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Issue  224  Article  361
Published:  11/1/2015

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Special Use Ad Valorem Tax Valuation for Developers
Chris Burti, Vice President and Senior Legal Counsel, Statew

The 2015 Legislative session has produced a bill that exempts the increase in value of real property held for sale by a builder from property tax, to the extent the increase is attributable to subdivision or improvements by the builder and will be of interest to all who advise developers and builders. Session Law 2015-223 provides that residential and commercial real property as defined and held for sale by a builder is designated a special class of property under authority of Article V, Sec.2(2) of the North Carolina Constitution. The builder must apply for the available exclusion annually. In appraising eligible property, the tax assessor shall specify what portion of the value is an increase “attributable to subdivision or other improvement by the builder."

Residential property is defined as “real property that is intended to be sold and used as an individual's residence immediately or after construction of a residence, and the term excludes property that is either occupied by a tenant or used for commercial purposes such as residences shown to prospective buyers as models.” It remains exempt as long as the builder continues to hold the property for sale, but no more than three years from the time it was first subject to being listed for taxation by the builder.

The bill also deals with commercial property which is broadly defined. The exclusion for commercial ends at the earlier of the following:

(1)    Five years from the time the improved property was first subject to being listed for taxation by the builder.

(2)    Issuance of a building permit.

(3)    Sale of the property.

The provisions of the act are effective for taxes imposed for taxable years beginning July 1, 2016, and apply to the subdivision of or improvements made on or after July 1, 2015. The full Text of the legislation follows:

SESSION LAW 2015-223

HOUSE BILL 168

SECTION 1.

G.S.105-273(3a) is reenacted and reads as rewritten:

"(3a)" Builder "means 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.

Article 12 of Chapter 105 of the General Statutes is amended by adding a new section to read:

"§105-277.02. Certain real property held for sale classified for taxation at reduced valuation.

(a) Residential Real Property. - Residential real property held for sale by a builder is designated a special class of property under authority of Article V, Sec.2(2) of the North Carolina Constitution. For purposes of this subsection, " residential real property" is real property that is intended to be sold and used as an individual's residence immediately or after construction of a residence, and the term excludes property that is either occupied by a tenant or used for commercial purposes such as residences shown to prospective buyers as models. Any increase in value of this classified property attributable to subdivision of, improvements other than buildings, or the construction of either a new single-family residence or a duplex on the property by the builder is excluded from taxation under this Subchapter as long as the builder continues to hold the property for sale. In no event shall this exclusion extend for more than three years from the time the improved property was first subject to being listed for taxation by the builder.

(b) Commercial Property. - Commercial real property held for sale by a builder is designated a special class of property under authority of Article V, Sec. 2(2) of the North Carolina Constitution. For purposes of this subsection, " commercial real property" is real property that is intended to be sold and used for commercial purposes immediately or after improvement. Any increase in value of this classified property attributable to subdivision of or other improvements made to the property, by the builder, is excluded from taxation under this Subchapter as long as the builder continues to hold the property for sale. The exclusion authorized by this subsection ends at the earlier of the following:


(1) Five years from the time the improved property was first subject to being listed for taxation by the builder.
(2) Issuance of a building permit.
(3) Sale of the property.
   (c) The builder must apply for any exclusion under this section annually as provided in G.S.105-282.1.
   (d) In appraising property classified under this section, the assessor shall specify what portion of the value is an increase attributable to subdivision or other improvement by the builder."

SECTION 3.

This act is effective for taxes imposed for taxable years beginning on or after July 1, 2016, and applies to subdivision of or other improvements made on or after July 1, 2015.

In the General Assembly read three times and ratified this the 13th day of August, 2015.

s/
Philip E. Berger
President Pro Tempore of the Senate

s/
Tim Moore
Speaker of the House of Representatives

s/
Pat McCrory
Governor
Approved 2:22 p.m. this 18th day of August, 2015


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