WRAL Investigates

Effectiveness of NC business tax credit questioned

Posted August 1, 2011

— State and local officials usually offer tax incentives to companies to locate or expand operation in North Carolina and create jobs.

But the state also provides an array of tax credits to businesses that have no direct link to new jobs. From 2008 through 2010, North Carolina companies generated $162 million in credits. Only $15 million of those credits have been claimed so far, but firms have five years to take advantage of them.

The tax credit that generates the most breaks for companies is called the business investment or machinery and equipment credit, which provides companies a break for adding automation to plants. Some observers and lawmakers question its effectiveness.

"Companies that were taking the machinery and equipment tax credit had fewer employees after taking the tax credit," said Jason Jolley, business school professor and senior researcher at the Center For Competitive Economies at the University of North Carolina at Chapel Hill.

"Companies were really unaware that they had taken an incentive in many cases, and in fact, it was merely an accounting function," said Jolley, who co-wrote a 2009 study of the state's tax incentives program.

North Carolina Deputy Commerce Secretary Dale Carroll counters that equipment upgrades help companies succeed and grow, which typically provides for more jobs and higher wages.

"I believe there is a correlation between advanced manufacturing equipment and providing stable employment opportunities for our citizens," Carroll said. "To not (offer a tax credit) in our state would provide them with the opportunity to make that investment in another state."

Money Effectiveness of NC business tax credit questioned

He did acknowledge that modernizing production lines sometimes reduces the number of people working on the equipment, but he attributed North Carolina incentives to the promise of 12,000 jobs and billions in business investment over the past three years.

WRAL Investigates checked tax credit records with layoff notices filed with the Department of Commerce and found several instances where companies qualified for tax credits while they were reducing their workforce.

BB&T generated more than $1.8 million in credits in 2009, the same year it announced staff cutbacks.

ConAgra claimed $55,000 in equipment credits in 2010 as it began the process of shutting down its Garner plant, which had been damaged in a 2009 explosion that left four people dead.

Pharmaceutical giant Pfizer has trimmed the workforce at Wyeth, which it acquired in 2009, and it still has a few years to claim the more than $3 million in equipment credits that Wyeth generated.

"I would say the tax credit programs have failed," Jolley said.

Some lawmakers agree, and they vowed to take another look at the state incentives program before the 2012 legislative session.

"It is counter-intuitive for an incentives program that is designed to create jobs that actually promotes more automation and job reduction. That just doesn't make any sense," said Rep. Pricey Harrison, D-Guilford.

Since most companies don't have the tax liability to claim all the incentives they generate, critics say that's even more reason to change the system.

"We have to look at where can we get our best investment to create jobs in North Carolina," said Rep. Harold Brubaker, R-Randolph.


This story is closed for comments.

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  • clayt85 Aug 2, 2011

    You mean tax credits for businesses did not create jobs?

    I, for one, am shocked and outraged!

  • niall Aug 2, 2011

    "Yep, this whole concept is another example of government choosing winners and losers. Make taxes as low as possible for everybody and let the chips fall where they may. No reason Dell should get some kind of preferential treatment over any small business in this state."

    Silly Tamiya, how are the pols supposed to enrich themselves with such a simple, logical plan?!

  • Scubagirl Aug 2, 2011

    come to NC for the credits for new jobs fine, but if you cut jobs then your credit should be cut by the same percentage as the job cuts.
    This is outrageous! We can't pay our bills yet we give credits to those who cause MORE bills w/ unemployment etc. We as a state should NOT have to keep our end of the bargain, if the company that benefits does not keep theirs. It's simple really.

  • SaveEnergyMan Aug 2, 2011

    geosol is right. It's like an arms race or outrageous bidding wars that occur over pro athletes. This is where the feds have to step in and end the madness.

    With that being said, I am for business becoming more efficient through automation. From my extensive industrial experience, there aren't usually that many job losses - the jobs just change. It makes us more competitive with China and keeps most of the jobs here. It does umemploy the least skilled though - another incentive to stay in school.

  • Bring on the 4 Dollar Gas Aug 2, 2011

    No, this is yet another example of Bev's playbook. Make it look like we're getting jobs with payola back to the company and hold a press conference patting myself on the back as I tell -North-Care-O-Linen-E-uns how much good I'm doing for them.

    BEv dear, you have ruined this state. You've sent us into a downward spiral that will leave the next Governor, McCrory, having no choice but to raise taxes. Thanks you do nothing. The voters should have known you were nothing but a disaster when you couldn't decide if you'd go by your real name, Beverly, or change it to separate yourself from the previous loser.

  • tamiya_stars Aug 2, 2011

    Yep, this whole concept is another example of government choosing winners and losers. Make taxes as low as possible for everybody and let the chips fall where they may. No reason Dell should get some kind of preferential treatment over any small business in this state.

  • crouch1010 Aug 1, 2011

    @ RB aka Spirit Warrior Woman, "It works for minorities better than for the older worker." You are probably right because with older workers, the real discrimination point is to save money and neglect the experience, thus it is harder to detect and prove.

  • Rebelyell55 Aug 1, 2011

    Corporate Welfare!
    August 1, 2011 7:24 p.m.
    Ignore Report abuse
    Exactly, only they don't buy grocies so the farmers and food processors don't get a dime of it, or the state.

  • Rebelyell55 Aug 1, 2011

    RB aka Spirit Warrior Woman
    GOLO member since February 23, 2011
    One of your best posting yet!

  • geosol Aug 1, 2011

    Most normal, rational people would agree that there are problems with the corporate tax breaks as incentives to lure business. Problem is, every other state in the Union does this, too. What we really need is federal trade legislation that puts a stop to the practice nation-wide so that we have a level playing field for all. I have no doubt that NC would be picked ahead of many other states for new high tech industries. We've got to keep our education system up to par, though.