WRAL Investigates

Effectiveness of NC business tax credit questioned

Posted August 1, 2011 6:12 p.m. EDT
Updated August 1, 2011 6:45 p.m. EDT

— 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."

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.