GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H            	1 

HOUSE BILL 1062

Short Title:  Enterprise Tax Zone Development Act.	(Public)

─────────────────────────────────────── 
Sponsors: Representatives Shaw, Wright (Co-sponsors); and G. Miller.

─────────────────────────────────────── 
Referred to:  Business & Labor, if favorable, Finance.

─────────────────────────────────────── 

May 15, 1995

A BILL TO BE ENTITLED
AN ACT TO DESIGNATE ENTERPRISE TAX ZONES AND PROVIDE INCENTIVES FOR BUSINESS DEVELOPMENT IN THE ZONES.
The General Assembly of North Carolina enacts:
Section 1.  Chapter 158 of the General Statutes is amended by adding a new Article to read:
"ARTICLE 5.
"Enterprise Zones.
"§ 158-50.  Enterprise zones defined.
(a)	Definition. – An enterprise zone is a census tract in the most recent federal decennial census that meets both of the following conditions:
(1)	It is located in a city with a population of 25,000 or more according to the most recent annual population estimates certified by the State Planning Officer.
(2)	More than thirty percent (30%) of its population is below the poverty level according to the most recent federal decennial census.
(b)	Annual Certification. – On or before December 31 of each year, the Secretary of Commerce shall identify all enterprise zones that meet the conditions of subsection (a) of this section.  The Secretary of Commerce shall provide a certified list identifying these enterprise zones to any person who requests one.
"§ 158-51.  Incentives available for zones.
The following incentives are available to encourage business development within enterprise zones:
(1)	Income tax exclusion for gain from appreciation of zone property, as provided in G.S. 105-130.5(b) and G.S. 105-134.6(b).
(2)	Income tax credit for property tax increase due to improvements within zone, as provided in G.S. 105-130.43 and G.S. 105-151.25.
(3)	Income tax credit for installation of business equipment within zone, as provided in G.S. 105-130.44 and G.S. 105-151.26.
(4)	Sales tax refund for zone corporations' purchases, as provided in G.S. 105-164.14.
(5)	Income tax credit for creating jobs in zone, as provided in G.S. 105-130.40 and G.S. 105-151.17.
(6)	Industrial Development Fund funding for local government projects within zone, as provided in G.S. 143B-437A."
Sec. 2.  G.S. 105-228.90(b) is amended by adding a new subdivision to read:
"(4)	Enterprise zone. – Defined in G.S. 158-50."
Sec. 3.  G.S. 105-130.5(b) is amended by adding a new subdivision to read:
"(17)	That part of the gain realized on the disposition of real property located in an enterprise zone that is attributable to increases in the value of the property that occur on or after January 1, 1996."
Sec. 4.  G.S. 105-134.6(b) is amended by adding a new subdivision to read:
"(11)	That part of the gain realized on the disposition of real property located in an enterprise zone that is attributable to increases in the value of the property that occur on or after January 1, 1996."
Sec. 5.  Division I of Article 4 of Chapter 105 of the General Statutes is amended by adding the following new sections to read:
"§ 105-130.43.  Credit for property tax increase due to improvement of enterprise zone property.
(a)	Credit. – A taxpayer is allowed a credit against the tax imposed by this Division equal to the increase in the amount of property taxes the taxpayer paid at par during the taxable year attributable to an increase in value of real property located in an enterprise zone due to improvements the taxpayer made to the property the immediately preceding year.  The taxpayer may not take the entire credit for the taxable year the increased taxes were paid, but may take up to twenty percent (20%) of the aggregate credit allowed under this section for that taxable year and for each succeeding taxable year until the entire credit has been used.
The credit allowed under this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.  Subject to the twenty percent (20%) limitation, any unused portion of the credit may be carried forward to succeeding taxable years.
To claim the credit, the taxpayer shall provide with the return a copy of the tax receipt for the property taxes for which credit is claimed and any other documentation required by the Secretary.  The tax receipt must indicate that the taxes have been paid and the amount and date of the payment.
(b)	Definitions.  The following definitions apply in this section:
(1)	Property taxes. – The principal amount of taxes levied and assessed by a taxing unit under Subchapter II of this Chapter.  The term does not include costs, penalties, interest, or other charges that may be added to the principal amount.
(2)	Taxing unit. – Defined in G.S. 105-273.
(c)	Adjustment. – If a taxing unit gives a taxpayer a credit or refund for any of the property taxes for which the taxpayer claimed a credit under this section, the taxpayer shall notify the Secretary within 90 days.  The Secretary shall then recompute the credit allowed under this section and make any resulting adjustment of income tax for the taxable years for which the credit was claimed.
