Special Bulletin
This year’s session of the General Assembly resulted in the enactment of a number of laws intended to help real estate developers weather the current economic situation. One law, giving new and extended life to development agreements and permits, was addressed in a recent Special Bulletin entitled “The North Carolina Permit Extension Act of 2009: The Revival and Extension of Land Development Approvals.”
A less-publicized action by the General Assembly was Session Law 2009-308 entitled “An Act to Defer A Portion of the Property Tax Due on Real Property Held For Sale By A Builder.” For all tax years beginning on or after July 1, 2010, Session Law 2009-308 defers payment of the property tax which would be due on that portion of the tax value of a property consisting of a house and lot held by a builder for sale which represents the value of the house and improvements. Taxes still must be paid on that portion of the overall value of the property represented by the land.
Section 1 of Session Law 2009-308 defines “Builder” to mean “a taxpayer licensed as a general contractor under G.S. 87-1 and engaged in the business of buying real property, making improvements to it, and then reselling it.”
Section 2 of Session Law 2009-308 then amends the state tax laws to include a new § 105-277.1D which, because it is relatively short and straightforward, is set forth below.
§ 105-277.1D. Inventory property tax deferral.
(a) Classification. – A residence owned and constructed by a builder is designated a special class of property under Section 2(2) of Article V of the North Carolina Constitution and is taxable in accordance with this section. For purposes of this section, a “residence” is an improvement, other than remodeling, renovating, rehabilitating, or refinishing, by a builder to real property that is intended to be sold and used as an individual’s residence, that is unoccupied, and for which a certificate of occupancy authorized by law has been issued. (b) Deferred Taxes. – A builder may defer the portion of tax imposed on real property that represents the increase in value of the property attributable solely to improvements resulting from the construction by the builder of a residence on the property. The difference between the taxes due under this section and the taxes that would have been payable in the absence of this section are a lien on the real property of the taxpayer as provided in G.S. 105-355(a). The difference in taxes for the fiscal years preceding the current tax year shall be carried forward in the records of the taxing unit or units as deferred taxes. The deferred taxes are due and payable in accordance with G.S. 105‑277.1F when the property loses its eligibility for deferral because of the occurrence of a disqualifying event. A disqualifying event occurs at the earliest of (i) when the builder transfers the residence, (ii) when the residence is occupied by the builder or by someone other than the builder with the builder’s consent, (iii) five years from the time the improved property was first subject to being listed for taxation by the builder, or (iv) three years from the time the improved property first received the property tax benefit provided by this section. On or before September 1 of each year, the collector shall notify each builder to whom a tax deferral has previously been granted of the accumulated sum of deferred taxes and interest. (c) Creditor Limitations. – A mortgagee or trustee that elects to pay any tax deferred by the builder subject to a mortgage or deed of trust does not acquire a right to foreclose as a result of the election. Except for requirements dictated by federal law or regulation, any provision in a mortgage, deed of trust, or other agreement that prohibits the builder from deferring taxes on property under this section is void. (d) Construction. – This section does not affect the attachment of a lien for personal property taxes against a tax-deferred residence. (e) Application. – An application for property tax relief provided by this section should be filed during the regular listing period but may be filed after the regular listing period upon a showing of good cause by the applicant for failure to make a timely application, as determined and approved by the board of equalization and review or, if that board is not in session, by the board of county commissioners. An untimely application approved under this subsection applies only to property taxes levied by the county or municipality in the calendar year in which the untimely application is filed. Decisions of the county board may be appealed to the Property Tax Commission. Persons may apply for this property tax relief by entering the appropriate information on a form made available by the assessor under G.S. 105-282.1.
As stated above, Session Law 2009-308 (and N.C. Gen. Stat. § 105-277.1D) will become effective for the tax year beginning on July 1, 2010. It will be effective for three tax years, but then “sunset” and be inapplicable to tax years beginning on and after July 1, 2013, unless the General Assembly votes to extend it.
Notwithstanding the fact that Session Law 2009-308 (and N.C. Gen. Stat. § 105-277.1D) will not be effective on and after July 1, 2013 without further action by the General Assembly, Section 4 of Session Law 2009-308 states that “Residences receiving the property tax benefit provided by this act are not affected by the repeal of this act until the occurrence of a disqualifying event.”
Session Law 2009-308 should be a material benefit to home builders in North Carolina who may carry an increased inventory of residences until the current economic situation improves.
For further information regarding the issues described above, please contact one of our Real Estate Development Attorneys, Samuel B. Franck, Justin M. Lewis, William E. Martin, Clifford P. Parson, Eric J. Remington, Ryal W. Tayloe, and Amy P. Wang.
