North Carolina Tax Credits

Research and Development Tax Credit

As part of the Research and Development (R&D) Tax Credit, N.C. §105- 129.50, taxpayers that have qualified North Carolina research expenses during a taxable year are allowed a credit equal to a percentage of those expenses determined in the following manner:

• Small business (annual receipts less than $1 million): If the taxpayer is a small business as of the last day of the taxable year, the business is allowed a credit of 3.25 percent.
  
• Low-tier research: For expenses for research performed in a Tier 1 county, a business is permitted a credit of 3.25 percent.​
  
• Eco-Industrial Park: For expenses with respect to research performed in an Eco-Industrial Park certified under N.C. §143B-437.08, the business is allowed a credit of 35 percent.
  
• Other research: For expenses not covered above, the percentages provided in the table to the right apply to the taxpayer’s qualified North Carolina research expenses during the taxable year.
  

The TD credit incorporates the Internal Revenue code definition of qualified research expenses. The expense must meet federal TD definitions of either “qualified research” or “basic research.” The credit is not limited to research increases, but applies to every dollar of research expense. In addition, there is no eligible business test for this credit. Any corporate taxpayer may claim the TD credits provided they meet certain wage standards, health insurance, environmental impact and safety and health program requirements.

TD credits may be used to offset up to 50 percent of state income or franchise tax after all other credits against that tax are applied. Taxpayers may elect to claim the credit against either the income or the franchise tax. Any unused portion of the credits may be carried forward for 15 years.

The R&D Tax Credit is scheduled to sunset beginning on or after January 1, 2016.

Those eligible for TD tax credits include small businesses as well as those conducting low-tier and other research. 

    Qualified Expenses Rate

Up to $50 million             1.25%

$50 to $200 million          2.25%

More than $200 million    3.25%

A taxpayer that has North Carolina university research expenses for the taxable year is allowed a credit up to 20% of those expenses.

Job Development Investment Grant

The Job Development Investment Grant (JDIG) is a performance-based, discretionary incentive program that provides cash grants directly to new and expanding businesses to help offset the cost of locating or expanding a business facility in the state. These cash grants can be used by the company for whatever purpose desired and are not tied to qualified expenses or other such requirements.

The amount of the grant is calculated by weighing a number of factors to determine the significance of the project and include the number of net new jobs, the wages of the jobs compared to the county average wage, whether or not the capital investment anchors the company in the community, and whether the industry is one of the state’s targeted industry sectors. Grant funds are disbursed annually, for up to 12 years, to approved companies based on a percentage of withholding taxes paid by new employees, following satisfaction of performance criteria set out in grant agreements.

Given the potent, direct benefit available to growing companies and program limitations on the value of the grants awarded, in order to qualify the company must meet a rigorous set of criteria that varies depending on the tier designation of the county under consideration:

• The target parameters for projects considering Tier 1 communities include 125 jobs at an average wage of 105% of the county average wage and a capital investment equal to or greater than $10,000 per job.
  
• The target parameters for projects considering Tier 2 communities include 150 jobs at an average wage of 110% of the county average wage and a capital investment equal to or greater than $10,000 per job.
  
• The target parameters for projects considering Tier 3 communities include 200 jobs at an average wage of 115% of the average wage (or the state average wage, whichever is lower) and a capital investment equal to or greater than $10,000 per job. Durham, Mecklenburg and Wake counties are exceptions to these target parameters and projects considering those counties should include at least 250 jobs.
  

In addition to these target parameters, JDIG projects must provide an economic benefit to the state; be competitive with locations outside North Carolina; be necessary to carry out the project in the State; and meet certain health insurance, safety and environmental requirements.

A five member Economic Investment Committee (EIC) evaluates projects and makes decisions regarding JDIG awards.

Grants are based on the job creation and investment commitment made by companies in formal applications to the state prior to a location decision. Grant applicants are required to pay a $10,000 non-refundable fee with the submission of a completed application, as well as an annual filing fee each year upon the submission of their annual report.

For projects located in Tier 2 counties, 15 percent of the total JDIG grant is transferred to the state’s utility account to fund infrastructure projects in the state’s economically distressed counties. In Tier 3 counties, 25 percent of the total JDIG grant is transferred to the utility account.

The amount of a grant associated with any specific position may not exceed $6,500 in any year. In addition, the JDIG program is subject to a legislative cap on grants made by the EIC, based on the cumulative financial impact of those grants in any future grant year. The maximum amount of total liability for all grant agreements entered into between July 1, 2013 and June 30, 2015 may not exceed $22 million. The authority of the EIC to enter into new agreements expires January 1, 2016.  See Tier Map here.