The North Carolina Department of Commerce (DOC) released last Friday its updated county Tier designations which will take effect on January 1, 2013. A county’s Tier designation impacts certain tax credits and incentives available in North Carolina. The end of this alert contains a summary of applicable Article 3J tax credits and shows how the Tier designation affects the value of those tax credits.
Why This Matters
For some companies, you may have a narrow window (until December 31) to lock-in your Tier designation or to modify your investment or hiring plans in order to take advantage of these changes and avoid missing on potential higher tax credits.
Which Counties are Changing Tier Designation
Beginning January 1, 2013, the following 12 counties will experience a change in their Tier designation.
The change in Tier designations may help or hurt your company based on your projected business property investment and job creation plans for the balance of 2012 through 2014. For example:
1. Lock-in your Tier. If your County is one of the Six Moving to a “Less Distressed” Tier:
If your company has a planned investment in business property or job creation in a county moving to a “less distressed” Tier designation (Tier 1 to Tier 2, or Tier 2 to a Tier 3), you have two principal options to maximize your tax benefit. First, you have an opportunity to “lock-in” the lower Tier designation for an additional two-year period (2013 and 2014). By locking-in the Tier, any qualifying job creation or business property investment made during the 2013 or 2014 calendar years would be eligible for the higher tax credits available under the lower Tier designation. This also allows you to take advantage of the carry forward with respect to the unused portion of such tax credit applicable to that two-year period. Alternatively, you can accelerate your investment and hiring into 2012 (see Planning below).
Act Quickly: Contact us now to discuss the process you need to follow with DOC and the Department of Revenue to lock-in a lower Tier designation. It must be completed prior to December 31.
2. Planning. If your County is one of the Twelve Experiencing a Tier Designation Change:
If the Tier designation is changing (up or down) where you have a planned investment in business property or job creation, consider whether you should accelerate into 2012 (if the County is moving to a “less distressed” Tier) or delay into 2013 (if the County is moving to a “more distressed” Tier) any planned investment in business property or job creation. This could enable you to qualify for certain North Carolina Article 3J tax credits or increase the tax credits you receive.
Parker Poe can work with you or your accountants to analyze the potential impact of the announced changes in county Tier designations for 2013. The Firm also assists companies in North and South Carolina, and worldwide, with economic development projects and incentives, including securing and negotiating incentives for expansions, relocations and consolidations.
Details of Applicable Article 3J Tax Credits
Chapter 105, Article 3J of the North Carolina General Statutes provides State tax credits for job creation and investment in business property. The tax credit amounts are dependent upon the county in which the taxpayer is creating the jobs or placing the eligible business property in service. Counties within the State are designated as Tier 1, Tier 2 or Tier 3. Tier 1 includes the counties with the 40 highest poverty and unemployment rates; Tier 2 includes counties with the next 40 highest poverty and unemployment rates; and Tier 3 includes the most developed counties.
A county’s Tier designation impacts both the qualifying threshold for Article 3J tax credits, as well as the maximum tax credit a taxpayer can earn for eligible investment and job creation, as shown below (for 2012).
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