Inconsistent tax policy

| February 28, 2015

1080177_magnifying_glassEditorial by Greensboro News-Record, February 28, 2015.

Tax breaks for movie productions and historic property renovations are out. Tax breaks for more data centers are in. The North Carolina legislature is still picking “winners and losers,” but the criteria have changed.

As the News & Record’s Richard M. Barron reported this week, the state is courting data centers like the American Express facility in eastern Guilford County’s Rock Creek Center.

Apple, Google and Facebook are some of the companies that operate server farms in North Carolina — mostly in small towns such as Maiden, Lenoir and Forest City. Although they don’t provide many jobs, they can add hundreds of millions of dollars to the property tax base for cash-strapped local governments.

One of their biggest expense items is electricity — so much so that Apple builds its own solar farms to power its operations. Last year, the state raised the sales tax on electricity from 3 percent to 7 percent. That would be a problem for data centers except the state exempts those that invest at least $250 million.

A bill filed this month would drop that threshold to $75 million (and exempt equipment used to produce electricity from solar power). The idea is to draw more facilities, large and small.

“Everybody sees this as something good for rural areas,” state Rep. Mike Hager (R-Rutherford), one of the bipartisan bill’s primary sponsors, told Barron.

Hager is pushing a measure he thinks would help his western North Carolina district. Rutherford County, population 67,000, includes Lake Lure and Chimney Rock State Park but still has an unemployment rate of 7 percent. It has no four-year colleges or universities. While the Facebook data center in Forest City employs only about 100 people, Hager said they’re well-paid and can encourage science and technology education in local schools.

If data centers are a favored industry in North Carolina because of the benefits they offer for rural economies, granting tax breaks may be a good investment. Champions of tax breaks for film productions and for restoring historic structures make similar arguments. The legislature has removed those breaks, arguing they aren’t productive.

It may be a matter of perspective. While rural areas also have benefited to some extent, most of the film production activity and historic property restoration has taken place in cities. (Although “Dirty Dancing” and “Last of the Mohicans” were filmed partly in Rutherford County.) The legislature is less supportive of tax breaks for urban economic activity. An exception was its elimination of business privilege license taxes, although that also strips small towns of a revenue source.

Republicans are in solid control of state government, but they don’t agree about tax breaks and economic incentives. Some say all businesses should be treated equally, that the state should not choose winners and losers. Others think tax and economic development policies should be crafted to achieve results that benefit the state as a whole or their own districts in particular.

One faction gets its way on some issues and the other prevails on some. As always, the state is far from consistent.

Category: NC SPIN Perspectives - Opinions from NC Leaders & Organizations

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