by Michael Lowrey
The N.C. General Assembly clarified an at-times contentious issue of local taxation this past session: property taxes on custom software. Currently, business pay local property tax on software they’ve bought or leased from an outside vendor and capitalized the cost of. They do not, however, pay property tax on custom software that they themselves developed. Unsurprisingly, this has led to protracted battles over whether a company’s custom software was sufficiently developed in-house for the exemption to apply. Forsyth County, for example, just dropped a dispute over the origin of 49 computer programs that what is now Wells Fargo was using at a call center in the county back in 2006 and 2007. Why did the case go on for so long? Because $1 million in property taxes was at stake.
In the future, there will be no more such disputes. As the Winston-Salem Journal reports, the legislature revised the law to exclude from property tax “development of software or any modifications to software, whether done internally by the taxpayer or externally by a third party, to meet the customer’s specified needs.”
The bad news for local governments is that there’s a non-trivial revenue hit from this. Haven’t seen a number for Mecklenburg County or Charlotte, but Forsyth County officials are expecting the change will cost them $1.4 million in tax revenue per year.