Medical/Dental/Doctor/Veterinarian items (syringes, molds, crutches, cat litter)
  • Barber/Beauty items (shaving cream, hair coloring, make-up)
  • Restaurant/Hotel items: (dishware, trashcans, glasses, linens)
  • Snacks & Drinks that are on hand & free for employees or customers
  • Rental items & replacement parts

For tips on how to prepare and educate your taxpayers for annual listing, check out this article on ways to Prepare Taxpayers for the Supply vs. Inventory Distinction.

Sources:

Duty, David. “Cross Section of Business Personal Property Issues.” 2013 Advanced Personal Property Seminar. Sheraton Four Seasons Hotel, Greensboro, NC. 23 September 2013. PowerPoint Presentation.

North Carolina General Statutes, Chapter 105 (2013).

Know these Circuit Breaker Rules Before Flipping the Switch

circuit breaker

As North Carolina governing members you have a huge responsibility to ensure that you are familiar with each and every case of special tax treatment in your county.

With over sixty classes of real or personal property currently entitled to tax exemption, exclusion, or taxation at a reduced rate, this can be quite a challenge.

To help, this week we are reviewing the Circuit Breaker Benefit to remind you what criteria must be met for this North Carolina property tax deferment program.

Circuit Breaker Benefit

According to the NC General Statute 105-277.1B, this program is for qualifying elderly and disabled homeowners. Those who are eligible can apply for tax relief by deferring a portion of the North Carolina property tax assessed on their primary residence.

Under this program, taxes for each year are limited to a percentage of the owner’s income. Taxes above the limitation are deferred until a future date.

According to the NC Department of Health and Human Services, the following must be true in order for the circuit breaker benefit for North Carolina property tax relief to apply:

  • The home owner must be a NC resident.
  • The applicant must be at least 65 years of age OR totally and permanently disabled.
  • The owner must file an application for the Circuit Breaker program annually.
  • If both husband and wife are the sole owners, only one application is required each year.
  • For joint property owners who are not married, each owner must file an application separately.
  • All property owners must have owned and occupied the residence for the previous five years.
  • The previous year’s total income for both an applicant and spouse cannot exceed $40, 650.
  • If a disqualifying event occurs, the last three years of deferred North Carolina property taxes become payable with interest.
  • Disqualifying events include death of the owner, transfer of the property to someone who is not a qualifying owner, or if the owner fails to use the property as their permanent residence.
  • For an owner whose income does not exceed $27, 100, their taxes will be limited to 4% of their income.
  • For an owner whose income exceeds $27,100 but does not exceed $40,650, their taxes will be limited to 5% of their income.

Review the Circuit Breaker tax exemption rules above and check back as we examine more North Carolina property tax exclusions in the weeks to come!

When Property Tax Exclusions Apply

exclusions

When you are responsible for knowing and understanding all of the laws governing North Carolina property tax exclusions and exemptions for your county, it can be challenging at times to remember all of the criteria necessary under the General Statutes for each special valuation.

That’s where we come in! This week we are reviewing the Disabled Veteran property tax exemption to remind you what criteria must be met in order for these citizens to receive a special tax status.

Disabled Veteran Benefit

The Disabled Veteran property tax exemption for North Carolina states that the permanent residence owned and occupied by an honorably discharged veteran or his or her unmarried surviving spouse is excluded from taxation for the first $45,000 of the appraised value of their real property.

In order for the discharged veteran benefit to apply, remember the following requirements:

  • The home owner must be a NC resident.
  • The exclusion applies to any honorably disabled veteran from any branch of the armed forces of the United States.
  • There is no age or income requirement.
  • Only a one-time application is required and applications may be filed up to and through June 1.
  • The veteran’s residence includes their dwelling plus related improvements and up to one acre of land. A permanent residence can be a single family house, a condo, or a manufactured home.
  • The veteran must have proof of disability in the form of an NCDVA-9 Certificate (North Carolina Certification for Disabled Veteran’s Property Tax Exclusion) – no other forms will be accepted. Applicants should visit their local veteran’s office to file for this document.
  • The VA must use the terms “Permanent & Total” in the NCDVA-9 Certificate.
  • A Social Security Number is mandatory and must be provided to identify the applicant is who he/she says.
  • An owner who receives the Disabled Veteran exclusion may not also receive any other property tax relief.
  • A qualified veteran does not lose the benefit of this exclusion because of a temporary absence from their permanent residence for reasons of health OR an extended absence while confined to a rest home or nursing home – as long as the residence is either unoccupied or occupied by the owner’s spouse or other dependent only.

Be aware of the Disabled Veteran tax exemption rules above and check back as we examine more property tax exclusions in the weeks to come!