North Carolina Soars in Tax Climate Rankings

Taken from the Tax Foundation excerpt on State Business Tax Climates

North Carolina

Perhaps the greatest testament to the value of the Index is its use as a success metric for comprehensive reforms passed last year in North Carolina. In this year’s edition, North Carolina has improved dramatically from 44th place last year to 16th place this year, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings. 

North Carolina’s largest improvement was in the individual income tax component section, where legislation restructured the previously multi-bracketed system with a top rate of 7.75 percent to a single-bracket system with a rate of 5.8 percent and a generous standard deduction of $7,500. This translates to an improvement of 27 rankings in the individual income tax component of the Index, with further improvement expected next year as the rate is expected to decrease again to 5.75 percent (see Table 4). 

The corporate income tax rate in North Carolina is also phasing down. The rate fell from 6.9 percent last year to 6 percent this year, improving the state’s ranking in that component from 30th to 25th (see Table 3). The rate is subject to a trigger mechanism that will further reduce the rate in future years when state general fund revenues are healthy, to as low as 3 percent by 2017. 

Finally, the state improved its sales tax structure this year by disallowing localities the ability to set their own tax bases, improving simplicity for sales tax filing. This improved the sales tax component from 47th to 33rd (see Table 5). 

 

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