"§ 105-130.44.  Credit for business equipment in enterprise zones.
A taxpayer that purchases and installs business equipment in an enterprise zone is allowed a credit against the tax imposed by this Division equal to fifteen percent (15%) of its expenses during the taxable year to purchase and install the equipment.  For the purpose of this section, business equipment means an item described in G.S. 105-164.4(a)(1d) that, after installation, is taxed as personal property under Subchapter II of this Chapter.
The credit allowed under this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.  Any unused portion of the credit may be carried forward for the succeeding five taxable years."
Sec. 6.  Division II of Article 4 of Chapter 105 of the General Statutes is amended by adding the following new sections to read:
"§ 105-151.25.  Credit for property tax increase due to improvement of enterprise zone property.
(a)	Credit. – A taxpayer is allowed a credit against the tax imposed by this Division equal to the increase in the amount of property taxes the taxpayer paid at par during the taxable year attributable to an increase in value of real property located in an enterprise zone due to improvements the taxpayer made to the property the immediately preceding year.  The taxpayer may not take the entire credit for the taxable year the increased taxes were paid, but may take up to twenty percent (20%) of the aggregate credit allowed under this section for that taxable year and for each succeeding taxable year until the entire credit has been used.
The credit allowed under this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.  Subject to the twenty percent (20%) limitation, any unused portion of the credit may be carried forward to succeeding taxable years.
To claim the credit, the taxpayer shall provide with the return a copy of the tax receipt for the property taxes for which credit is claimed and any other documentation required by the Secretary.  The tax receipt must indicate that the taxes have been paid and the amount and date of the payment.
(b)	Definitions. – The following definitions apply in this section:
(1)	Property taxes. – The principal amount of taxes levied and assessed by a taxing unit under Subchapter II of this Chapter.  The term does not include costs, penalties, interest, or other charges that may be added to the principal amount.
(2)	Taxing unit. – Defined in G.S. 105-273.
(c)	Adjustment. – If a taxing unit gives a taxpayer a credit or refund for any of the property taxes for which the taxpayer claimed a credit under this section, the taxpayer shall notify the Secretary within 90 days.  The Secretary shall then recompute the credit allowed under this section and make any resulting adjustment of income tax for the taxable years for which the credit was claimed.
"§ 105-151.26.  Credit for business equipment in enterprise zones.
A taxpayer that purchases and installs business equipment in an enterprise zone is allowed a credit against the tax imposed by this Division equal to fifteen percent (15%) of the taxpayer's expenses during the taxable year to purchase and install the equipment.  For the purpose of this section, business equipment means an item described in G.S. 105-164.4(a)(1d) that, after installation, is taxed as personal property under Subchapter II of this Chapter.
The credit allowed under this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.  Any unused portion of the credit may be carried forward for the succeeding five taxable years."
Sec. 7.  G.S. 105-164.14 is amended by adding a new subsection to read:
"( g)	Enterprise Zone Corporations. – A corporation that is located in an enterprise zone is allowed an annual refund of sales and use taxes paid by it under this Article on direct purchases of tangible personal property for use within the zone.  Sales and use tax liability indirectly incurred by a corporation on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure within the zone that is owned or leased by the corporation is considered a sales or use tax liability incurred on direct purchases by the corporation.  The annual refund period is the fiscal year of the State.  A request for a refund must be in writing and must include any information and documentation required by the Secretary.  A request for a refund is due January 1 following the end of the fiscal year for which the refund is claimed."
Sec. 8.  G.S. 105-164.14(d) reads as rewritten:
"(d)	Penalties for Late Applications. – Refunds made pursuant to applications filed after the dates specified in subsections (b), (c), and (g) of this section are subject to the following penalties for late filing: applications filed within 30 days after the due date, twenty-five percent (25%); applications filed after 30 days but within six months after the due date, fifty percent (50%).  Refunds applied for more than six months after the due date are barred."
Sec. 9.  G.S. 105-130.4 reads as rewritten:
"§ 105-130.40.  Credit for creating jobs in distressed area.
