The OBBBA tax framework for NC manufacturers

The One Big Beautiful Bill Act (OBBBA), Public Law 119-21, signed into law on July 4, 2025, created the two most consequential federal tax provisions for manufacturers in two decades.

IRC § 168(k) permanent 100% bonus depreciation

OBBBA permanently restored 100% bonus depreciation under IRC § 168(k) for qualified property acquired and placed in service after January 19, 2025. The provision applies to most tangible property with a recovery period of 20 years or less, capturing the bulk of manufacturer production equipment, machinery, tooling, computer hardware, off-the-shelf software, and qualified improvement property. Treasury and IRS issued Notice 2026-11 on January 14, 2026, providing interim guidance that largely adopts the previous bonus depreciation regime.

IRC § 168(n) Qualified Production Property

The OBBBA § 168(n) Qualified Production Property regime is the most consequential new federal tax provision for NC manufacturers in this decade. Prior to OBBBA, nonresidential real property used by a manufacturer was depreciated over 39 years using the straight-line method. Under § 168(n), a manufacturer can elect a 100 percent special depreciation allowance equal to the unadjusted basis of nonresidential real property used as a core part of a qualified production activity, placed in service in the year of the election. Treasury and IRS issued Notice 2026-16 on February 20, 2026, providing interim guidance.

For a NC manufacturer building a $20 million facility, § 168(n) treatment converts what would have been approximately $513,000 of annual depreciation stretched across four decades into a $20 million year-one deduction. For a manufacturer in the 32 percent federal bracket, that produces approximately $6.4 million of federal tax savings plus approximately $800,000 of NC state tax savings at the 2026 NC flat rate of 3.99 percent.

The qualification requirements:

• The property must be nonresidential real property used as a core part of a qualified production activity (manufacturing, production, or refining of tangible personal property).

• The property must be located in the United States.

• Original use must begin with the taxpayer (used property is not eligible).

• Construction must begin after January 19, 2025, and before January 1, 2029.

• The property must be placed in service before January 1, 2031.

Exclusions include portions of buildings used for offices, administrative services, lodging, parking, sales activities, research activities, software development, and engineering. Mixed-use facilities require allocation between qualified and non-qualified portions.

The § 168(n) provision includes a 10-year recapture rule that has direct implications for exit planning. If property stops being used for qualified production within 10 years of being placed in service, a portion of the deduction must be recaptured as ordinary income. For NC manufacturers contemplating both facility expansion and a possible exit, the recapture exposure must be modeled into both the construction-timing decision and the exit-timing decision, because a manufacturer founder who claims § 168(n) on a new facility in 2026 and sells the manufacturer in 2030 will trigger partial recapture unless the buyer continues qualified production use through year ten.

IRC § 199A qualified business income deduction

For NC manufacturers operating as pass-through entities, IRC § 199A provides a deduction of up to 20 percent of qualified business income. OBBBA made the § 199A deduction permanent. The defining feature of § 199A for manufacturer planning is that manufacturing is not a Specified Service Trade or Business (SSTB) under § 199A(d)(2). SSTBs include health, law, accounting, financial services, brokerage services, and trades or businesses where the principal asset is the reputation or skill of one or more employees. Manufacturing falls outside the SSTB definition. The practical result is that NC manufacturers are eligible for the full 20 percent QBI deduction regardless of taxable income level, subject only to the W-2 wage and qualified property limitations that apply to non-SSTB qualified trades or businesses above the income threshold.

This distinction between SSTBs and non-SSTBs matters most in comparison to professional-services pass-throughs. A dentist, physician, lawyer, or financial advisor at higher income levels phases out of § 199A entirely; a manufacturer at the same income level retains full 20 percent QBI deduction. This is one of the most overlooked features of the post-OBBBA tax framework. For a NC manufacturer producing $2 million of pass-through income at the owner level, the § 199A deduction can reach $400,000, producing federal tax savings of approximately $128,000 at the 32 percent marginal bracket. Over a decade of consistent operations, that represents over $1.2 million of tax savings structurally available to manufacturers but not to professional-services SSTB owners.

