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North Carolina Tax Credits

North Carolina R&D (Research & Development) Tax Credit Overview

Taxpayers eligible to claim the Federal R&D tax credit (under the Section 41 Federal rules) are entitled to claim the North Carolina research credit for research expenditures incurred in the state. The rate is dependent upon the size of the business and location. For small businesses, the rate is a 3% credit. For other companies, the rate depends on where in North Carolina the work occurred, and the state publishes a list of ‘tiered’ locations (i.e., expenses incurred in Tier 1 are assigned a higher rate than Tier 2 or 3). The taxpayer adds up expenditures in each tier to obtain the overall credit calculation.

R&D Credit Tied to Health Insurance

North Carolina also requires health insurance information from the employer – the company must provide health insurance to employees at the time when the R&D expenditures are undertaken and must provide proof of insurance with the R&D credit filing to obtain the credit in the current year.

Eco-Industrial Park Incentives/Credits

Starting in 2011, North Carolina offers several lucrative tax benefits for activities within an ‘Eco-Industrial Park’ which include an enhanced R&D tax credit – the credit is a generous 35% of expenses incurred within an Eco-Industrial Park in order to incentivize R&D within these new parks.

Related to R&D, there are other emerging technology credits such as the credit for renewable energy expenditures in an Eco Park, up to a $5 million cap per project/location.

Research and Development Credit

For tax years that begin on or after January 1, 2011, the credit for research performed in an Eco-Industrial Park is now included in the North Carolina R&D credit. The credit, equal to 35 percent of expenses, can be taken against franchise, corporate income or personal income tax.

Interactive Digital Media Credit

Starting in 2011, the state is encouraging investment and development of interactive digital media and the state defines interactive digital media to focus on software gaming for example; the state has attracted several key software gaming companies as well as media and entertainment companies. The definition includes products used for electronic media distribution, including downloadable assets over the Internet and ‘computer-controlled virtual universes’ (i.e., geared towards gaming companies providing online games). This is surely the first time any legislation has talked about ‘virtual universes’!

The legislation specifically targets game platforms, game engines, and games that have both ‘entertainment and serious application.’

The IDM credit is allowed for expenses that exceed $50,000 during the year and is capped at 7.5 million of expenses. The credit is calculated as 15% of the wages paid to employees, including fringe benefits, and 20% of expenditures paid to a North Carolina university or community college.

Film Production Company Credit

The state has also been successful in attracting the production of film projects in the state. The credit is a whopping 25% true tax credit on spend, including fringe benefits, living stipends and other production costs, not to exceed $20 million.
An intent to film application must first be filed with the state; then once production is complete, the state audits the expenditures filed on Form NC-415. For more information on the North Carolina 25% Film Production Credit, click here for the FAQ brochure.