Builders in North Carolina could get a temporary breather from property taxes on their unsold inventory under a proposal currently moving through the state’s legislature.

The measure (House Bill 852), which has been approved by the North Carolina House and is now with the state’s Senate, would allow builders to defer paying property taxes on unsold homes for up to three years beginning in 2010. It would be simply a tax deferment, not a tax cut, so builders would be required to pay the accrued property taxes once the home was sold.

But industry leaders say North Carolina builders would be grateful for any assistance they might receive in this downturn. “If you’re a custom home builder with an unsold $2.5 million home sitting on a $500,000 lot, you would love to defer that tax,” said Mark Baldwin, executive vice president of the Home Builders Association of Charlotte. “It is welcome relief if it’s money they don’t have to pull out of their pocket right now.”

And that’s in Charlotte, which has been relatively unscathed by the housing downturn and home price plunges. While other builders struggle with months of inventory, the Charlotte market currently has just a 2.3-month supply of finished housing and another 2.5 months’ worth of new homes under construction. “We haven’t been as hit as hard as others, for which we’re grateful, but it still hurts,” said Baldwin. With the merger of Wachovia with Wells Fargo, for instance, “we’re losing high-level jobs. The sales of high-end homes have slowed to a crawl.”

Under the current proposal, builders would have to apply each year for the tax break, which can be taken on houses as old as five years. That means that a house that was built in 2008 and went unsold that year and 2009 could be eligible for the property tax deferral beginning in 2010. Or, a builder could use it on homes that were built in 2010, 2011, or 2013 but still unsold when property taxes are due.

Despite the five-year range of the deferral, though, builders are only eligible for the break for three years, according to Lisa Martin, director of governmental affairs for the North Carolina Home Builders Association, which represents the state’s estimated 6,000 builders. The bill would also “sunset,” or automatically end, in 2013.

While builders cross their fingers for the bill’s passage, some North Carolina localities—which actually collect property taxes—are hoping for the opposite outcome. At least two counties, Johnston and Wake, oppose the measure. Wake, which is where the city of Raleigh is located, estimated the measure could cost the county $3.7 million next year in much needed funds.

Overall, the cost of the proposal is unknown due to the multiple factors involved: the varying property tax rates among North Carolina localities, the number of unsold homes in the years ahead, the appraised values of those homes, and the number of builders that would receive such deferments.

Regardless of the cost, it could end up being too high in the current economy. According to the National Conference of State Legislatures, states across the country are forecasting a cumulative budget gap of at least $121 billion in 2010. North Carolina is no different. It faces a deficit of between $1.1 billion and $4.7 billion, which state government is trying to solve with with cuts and tax increases. 

Alison Rice is senior editor, online, at BUILDER magazine.

Learn more about markets featured in this article: Raleigh, NC, Charlotte, NC.