The Associated Press June 21, 2011, 9:52AM ET

Few targeted tax breaks for NC companies under GOP

Fewer companies got tax breaks tailored specifically for them during the North Carolina Legislature's first session under Republican control in 140 years, but that didn't mean enticements for favored firms to create jobs went out the window.

As this year's main legislative session concluded this weekend, it was clear that the scale of catering to targeted companies may be different under Republican legislative leadership but the lawmakers' business-friendly outlook remains unchanged.

Lawmakers agreed to let one of the state's largest private companies keep a $2 million tax break despite its failure to live up to an agreement to employ more than 200 plant workers in exchange for the break. The company's tax breaks were tied to other incentives aimed at attracting a proposed furniture distribution center in Davie County, said to be planning to hire about 1,100 people, and a company buying loading equipment for oceangoing cargo.

The year's only bill extending tax breaks to specific companies was estimated to cost the state's treasury about $2.3 million in foregone taxes over the next five years.

"That's tiny. That's progress," said House Majority Leader Paul Stam, R-Wake, a long-time opponent of the practice.

In comparison, the Democrat-controlled Legislature last year approved tax breaks of totaling nearly $300 million over five years for companies that open in environmentally-conscious industrial parks; producers of video simulators used in medicine and by the military; an energy turbine manufacturer; film and television producers; oyster shell recyclers; and big technology companies that want to build electricity-intensive data centers.

The previous year, a tax break offered to Apple Inc. was estimated to save the company's $1 billion data warehouse about $46 million over a decade. Canadian paper company Domtar Corp. got a $9 million grant to update its Martin County paper mill.

The state Commerce Department could not say if it asked for more targeted tax breaks and was turned down by lawmakers, spokeswoman Kim McCarl said Monday, citing a state law that prevents the state's business recruitment agency from discussing particular targets.

A key House member suggested such requests were down this year.

"There haven't been a lot of them because we've just put the word out early that it's a change in our philosophy -- we want broad-based tax relief," said Rep. Edgar Starnes, R-Caldwell, who co-chairs the House tax-writing.

While the General Assembly cut neither the personal income tax rate nor the 6.9 percent corporate income tax rate this year, it did allow some temporary sales and income to taxes expire on schedule at the end of the month, even while closing a $2.5 billion budget shortfall. The Legislature also gave small businesses a deduction on $50,000 of income.

Republicans aimed to support broad business interests if not specific companies. They moved to protect physicians against liability lawsuits, cut environmental regulations, defunded regulators and blocked municipalities from extending broadband service to underserved areas after telecommunications companies complained.

This weekend, they put limits on state tax collectors' power to recalculate a corporation's profits for tax purposes. Corporations suspected of dodging North Carolina taxes by moving assets in and out of the state could save more than $30 million a year, according to one Revenue Department estimate. The agency collected more than $420 million in such back taxes in 2009 from corporations.

Regardless of party, some lawmakers are philosophically opposed to business incentives while others see them as a necessary evil to persuade an employer to build or expand in North Carolina instead of elsewhere.

"It's got to be judged on the merits of a given deal," House Speaker Thom Tillis, R-Mecklenburg, said last week.

Opponents say business lobbyists and legislators tilt the free market by giving some companies tax breaks while others pay their taxes in full.

"When you drive through your small towns and see all your stores closing up, those are the guys paying the bills. Ask them how much money the government gives them. Not one dime," said Rep. Mike Stone, R-Lee. "More headaches and more controversy is what the small man got. And he's paying the bills."

One targeted bill that passed this weekend will help Alex Lee Inc.'s Merchants Distributors Inc. wholesale food distribution subsidiary. The company was promised nearly $8 million in incentives from the state, Caldwell County and Hickory when it announced in 2008 it would invest more than $50 million in a plant expansion that would support 200 new jobs. The legislation will let the company keep a $2 million tax break over the next five years though the plant laid off about 50 workers as it automates.

The company did not return a call seeking comment Monday. Sales at the company are estimated at about $1.8 billion a year, according to industry publications.

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Emery Dalesio can be reached at --http://twitter.com/emerydalesio


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