NC’s Corporate Income Tax is Nation’s Lowest
A new report by the Tax Foundation finds that North Carolina’s 2.5% corporate income tax is now the lowest in the nation. All told, 45 states (and the District of Columbia) levy corporate income taxes while six do not. New Jersey has the highest rate of corporate income tax at 11.5%.
Of those six states that do not levy a corporate income tax, four (Nevada, Ohio, Texas, and Washington) instead impose gross receipts taxes on businesses.
Gross receipt taxes are based on a company’s gross sales without subtracting any returns, discounts, business costs, or operating expenses; essentially, the total amount of revenue a business collects in a tax year.
Delaware, Oregon, Tennessee, and Washington impose both corporate income taxes and gross receipts taxes. North Carolina no longer imposes a gross receipts tax.
North Carolina’s corporate income tax rate peaked in 1991 at 7.75% and as recently as a decade ago, the corporate income tax rate was the highest in the Southeast at 6.9%. Successive tax reform initiatives by the conservative majority lowered that rate to 6% in 2014, 5% in 2015, 4% in 2016, 3% in 2017, and to the current rate of 2.5% starting in 2019.
If the conservative majority in Raleigh holds, the state is on track to eliminate the corporate income tax entirely by the year 2030: 2.25% in 2025, 2% in 2026, 1% in 2028, and 0% for tax years beginning after 2029. North Carolina will be one of only three states in the nation that levies neither a corporate income tax nor a statewide gross receipts tax.
The Carolina Leadership Coalition applauds the legislature for its continuing bipartisan efforts to phase-out the corporate income tax, whose financial burdens falls on workers (in the form of lower wages) and consumers (in the form of higher prices).