(a)	Credit. – A corporation that (i) for at least 40 weeks during the year has at least nine employees and (ii) is located, for part or all of its taxable year, in a distressed area may qualify for a credit against the tax imposed by this Division by creating new full-time jobs with the corporation in the distressed area during that year.  A corporation that hires an additional full-time employee during that year to fill a position located in a distressed area is allowed a credit of two thousand eight hundred dollars ($2,800) for the additional employee.  A position is located in an area if at least fifty percent (50%) of the employee's duties are performed in the area or the employee is a resident of the area.  The credit may not be taken in the income year in which the additional employee is hired.  Instead, the credit shall be taken in equal installments over the four years following the income year in which the additional employee was hired and shall be conditioned on the continued employment by the corporation of the number of full-time employees the corporation had upon hiring the employee that caused the corporation to qualify for the credit.  If, in one of the four years in which the installment of a credit accrues, the number of the corporation's full-time employees falls below the number of full-time employees the company had in the year in which the corporation qualified for the credit or the position filled by the employee is moved to another area, the credit expires and the corporation may not take any remaining installment of the credit.  The corporation may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under subsection (e) of this section.
For the purposes of this section, a full-time job is a position that requires at least 1,600 hours of work per year and is intended to be held by one employee during the entire year.  A full-time employee is an employee who holds a full-time job.
(b)	Repealed by Session Laws 1989, c. 111, s. 1.
(b1)	Eligibility. – A corporation is eligible for the tax credit allowed by this section only if it obtained a credit under this section for taxable year 1988 or the Department of Commerce determines that it engages in the manufacturing of goods or in an industrial activity such as the processing of foods, raw materials, chemicals and process agents, goods in process, or finished products.
(c)	Area Designation. – A distressed area is an area designated as distressed by the Secretary of Commerce.  Each year, on or before December 31, the Secretary of Commerce shall designate which areas are distressed and shall provide that information to the Secretary of Revenue.  An area is distressed if it is an enterprise zone or it is a county whose distress factor is one of the fifty highest in the State.  The Secretary shall assign to each county in the State a distress factor that is the sum of the following:
(1)	The county's rank in a ranking of counties by rate of unemployment from lowest to highest.
(2)	The county's rank in a ranking of counties by per capita income from highest to lowest.
(3)	The county's rank in a ranking of counties by percentage growth in population from highest to lowest.
In measuring rates of unemployment and per capita income, the Secretary shall use the latest available data published by a State or federal agency generally recognized as having expertise concerning the data.  In measuring population growth, the Secretary shall use the most recent estimates of population certified by the State Planning Officer.  A designation as a distressed area is effective only for the calendar year following the designation.
(d)	Planned Expansion. – A corporation that, during the year in which an area is designated as distressed, signs a letter of commitment with the Department of Commerce to create at least twenty new full-time jobs in that distressed area within two years of the date the letter is signed qualifies for the credit allowed by this section even though the employees are not hired that year.  The credit shall be available in the income year after at least twenty employees have been hired if the hirings are within the two-year commitment period.  The conditions outlined in subsection (a) apply to a credit taken under this subsection except that if the area is no longer designated a distressed area after the year the letter of commitment was signed, the credit is still available.  If the corporation does not hire the employees within the two-year period, the corporation does not qualify for the credit.  However, if the corporation qualifies for a credit under subsection (a) in the year any new employees are hired, it may take the credit under that subsection.
(e)	Limitations. – The sale, merger, acquisition, or bankruptcy of a business, or any other transaction by which an existing business reformulates itself as another business, does not create new eligibility in a succeeding business with respect to jobs for which the predecessor was not eligible under this section.  A successor corporation may, however, take any installment of or carried-over portion of a credit that its predecessor could have taken if it had taxable income.  Jobs transferred from one area in the State to another area in the State shall not be considered new jobs for purposes of this section.  A credit taken under this section may not exceed fifty percent (50%) of the tax imposed by this Division for the taxable year, reduced by the sum of all other credits allowed, except tax payments made by or on behalf of the corporation.  Any unused portion of the credit may be carried forward for the succeeding five years.
(f)	Substantiation. – Every corporation claiming the credit provided in subsection (a) shall maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which it is entitled.  The burden of proving eligibility for the credit and the amount of the credit shall rest upon the corporation, and no credit shall be allowed to a corporation that fails to maintain adequate records or to make them available for inspection."
Sec. 10. G.S. 105-151.17 reads as rewritten:
"§ 105-151.17.  Credit for creating jobs in distressed area.