NC products liability framework for manufacturers

NC products liability law is codified at Chapter 99B of the General Statutes. Unlike many other states that apply strict liability standards to product liability claims, NC applies a negligence standard. Under § 99B-1.1, there is no strict liability in tort in product liability actions in North Carolina. A plaintiff must establish that the manufacturer or seller acted unreasonably in design, manufacture, marketing, or instructions.

NC products liability claims typically proceed on one of three theories: manufacturing defect (the product departed from the manufacturer's design or specifications), design defect (the product as designed was unreasonably dangerous and a feasible alternative existed), or failure to warn (inadequate warnings or instructions caused or contributed to the injury under § 99B-5).

Chapter 99B provides several manufacturer-protective defenses that distinguish NC from strict-liability jurisdictions: the adequate-instructions defense under § 99B-4 (a manufacturer cannot be held liable where adequate instructions for the safe use of the product were provided), the alteration-or-modification defense under § 99B-3 (a manufacturer is not liable where the proximate cause of the injury was an alteration or modification of the product by a third party), and the seller's inspection-opportunity defense under § 99B-2 (a downstream seller is generally not liable for products sold in sealed containers or where the seller had no reasonable opportunity to inspect).

NC also retains traditional contributory negligence rather than comparative fault. A plaintiff whose own negligence contributed in any degree to the injury, however small, is barred from recovery. NC is one of approximately four states (plus the District of Columbia) that has kept contributory negligence, and quite candidly this is one of the most manufacturer-protective doctrines in NC law.

The 3-year limitations period and 12-year statute of repose

NC products liability actions are subject to two distinct time limitations operating in parallel. The 3-year statute of limitations under § 1-52(16) runs from the date the bodily harm to the claimant became apparent or reasonably should have become apparent. The 12-year statute of repose under § 1-46.1(a)(1) is a separate and independent bar for products sold or leased after October 1, 2009, measured from the date of the product's initial purchase for use or consumption. The two periods operate in parallel and a claim must satisfy both.

The statute of repose has substantial defensive value for NC manufacturers, particularly those producing durable goods, industrial equipment, and capital machinery with multi-decade service lives. A manufacturer that produced and sold an industrial machine in 2013 has full statute-of-repose protection against any claim filed after 2025, regardless of when the injury occurred. Courts apply the repose period strictly. For products sold before October 1, 2009, the prior 6-year repose period applies.

Entity structure for NC manufacturers

Most NC manufacturers above a modest revenue scale operate through a multi-entity architecture rather than a single operating entity. The standard structure separates operating risk from real estate risk from equipment-and-intellectual-property risk:

• An operating entity, typically an LLC formed under NC Chapter 57D making an S-corporation election under IRC § 1362, that conducts the active manufacturing business and carries operational, products-liability, environmental, and contract exposure.

• A real estate holding LLC that owns the manufacturing facility and leases it to the operating entity at fair market rent, creating a rental income stream for the owner that is largely insulated from operating-entity liability.

• An equipment holding LLC, used by capital-intensive specialty manufacturers, that holds high-value production equipment and leases it to the operating entity.

• An intellectual property holding LLC, used by manufacturers with proprietary processes, formulas, patents, or trademarks, that licenses the IP to the operating entity.

• A holding LLC at the top, owned by the founder or by a revocable trust, that holds the equity of the operating entity, the real estate entity, and the IP entity for centralized succession planning.

The operating agreement for a NC manufacturer LLC requires substantially more detail than a generic template. It needs to address management structure (manager-managed versus member-managed), voting and economic-sharing arrangements (different equity classes for active versus passive family members), transfer restrictions and right-of-first-refusal protections, buy-sell triggers (death, disability, voluntary departure, retirement, divorce, bankruptcy, loss of key customer concentration, material regulatory event), valuation methodology, capital call and dilution mechanics, distribution policy, and deadlock resolution. For S-corporation-taxed manufacturer LLCs, the operating agreement must also preserve the single-class-of-stock requirement under IRC § 1361(b)(1)(D) and limit equity transfers to permissible S-corp shareholders (individuals, qualifying trusts including QSSTs and ESBTs, estates, and certain tax-exempt organizations).

NC LLC law also provides charging order protection under § 57D-5-03. A judgment creditor of an LLC member can obtain only a charging order against that member's distributions, not the underlying LLC interest itself. For multi-member LLCs, the charging order is the exclusive remedy under NC law. This protection is meaningful in manufacturer planning because it deters creditor claims against family manufacturer interests.

