North Carolina Tax Climate
North Carolina offers one of the nation's most pro-business tax and incentive structures:- 6.9% corporate income tax
- No local income tax
- Tax credits for new jobs
- Tax credits for worker training
- Tax credits for machinery and equipment
- Tax credits for R&D
- Tax credits for Central Administration Offices
In North Carolina, tax and incentive policies have been guided by two strategies: to encourage investment and employment, and to reward profitability.
The North Carolina Corporate Income Tax has two features which offer savings to corporate taxpayers.
North Carolina's corporate tax structure is simply a flat 6.9% rate. According to the Tax Foundation, this tax ranks the state 18th lowest among states levying corporate income taxes.
First, the corporate income tax is based on federal taxable income. The most current version of the Federal Code is adopted into the state law to provide operational procedures and definitions in computing the state tax.
The second feature can provide significant tax savings for corporate taxpayers doing business in more than one state. Rather than following the multi-state income apportionment mechanism commonly known as the “three-factor formula”, North Carolina has adopted a version of this which double weights the sales factor in the calculation. An example of this procedure follows:
A corporation doing business in more than one state computes that 80% of its payroll, 80% of its property and 20% of its sales are in North Carolina.
The three-factor formula calculation: Each factor is added and this sum is divided by three.
80% + 80% + 20% / 3 =180% / 3 = 60%
The double-weighted sales factor calculation: Payroll factor, property factor, and twice the sales factor are added and divided by four.
80% + 80% + 20% + 20% / 4 = 200% / 4 = 50%
The double-weighted sales factor apportionment formula results in a tax savings of 10% in the above example. A company with similar operations would save $6,900 for each million dollars of net taxable income.
| Sample Calculation | ||
|---|---|---|
| NTI | $1,000,000 | |
| 3 factor formula | x | 60% |
| NC 2000 tax rate | x | 6.90% |
| Savings | = | $41,400 |
| NTI | $1,000,000 | |
| Double-weighted sales factor | x | 50% |
| NC 2000 tax rate | x | 6.90% |
| Savings | = | $34,500 |
| $41,400 | ||
| - | $34,500 | |
| TOTAL Savings | = | $6,900 |
North Carolina's Local/State Tax Burden Below the National Average
There are no local income taxes in North Carolina.
In 1990 North Carolina had a tax burden significantly lower than the national average (9.5% compared to a national average of 10.3%). Estimated in 2004 at 9.7% of income, North Carolina's state/local tax burden percentage still remains below the national average of 10.0%.
North Carolina's personal income tax system is composed of four brackets with a top rate of 8.25% kicking in at an income level of $120,000. North Carolina's 2002 income tax collections were $875 per person.
North Carolina's Sales Tax Rate below national median; Cigarette Tax among Nation's lowest
North Carolina's state sales tax rate stands at 4%. Some counties also collect sales tax, but the tax rate varies from one county to another. The state collected approximately $422 per person in sales taxes during 2000. North Carolina's gasoline tax stands at $0.221 per gallon, while its cigarette tax stands at only $0.05 per pack of 20. The state's beer tax is $0.48 per gallon.
North Carolina Property Taxes: Comparatively low
North Carolina is one of the 38 states that collect property taxes at both the state and local levels. North Carolina's localities collected $575 per capita in taxes, or if measured as a percentage of income, $22 per $1,000 of income.
Federal Tax Burdens and Expenditures: North Carolina is a beneficiary state
North Carolina taxpayers benefit more than the average state's taxpayer from federal spending. Per dollar of federal tax collected in 2002, North Carolina citizens received approximately $1.07 in the way of federal spending.
For additional information on bonds, grants and other economic development incentives, visit Incentives. More detailed local and state tax rates may be found in reports resulting from searches on our Web site for property or community profiles.
North Carolina offers one of the nation's most pro-business tax and incentive structures:- 6.9% corporate income tax
- No local income tax
- Tax credits for new jobs
- Tax credits for worker training
- Tax credits for machinery and equipment
- Tax credits for R&D
- Tax credits for Central Administration Offices
In North Carolina, tax and incentive policies have been guided by two strategies: to encourage investment and employment, and to reward profitability.
The North Carolina Corporate Income Tax has two features which offer savings to corporate taxpayers.
North Carolina's corporate tax structure is simply a flat 6.9% rate. According to the Tax Foundation, this tax ranks the state 18th lowest among states levying corporate income taxes.
First, the corporate income tax is based on federal taxable income. The most current version of the Federal Code is adopted into the state law to provide operational procedures and definitions in computing the state tax.
The second feature can provide significant tax savings for corporate taxpayers doing business in more than one state. Rather than following the multi-state income apportionment mechanism commonly known as the “three-factor formula”, North Carolina has adopted a version of this which double weights the sales factor in the calculation. An example of this procedure follows:
A corporation doing business in more than one state computes that 80% of its payroll, 80% of its property and 20% of its sales are in North Carolina.
The three-factor formula calculation: Each factor is added and this sum is divided by three.
80% + 80% + 20% / 3 =180% / 3 = 60%
The double-weighted sales factor calculation: Payroll factor, property factor, and twice the sales factor are added and divided by four.
80% + 80% + 20% + 20% / 4 = 200% / 4 = 50%
The double-weighted sales factor apportionment formula results in a tax savings of 10% in the above example. A company with similar operations would save $6,900 for each million dollars of net taxable income.
| Sample Calculation | ||
|---|---|---|
| NTI | $1,000,000 | |
| 3 factor formula | x | 60% |
| NC 2000 tax rate | x | 6.90% |
| Savings | = | $41,400 |
| NTI | $1,000,000 | |
| Double-weighted sales factor | x | 50% |
| NC 2000 tax rate | x | 6.90% |
| Savings | = | $34,500 |
| $41,400 | ||
| - | $34,500 | |
| TOTAL Savings | = | $6,900 |
North Carolina's Local/State Tax Burden Below the National Average
There are no local income taxes in North Carolina.
In 1990 North Carolina had a tax burden significantly lower than the national average (9.5% compared to a national average of 10.3%). Estimated in 2004 at 9.7% of income, North Carolina's state/local tax burden percentage still remains below the national average of 10.0%.
North Carolina's personal income tax system is composed of four brackets with a top rate of 8.25% kicking in at an income level of $120,000. North Carolina's 2002 income tax collections were $875 per person.
North Carolina's Sales Tax Rate below national median; Cigarette Tax among Nation's lowest
North Carolina's state sales tax rate stands at 4%. Some counties also collect sales tax, but the tax rate varies from one county to another. The state collected approximately $422 per person in sales taxes during 2000. North Carolina's gasoline tax stands at $0.221 per gallon, while its cigarette tax stands at only $0.05 per pack of 20. The state's beer tax is $0.48 per gallon.
North Carolina Property Taxes: Comparatively low
North Carolina is one of the 38 states that collect property taxes at both the state and local levels. North Carolina's localities collected $575 per capita in taxes, or if measured as a percentage of income, $22 per $1,000 of income.
Federal Tax Burdens and Expenditures: North Carolina is a beneficiary state
North Carolina taxpayers benefit more than the average state's taxpayer from federal spending. Per dollar of federal tax collected in 2002, North Carolina citizens received approximately $1.07 in the way of federal spending.
For additional information on bonds, grants and other economic development incentives, visit Incentives. More detailed local and state tax rates may be found in reports resulting from searches on our Web site for property or community profiles.