(a)	Credit. – A person who (i) for at least 40 weeks during the year has at least nine employees and (ii) whose business is located, for part or all of his taxable year, in a distressed area may qualify for a credit against the tax imposed by this Division by creating new full-time jobs with the business in the distressed area during that year.  A person who hires an additional full-time employee during that year to fill a position located in a distressed area is allowed a credit of two thousand eight hundred dollars ($2,800) for the additional employee.  A position is located in an area if at least fifty percent (50%) of the employee's duties are performed in the area or the employee is a resident of the area.  The credit may not be taken in the income year in which the additional employee is hired.  Instead, the credit shall be taken in equal installments over the four years following the income year in which the additional employee was hired and shall be conditioned on the continued employment by the taxpayer of the number of full-time employees the taxpayer had upon hiring the employee that caused the taxpayer to qualify for the credit.  If, in one of the four years in which the installment of a credit accrues, the number of the taxpayer's full-time employees falls below the number of full-time employees the taxpayer had in the year in which the taxpayer qualified for the credit or the position filled by the employee is moved to another area, the credit expires and the taxpayer may not take any remaining installment of the credit.  The taxpayer may, however, take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under subsection (e) of this section.
For the purposes of this section, a full-time job is a position that requires at least 1,600 hours of work per year and is intended to be held by one employee during the entire year.  A full-time employee is an employee who holds a full-time job.
(b)	Repealed by Session Laws 1989, c. 111, s. 2.
(b1)	Eligibility. – A taxpayer is eligible for the tax credit allowed by this section only if the taxpayer obtained a credit under this section for taxable year 1988 or the Department of Commerce determines that the taxpayer engages in the manufacturing of goods or in an industrial activity such as the processing of foods, raw materials, chemicals and process agents, goods in process, or of finished products.
(c)	Area Designation. – A distressed area is an area designated as distressed by the Secretary of Commerce.  Each year, on or before December 31, the Secretary of Commerce shall designate which areas are distressed and shall provide that information to the Secretary of Revenue.  An area is distressed if it is an enterprise zone or it is a county whose distress factor is one of the fifty highest in the State.  The Secretary shall assign to each county in the State a distress factor that is the sum of the following:
(1)	The county's rank in a ranking of counties by rate of unemployment from lowest to highest.
(2)	The county's rank in a ranking of counties by per capita income from highest to lowest.
(3)	The county's rank in a ranking of counties by percentage growth in population from highest to lowest.
In measuring rates of unemployment and per capita income, the Secretary shall use the latest available data published by a State or federal agency generally recognized as having expertise concerning the data.  In measuring population growth, the Secretary shall use the most recent estimates of population certified by the State Planning Officer.  A designation as a distressed area is effective only for the calendar year following the designation.
(d)	Planned Expansion. – A person who, during the year in which an area is designated as distressed, signs a letter of commitment with the Department of Commerce to create at least twenty new full-time jobs in that distressed area within two years of the date the letter is signed qualifies for the credit allowed by this section even though the employees are not hired that year.  The credit shall be available in the income year after at least twenty employees have been hired if the hirings are within the two-year commitment period.  The conditions outlined in subsection (a) apply to a credit taken under this subsection, except that if the area is no longer designated a distressed area after the year the letter of commitment was signed, the credit is still available.  If the taxpayer does not hire the employees within the two-year period, he does not qualify for the credit.  However, if the taxpayer qualifies for a credit under subsection (a) in the year any new employees are hired, he may take the credit under that subsection.
(e)	Limitations. – The sale, merger, acquisition, or bankruptcy of a business, or any other transaction by which an existing business reformulates itself as another business, does not create new eligibility in a succeeding business with respect to jobs for which the predecessor was not eligible under this section.  A taxpayer may, however, take any installment of or carried-over portion of a credit that the predecessor could have taken if the predecessor had taxable income.  Jobs transferred from one area in the State to another area in the State shall not be considered new jobs for purposes of this section.  A credit taken under this section may not exceed fifty percent (50%) of the tax imposed by this Division for the taxable year, reduced by the sum of all other credits allowed, except tax payments made by or on behalf of the taxpayer.  Any unused portion of the credit may be carried forward for the succeeding five years.
(f)	Substantiation. – Every person claiming the credit provided in subsection (a) shall maintain and make available for inspection by the Secretary of Revenue any records the Secretary considers necessary to determine and verify the amount of the credit to which the person is entitled.  The burden of proving eligibility for the credit and the amount of the credit shall rest upon the person, and no credit shall be allowed to any person who fails to maintain adequate records or to make them available for inspection."
Sec. 11.  G.S. 143B-437A reads as rewritten:
"§ 143B-437A.  Industrial Development Fund.