NC DEQ environmental compliance for manufacturers

NC manufacturer environmental compliance is administered by the NC Department of Environmental Quality, which exercises delegated authority over most federal environmental programs (RCRA, Clean Air Act, Clean Water Act, Safe Drinking Water Act) and administers NC-specific programs. Manufacturer compliance obligations typically cluster around five areas: air quality permitting (Title V for major sources, state minor-source permits), hazardous waste management under RCRA Subtitle C and 15A NCAC 13A, water discharge permits under NPDES, solid waste management, and storage tank regulations.

Starting January 22, 2025, all Small Quantity Generators and Large Quantity Generators of hazardous waste must register with the federal e-Manifest system at rcrainfo.epa.gov. NC DEQ tracks manifest data for compliance monitoring purposes.

CERCLA, Brownfields, and acquisition due diligence

Manufacturer real estate carries environmental risk that materially affects acquisition, divestiture, and operational planning. CERCLA (the federal Superfund statute) creates federal liability for hazardous substance releases at industrial sites, with potentially responsible parties including current owners, past owners, operators, generators, and transporters. CERCLA liability is strict, joint and several, and retroactive.

The NC Brownfields Program operates under N.C. Gen. Stat. § 130A-310.30 et seq., providing a state-administered framework for redevelopment of contaminated industrial sites with liability protection for prospective developers and end users. The NC Brownfields Agreement (BFA) process is widely used in NC manufacturer transactions to provide acquirers with statutory liability protection against historic contamination caused by previous owners.

Manufacturer transaction due diligence routinely includes Phase I Environmental Site Assessment compliant with ASTM E1527-21 standard, Phase II ESA if Phase I identifies recognized environmental conditions, regulatory records review across NC DEQ files and EPA RCRA Info, environmental compliance audit, and pollution legal liability insurance evaluation. Environmental indemnities and escrows are routine in NC manufacturer transactions. For owner-operators considering exit within the next several years, I want to strongly encourage you to commission a baseline Phase I ESA before the first PE conversation, because environmental exposure that emerges in buyer-side due diligence almost always produces a purchase price reduction larger than the cost of identifying and addressing it through proactive Brownfields enrollment.

The private equity exit market for NC manufacturers

Private equity consolidation has reached the NC manufacturer market at significant intensity. Per PitchBook data compiled by Cherry Bekaert, lower-middle-market roll-ups accounted for over 80 percent of all PE deals in 2024. The industrials sector (which includes manufacturing, industrial services, and capital goods) represented approximately 21.2 percent of PE deal count in 2024, with manufacturing-specific EBITDA purchase multiples in the lower-middle market averaging approximately 6.5x to 6.8x during 2024 before softening in early 2025 per GF Data.

Active PE manufacturing platforms in 2024-2026 include Audax Private Equity's Solve Industrial Motion Group (which passed 100 add-on acquisitions in 2025), Atlas Holdings, AE Industrial Partners, Liberty Hall Capital Partners, Arlington Capital Partners, Trive Capital, Cerberus Capital Management, Wynnchurch Capital, Arsenal Capital, Sterling Group, and others. The $5M-$10M revenue band is the most aggressively targeted tier in current dealflow.

The practical implication for NC manufacturer owner-operators is that cold PE outreach is now sustained and structured. Most founders only encounter one or two firms through cold outbound and never see the structural picture of how their business fits into a consolidator's portfolio thesis. In our experience advising manufacturer founders through these inquiries, the information asymmetry runs heavily against the founder: the PE buyer has a sector roll-up thesis, comparable transaction multiples, and a financial model; the owner-operator typically has none of these and is evaluating a discrete offer rather than a market.

Five things drive manufacturer valuation in the current market: revenue scale (the $5M-$10M band is the most actively pursued PE bolt-on tier), EBITDA margin profile (specialty manufacturers with 15-25 percent margins typically clear 6-9x EBITDA; commodity manufacturers with 5-10 percent margins typically clear 4-6x), customer concentration (single-customer exposure produces meaningful discounts and may trigger earnouts), capital intensity and equipment age (recently-modernized equipment commands premium multiples), and environmental exposure (known contamination or RCRA-regulated activity faces significant due-diligence scrutiny and price reductions).