Tax credits to expire January 1

by Molly Parker, Wilmington Star-News, December 1, 2013.

Jim Beck has a love affair with old homes. They speak to him, whispering old stories.

He can’t put words to exactly what it is that draws him in, but it’s powerful and intoxicating – and much, much more than a business transaction.

“I’m a little crazy,” joked Beck, who identifies himself as an “old-house saver.” “We fall in love with old houses. I think there are a lot of people who do that. I used to ride down the highway with my parents and wonder what the old houses looked like inside.”

Beck works with his wife, Christine. They are separated, but their commitment to restoring old homes in Wilmington is strong. “We see an old house that needs paint and we know it’s falling down and it’s going to go away. It’s very sad to us,” he said.

Because it’s typically more expensive to remodel than to build new, Beck credits these junk-to-gem remodeling projects to the federal and state tax credits that help reduce the tax liability.

But North Carolina’s historic preservation tax credit is set to expire after the end of next year.

And its fate is uncertain.

Lawmakers could renew the credit during the short legislative session that begins in May. But some conservative lawmakers say it’s time to do away with tax credits of this type in exchange for a more business-friendly, comprehensive taxation scheme that levels the playing field for all.

The film incentive that has helped lure big-name movies and shows to Wilmington and Charlotte has been at center stage of this debate in Southeastern North Carolina. It also expires January 2015.

But other lesser-known tax credits affecting the region – like this one that aids historic redevelopment – are also caught up in the “to-incentivize-or-not” debate. A tax credit that benefited users of the Port of Wilmington is scheduled to phase out in January.

“It benefits users of the port whether they are importers or exporters to bring in freight through our port facilities. It was being used but it’s been sunset now. It’s dead,” said Danny McComas, chairman of the State Ports Authority Board and a former New Hanover County state lawmaker.

Among a plethora of incentives expiring Jan. 1, qualified taxpayers may no longer take a non-refundable credit of $1 per bushel of oyster shells donated to the N.C. Division of Marine Fisheries.

Todd Miller, executive director of the N.C. Coastal Federation, said the credit has provided a cost-effective means for the state to get donated shells that it currently pays $2 to $3 for the purposes of restoration and cultivation efforts.

He said it was not only a great way to get shells for oyster reef restoration, but also served as an educational tool about not “squandering that resource that’s essential to the future health of our fisheries in North Carolina.”

‘TARGETED, SPECIFIC’

Wilmington Mayor Bill Saffo says that if other states are going to play the incentive game, it’s too soon for North Carolina to fold.

“I just think from my perspective, I understand how some feel these tax credits are harmful and if everyone does away with them, we should too,” he said. “But other states are using them to their advantage. It can be targeted, specific, but we need to keep them in place if we’re going to be competitive in the 21st century.”

State Rep. Chris Millis, a Republican freshman from Pender County, disagrees.

He defended this past session’s historic tax reform package that lowered personal and corporate income taxes and phased out a number of tax credits. In order to lower the personal income tax to a flat 5.75 percent, the special tax breaks had to be done away with, Millis said.

“An important key in providing a fair, low and equitable tax burden for all North Carolinians came by way of eliminating the special carve-outs for a favored few that benefited one sector of our economy by shifting further tax burden on another,” he wrote in an email. “While these special carve-outs in our past tax code can be viewed cleverly as a tax credit, it is more accurate to classify them as a shift on one’s tax burden from one interest to another.”

‘ULTIMATE RECYCLING’

But George Edwards, executive director of the Historic Wilmington Foundation, said cities and towns with deeply ingrained historic districts would suffer as a result of a loss of the historic preservation tax credit. He said that for many years New Hanover County and Buncombe County, where Asheville is located, have been among the largest users by volume of the tax credit.

“The visibility those communities receive locally and nationally because of the quality of their historic districts I believe would be hampered going forward without the tax credit,” Edwards said.

The state’s historic preservation tax credit, which piggybacks on the federal credit, came into existence as it’s currently constituted in 1998. Under the state program, commercial users receive a 20 percent credit and residential users a 30 percent credit on all expenditures. The residential credit has a $25,000 threshold.

As an example, if a commercial user spends $26,000, he would get 20 percent of that – or $5,200 – parceled out over up to five years in addition to the federal credit. To claim the credit, for commercial or residential purposes, the homes or buildings must be on the National Register of Historic Places and the remodel must meet certain standards designed to preserve the historical integrity of the structure.

North Carolina joined other states in implementing a credit of this kind in the late 1990s and early 2000s.

“I don’t know of any state that’s ever pulled its credit, so North Carolina could be the first state to do that,” Edwards said.

He said tax values generally appreciate faster in historic neighborhoods than in adjacent non-historic neighborhoods. As property values dropped around Wilmington during the recession, homes in the downtown area generally held onto their value much better, Edwards said. Of the city’s seven historic districts, five are concentrated in the downtown core.

“It is the ultimate recycling,” said state Rep. Susi Hamilton, D-New Hanover. “I think this issue has been sort of forgotten about. I don’t think the majority of North Carolinians understand that the rehabilitation tax credit will go away if it’s not extended next year.

“Everything that’s set to expire, the intention is to let it expire.”

CREDITS EXPIRING:

An example of state tax credits, refunds and exemptions scheduled to sunset:

N.C. State Ports Tax Credit: Expiring Jan. 1, businesses that pay state income tax and use North Carolina ports will no longer qualify for tax credits of up to 50 percent on in/outbound cargos.

Constructing Renewable Fuel Facilities Tax Credit: Expiring Jan. 1, a 15 percent to 25 percent credit on constructing and installing renewable fuel facilities.

Biodiesel Producers Tax Credit: Effective Jan. 1, biodiesel providers will lose tax credit on the per gallon gasoline excise tax.

Historic Rehabilitation Tax Credit: Effective Jan. 1, 2015, a credit equal to 20 percent of the expenditures that qualify for the federal credit expires.

Qualifying Expenses of a Production Company Tax Credit (film incentives): Effective Jan. 1, 2015, a production company will no longer be allowed a credit against the taxes imposed equal to 25 percent of its qualifying expenses.