(a)	Creation and Purpose of Fund. – There is created in the Department of Commerce the Industrial Development Fund to provide funds to assist the local government units of economically distressed areas in creating jobs in qualified industries.  The Department of Commerce shall adopt rules providing for the administration of the program. Those rules shall include the following:
(1)	The funds shall be used for (i) installation of or purchases of equipment for qualified industries, (ii) structural repairs, improvements, or renovations of existing buildings to be used for expansion of qualified industries, or (iii) construction of or improvements to new or existing water, sewer, gas, or electrical utility distribution lines or equipment for existing or new or proposed industrial buildings to be used for qualified industrial operations.  To be eligible for funding, the water, sewer, gas, or electrical utility lines or facilities shall be located on the site of the building or, if not located on the site, shall be directly related to the operation of the specific qualified industrial activity.
(1a)	The funds shall be used for projects located in economically distressed areas except that the Secretary of Commerce may use up to one hundred thousand dollars ($100,000) to provide emergency economic development assistance in any county that is documented to be experiencing a major economic dislocation.
(2)	The funds shall be used by the city and county governments for projects that will directly result in the creation of new jobs.  The funds shall be expended at a rate of two thousand four hundred dollars ($2,400) per new job created up to a maximum of two hundred fifty thousand dollars ($250,000) per project.
(a1)	Definitions. – The following definitions apply in this section:
(1)	Economically distressed area. – An enterprise zone defined in G.S. 158-50 or a county designated as distressed pursuant to subsection (b) of this section.
(2)	Major economic dislocation. – The actual or imminent loss of 500 or more manufacturing jobs in the county or of a number of manufacturing jobs equal to at least ten percent (10%) of the existing manufacturing workforce in the county.
(3)	Qualified industry. – The manufacturing of goods or the processing of foods, raw materials, chemicals and process agents, goods in process, or finished products.
(b)	Designation of Distressed Counties. – Each year, on or before December 31, the Secretary of Commerce shall designate the most economically distressed counties in the State; this designation shall remain effective for the following calendar year. The Secretary of Commerce shall determine which counties are the most economically distressed counties in the State based on (i) rate of unemployment, (ii) per capita income, and (iii) relative population and work force growth or lack of growth, as determined by the Secretary of Commerce.
(c)	Reports. – The Department of Commerce shall report annually to the General Assembly concerning the applications made to the fund and the payments made from the fund and the impact of the payments on job creation in the State. The Department of Commerce shall also report quarterly to the Joint Legislative Commission on Governmental Operations and the Fiscal Research Division on the use of the moneys in the fund, including information regarding to whom payments were made, in what amounts, and for what purposes.
			."
Sec. 12.  G.S. 153A-376(f) reads as rewritten:
"(f)	All program income from Economic Development Grants from the Small Cities Community Development Block Grant Program may be retained by recipient 'economically distressed counties', as designated under G.S. 143B-437A for the purposes of creating local economic development revolving loan funds.  Such program income derived through the use by counties of Small Cities Community Development Block Grant money includes but is not limited to: (i) payment of principal and interest on loans made by the county using Community Development Block Grant Funds; (ii) proceeds from the lease or disposition of real property acquired with Community Development Block Grant Funds; and (iii) any late fees associated with loan or lease payments in (i) and (ii) above.  The local economic development revolving loan fund set up by the county shall fund only those activities eligible under Title I of the federal Housing and Community Development Act of 1974, as amended (P.L. 93-383), and shall meet at least one of the three national objectives of the Housing and Community Development Act.  Any expiration of G.S. 143B-437A shall not affect this subsection as to designations of economically distressed counties made prior to its expiration."
Sec. 13.  G.S. 160A-456(e1) reads as rewritten:
"(e1)	All program income from Economic Development Grants from the Small Cities Community Development Block Grant Program may be retained by recipient cities in 'economically distressed counties', as designated under G.S. 143B-437A, for the purposes of creating local economic development revolving loan funds.  Such program income derived through the use by cities of Small Cities Community Development Block Grant money includes but is not limited to: (i) payment of principal and interest on loans made by the county using Community Development Block Grant Funds; (ii) proceeds from the lease or disposition of real property acquired with Community Development Block Grant Funds; and (iii) any late fees associated with loan or lease payments in (i) and (ii) above.  The local economic development revolving loan fund set up by the city shall fund only those activities eligible under Title I of the federal Housing and Community Development Act of 1974, as amended (P.L. 93-383), and shall meet at least one of the three national objectives of the Housing and Community Development Act.  Any expiration of G.S. 143B-437A shall not affect this subsection as to designations of economically distressed counties made prior to its expiration."
Sec. 14.  Sections 3 through 6 and 9 and 10 of this act become effective for taxable years beginning on or after January 1, 1996.  Sections 7 and 8 of this act become effective January 1, 1996, and apply to purchases made on or after that date.  The remainder of this act is effective upon ratification.