What taxes do businesses pay in North Carolina?
North Carolina has been attracting entrepreneurs and investors due to its pro-business environment. The North Carolina business tax climate is also considered to be favorable and has one of the lowest corporate income taxes in the nation. The state has a lower corporate income tax compared to Colorado (4.6%), South Carolina (5%), Florida (5.5%), and New York (7.3%), among others. You can form different types of domestic and foreign entities in North Carolina including a limited liability Company, a sole proprietorship, a C-Corporation, a partnership, and an S-Corporation. Each entity type will have a different tax status in this state. Your company may be required to file a single type of state taxes or multiple business taxes and you may need a North Carolina business tax calculator to determine the amount of taxes due. Let’s try to understand the different types of taxes applicable to new and existing businesses in this state.
North Carolina income tax
There are different categories for North Carolina business taxes and one of them is income tax. There are two types of income taxes that may be applicable to businesses which include:
- Individual income tax – This type of tax has to be filed by individual taxpayers. Some entity structures require an individual income tax return to be filed like a sole proprietorship or a limited liability company. You can use the individual income tax estimator provided by the North Carolina Department of Revenue to calculate your annual tax return.
- Corporate income tax – The corporate income tax is levied on the net taxable income of all North Carolina corporations – both domestic and foreign. The tax rate is flat 2.50 percent for all entities. You can use a North Carolina business tax Calculator to determine your corporation’s payable taxes. It is important to note that certain corporations that have been organized under Chapter 55A will be exempt from corporate income taxes.
One of the North Carolina business tax classifications is employer taxes. This tax can be applied to businesses that have employed a skilled, semi-skilled, or unskilled workforce. The tax rate for all employers is determined using an experience rating formula. This formula is based on economic conditions and hence the tax rate can vary from 0.060% to 5.760%. The base rate for employer taxes in a given year is determined by the solvency of the Unemployment Insurance Trust Fund. The employer taxes can be applicable as North Carolina LLC taxes as well as any other entity based in the state.
Franchise or Privilege tax
The franchise tax is also known as a privilege tax. This tax is placed on various entities for the privilege of conducting business in North Carolina. The North Carolina franchise tax typically applies to C-Corporations and S-Corporations. The tax rate varies depending on the entity type. For example, the rate for a C-Corporation is $1.50 (one dollar and fifty cents) per $1,000 (one thousand dollars). The minimum franchise tax can also vary according to tax year, and will also be different for Holding Companies. You will need to use a North Carolina business tax Calculator to derive the amount of taxes payable.
North Carolina sales and use tax
One of the important taxes apart from the North Carolina franchise tax is the sales and use tax. 2020 North Carolina General Statutes, Chapter 105 – Taxation, Article 5 governs this tax in the state. This form of North Carolina Corporation taxes is applicable for any entity that sells tangible personal property, pursuant to NC Gen Stat § 105-164.4 (2020). This type of property is defined as any personal property that can be weighed, seen, felt, measured, or can be perceptible to the senses.
The list of such properties is quite extensive and includes prewritten computer software, electricity, gas, water, and steam among others. The sales and use tax is a type of North Carolina business tax that is also imposed on retailers as well as certain facilitators like on the selling price of certain digital property and gross receipts derived from installation, maintenance, and repair services. The sales and use tax rates can vary according to the city, town, and county.
Excise tax, unlike North Carolina franchise tax, is applicable only for selling or using specific products, services, or property. This type of North Carolina LLC tax includes several types of taxes like the Alcoholic Beverages Tax, Piped Natural Gas Tax, and Tobacco Products Tax among others. Let’s look at an example to understand this.
Example: If you are planning to sell alcoholic beverages in North Carolina then excise tax will be applicable. This type of North Carolina business tax is levied on all alcoholic beverages including wine, which is sold in the state as well as those shipped into this state. The excise tax rate will vary according to the nature of business like the tax rate on liquor will be different from that of a brewery or winery.
Are you thinking of forming a new business in North Carolina?