To help prospective developers take advantage of the brownfields property tax incentive (N.C.G.S. §105-277.13), Brownfields Program staff sat down with the experts from the N.C. Department of Revenue's Property Tax Division. The new statute offers many potential benefits, but like any new law, it also creates questions.
With that in mind, we asked DOR staff some common questions about North Carolina's brownfields tax incentive. The answers below should help developers better understand DOR policy on how to implement the tax incentive.
Tax Incentives FAQ
1. When does a brownfields property's five-year period of tax exclusion begin?
An owner of land is entitled to the partial exclusion provided by this section for the first five taxable years beginning after completion of qualifying improvements made after the later of July 1, 2000, or the date of the brownfields agreement. The five-year period begins the first January following the completion of the improvements.
2. What do prospective developers or property owners have to do to get the BF tax exclusion?
The owner should make a one-time application as required under G.S. §105-282.1(a)(2).c. It should be noted that documentation should be provided to the assessor's office to show that the property is eligible for the exclusion. This would include providing a copy of the brownfields agreement with the application as well as documentation that the improvements have been completed.
3. When should property owners file applications for the BF exclusion?
During the month of January, which is the regular listing period. This would be the listing period after completion of the improvements.
4. Do BF exclusions pass to future owners? Does it make a difference if the property is actively being redeveloped or if redevelopment has not yet taken place?
Yes, for the property that is receiving the brownfields exclusion. It could pass to new owners after a new application is made and approved. The exclusion does not exist for properties that have not gone under redevelopment. Both the brownfields agreement and the construction of qualifying improvements (made after July 1, 2000) must exist.
5. If the property is sold after the tax exclusion period begins, what must new owners do to get the remaining exclusion? Is this process the same if the owner has an outparcel from a BF property and plans to develop it later?
File a new application with the assessor's office during the month of January, which is the regular listing period, following the transfer of the property. And, yes, after qualifying improvements have been made, the taxpayer would need to make an application for exclusion. If the property is a vacant outparcel, then the property only is valued as a vacant tract.
6. Does DOR ask counties to routinely establish a pre-BF tax exclusion valuation baseline? If not, what valuation is used?
No. The counties will use the schedule of values that were adopted by the county commissioners to value all property in the county. Market value as of the counties' last reappraisal is the standard in North Carolina.
7. What criteria does the DOR consider when it defines "eligible improvements" to a brownfields property? Are the criteria for residential, commercial and industrial properties different or the same?
The statutes do not specify any particular type of property. Criteria are established in the statutes. G.S. §105-277.13 (b). states:
"qualifying improvements on brownfields properties" and "qualifying improvements" mean improvements made to real property that is subject to a brownfields agreement entered into by the Department of Environment and Natural Resources and the owner pursuant to G.S. §130A-310.32.
Any improvements made to real property that is subject to a brownfields agreement are eligible for the exclusion.
8. If a property is sold after its tax exclusion period begins, should current year taxes be prorated privately between the buyer and seller (i.e. at the closing of the property transfer)?
That would need to be addressed by the buyer and seller. Neither our department nor the county will address prorating of property taxes. That is strictly between the two parties involved in the sale. The owner as of January 1 is considered the owner for the tax year that begins July 1 of that year.
9. If an original BF property is subdivided into different tax parcels, is there a time limit to complete development on the "outparcels" in order to keep the five-year tax exclusion benefit?
No. The property or individual parcel would not receive the exclusion until the property was entered into a brownfields agreement and after completion of qualifying improvements had been made. See question #10 for more details.
10. Can each phase or outparcel of development within an original BF footprint get its own five-year exclusion period? If a phased approach is used, should the property be broken into different tax parcels before applying the first phase's tax exclusion?
Yes, each phase or outparcel would have its own five-year period. For example, if a parcel has five apartment buildings built on it in different years, then each building's starting period of the exclusion would be at different times. This will possibly be difficult for the counties to administer, but our office believes that each qualifying improvement has its own five-year period. A separate tax parcel for each improvement or phase would make it easier to administer, but is not required.
11. If a brownfields property is sold after its tax exclusion period begins, does the new owner get the remaining exclusion? What if the property has building(s) that have separate owners? (e.g. individual owners of a condo/townhouse within a redevelopment or a single retail property within a complex of such properties.) Do the building owners get the remaining years of tax exclusion?
Yes, if it is qualifying improvements on a brownfields property and a new application is made and approved. The new owner would be entitled to the remaining year(s) of the exclusion.
12. If a property is subdivided after its five-year tax exclusion begins, does the owner of the new parcel get the remaining years of exclusion?
If the example for this question were pertaining to a parcel with qualifying improvements (improved real property), as outlined in the statutes, the answer would be "yes." Remember, a new application is required of the new owner. Parcels that are vacant are not entitled to the exclusion. For real estate improvements that are part of the sale, we would say "yes." If only vacant land is sold from a tract that has improvements, then the answer would be "no" until new improvements are made to the vacant tract.
Partial Improvements and Exclusion - Improvements that are only partially completed as of January 1 will be appraised in accordance with the degree of completion on January 1 and the exclusion does not apply to these partially completed improvements until they are completed. The exclusion starts the first January following the completion of the improvements provided the proper application for exclusion has filed in a timely manner by the owner.
New Improvements and Exclusion - Brownfields that have improvements on them already are not eligible for the exclusion unless new improvements are made to the property after July 1, 2000. These new improvements can be in the form of new buildings and improvements or renovation of existing buildings and improvements.
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Brownfields Program • Mail Service Center 1646, Raleigh, North Carolina 27699-1646 • (919) 707-8383