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Corporate Taxes - State

Incorporation

A $125 charge is payable upon filing article of incorporation; a fee of $250 for application for certificate of authority. In addition, an annual report with a $18 online filing fee or a $25 paper filing fee must be filed with the Department of Revenue.

Corporate Income Tax

North Carolina’s corporate income tax is 6.9 percent of the portion of net income allocable to the state.

If a corporation in North Carolina does business in North Carolina and in one or more other states, North Carolina taxes a fraction of the corporation’s income based on the amount of sales, payroll and property it maintains within North Carolina. In the double-weighted sales factor calculation, the payroll factor, the property factor and twice the sales factor are added, and then divided by four. In computing the property factor, owned property is valued at original cost and leased property is valued at eight times the annual rental rate. Thus, a business in North Carolina that makes significant sales outside the state would be taxed at a lesser level than a comparable business that is located elsewhere but makes significant sales within North Carolina.

Other combinations of ratios have the potential to result in even greater savings.

Corporate Franchise Tax

Franchise tax is levied on business corporations, including those electing federal S corporation status, at the rate of $1.50 per $1,000 of the largest of three alternate bases:

• The amount of the capital stock, surplus and undivided profits apportionable to the state
• 55 percent of the appraised value of property in the state subject to local taxation
• The book value of real and tangible personal property in the state less any outstanding debt that was created to acquire or improve real property in the state.

Only corporations that do business in one or more states in addition to North Carolina are permitted to apportion capital as described under one above. The minimum franchise is $35.

Property Tax

There is only one property tax assessment in each county. Property is assessed at 100 percent of its appraised value. Although appraised value is intended to illustrate “full value,” this standard is not always achieved for real property because it is required to be revalued only once every eight years.

Property taxes are based on assessments as of January 1, are due September 1, but may be paid at par as late as January 5 of the following year.

Sales and Use Tax

In North Carolina, the state levies a general retail sales and use tax of 5. 5 percent. Most counties levy a 2.25% local sales and use tax on items taxed by the state at its general rate. As a result, the combined general state and county tax rate is 7.75 percent in all counties except Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson and Surry where the rate is 2.5%. Mecklenburg County, which has an additional .5% county rate. The combined rate will be 7.75% in ninety-one counties, 8% in Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson & Surry Counties, and 8.25% in Meclenburg County. Tax Charts

**Effective July 1, 2010, sales of electricity to manufacturers for qualifying purposes will be exempt from sales and use tax.

• Mill machinery is exempt from sales and use tax and subject to a 1 percent privilege or excise tax with an $80 per article cap.
• A one percent excise tax is imposed on certain equipment purchased by physical engineering and life science research and development companies. The tax applies to equipment (including attachments and repair parts) this is capitalized by the company for federal income tax purposes and is used in research and development of tangible personal property.

Personal Income Tax

North Carolina has a graduated rate schedule, with rates of six percent, seven percent and 7.75 percent based on the filing status and North Carolina taxable income of the taxpayer. Starting in 2009, individuals who meet certain income requirements will pay a surtax on the amount of tax they owe before any witholding, payments or credits.

North Carolina taxable income is the same as the figure calculated for federal income tax purposes with certain adjustments.

Workers' Compensation

North Carolina employers enjoy some of the lowest workers’ compensation costs in the nation thanks to a program that is well-managed and features reasonable, fiscally responsible policies.

Several key features of the program can contribute to substantial labor cost savings:

• Self-insurance is permitted.
• Insurance rates are lower than the standard industry rates for qualifying firms
• A clear-cut, on-the-job accident is a condition for benefit compensation.
• Free accident – prevention workshops designed for each product manufactured.

Unemployment Insurance

North Carolina consistently has among the lowest average unemployment rates in the nation, and its average unemployment cost of $229.41 is well below the national average of $236.93, based on data released by the U.S. Department of Labor for the third quarter of 2009.

Business entities are subject to a payroll tax – also known as an employment tax – under the N.C. Employment Security Law if they either:

• Have one or more employees for 20 different weeks during a calendar year in North Carolina or
• Pay $1,500 in wages in any calendar quarter in North Carolina.

The tax is payable quarterly and applies to wage payments of up to $18,600 per employee per year in 2008 and $19,300 per employee in 2009.

New Businesses

Entities commencing business in North Carolina during the year 2007 are subject to an employment security tax of 1.2 percent of applicable wages during the first two years. Those employers who avoid laying off workers and maintain a positive “experience rating can decrease their tax rates to a minimum of zero percent.

Existing Businesses

Entities that have one or more operating facilities in North Carolina that choose to expand or establish a new North Carolina facility in the same corporate division as an existing North Carolina operation may select the company’s existing tax rate or may select the standard 1.2 percent rate that applies to new businesses.

Unemployment Insurance Program for 2008:

• North Carolina Minimum Tax Rate: 0.00%
• New Employer Tax Rate (first 2 years): 1.2%
• North Carolina Maximum Tax Rate: 6.84%
• Taxable Wage Base (per employee): $18,600

Piped Natural Gas Tax

The use of piped natural gas received by a manufacturing for use in connection with the operation of a manufacturing facility and by a farmer to be used for any farming purpose other than preparing food, heating dwellings, and other household purposes is taxable. Tax rate reductions are available for thos comapnies eligible that have a manufacturer’s certificate or a farmer’s certificate issued under General Statute G.S. 105-164.28A.

Highway Use Tax

NC levies a tax on the privilege of using the highways at the rate of 3% of the retail value of a motor vehicle. The tax cannot exceed $1,000 for Class A and Class B commercial vehicles.

Payroll Tax

Businesses are subject to a payroll tax if they have one or more employees for twenty different weeks during a calendar year or pay $1,500 in wages in any calendar quarter during a calendar year in this State. The tax is payable quarterly and applies to wage payments up to $19,300 per employee. Entities commencing business in NC are subject to a tax rate of 1.20% during the first two years.