North Carolina Basic Business Taxes 2012
North Carolina's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include income taxes, sales and use taxes, and an inventory tax exemption.
North Carolina's corporate income tax is 6.9 percent of the portion of net income allocable to the state. Tax credits are available to eligible businesses for job creation, investing in machinery and equipment, R&D expenses and ports usage.
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 the state. 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.
Article 3J Tax Credits provides three types of tax credits to eligible taxpayers that undertake qualifying activities in North Carolina:
• Credit for creating jobs
• Credit for investing in business property
• Credit for investing in real property (Tier 1 only)
These credits may be combined to offset up to 50 percent of the taxpayer's state income and franchise liability, and unused credits may be carried forward for up to five years (15-year carry-forwards apply to the credit for investing in real property and 20-year carry-forwards exist for taxpayers that invest at least $150 million over a two-year period). This summary is not meant to be exhaustive. Taxpayers should review the Article 3J statutes prior to claiming credits.
Corporations subject to corporate income tax must pay an income tax surcharge of 3 percent on its North Carolina income tax due before deducting any tax credits or payments.
Income Taxes for S Corporations
S corporations are not subject to the corporate income tax. Each shareholder's pro rata share of S corporation income attributable to North Carolina is taxed under individual income tax. A shareholder who is a resident of the state also takes into account his share of S corporations subject to individual income tax adjustments. An S corporation incorporated or doing business in North Carolina is required to file an information return with the N.C. Department of Revenue.
Sales and Use tax:
North Carolina has a state sales tax of 4.75 percent and a local county sales tax of two percent, except Mecklenburg County, which has an additional 0.5% sales tax; while Alexander, Cabarrus, Catawba, Cumberland, Duplin, Halifax, Haywood, Hertford, Lee, Martin, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes have an additional 0.25%.
Sales and Use Tax Discounts, Exemptions and Refunds:
According to an Ernst & Young report available on the Council on State Taxation website (www.COST.org), North Carolina has one of the nation's lowest effective business tax rates. North Carolina offers reduced rate allowances on certain parts, accessories and construction supplies for eligible industries and manufacturing processes.
- Industrial machinery and equipment is exempt from sales and use tax but is subject to an excise tax. This rate is 1 percent with a maximum of $80 per item.
- Parts and accessories to manufacturing machinery, which include most supplies used in the manufacturing process but not becoming a part of the manufactured product, including pollution abatement equipment, are taxed at 1 percent.
- Mill machinery, mill machinery parts or accessories, and specialized equipment used to unload or process bulk cargo are exempt from sales and use tax but are subject to a privilege tax. This rate is 1 percent with a maximum of $80 per article.
- Distribution machinery for storage, use or consumption at manufacturing and distribution facility, with an investment of at least $80 million in real and tangible personal property and 550 employees within 5 years after facility is in service, is subject to a privilege tax. This rate is 1 percent with a maximum of $80 per article.
- Purchases of ingredients or component parts of manufactured products are exempt from sales or use tax.
- Packaging containers and items that become part of a manufactured product and are delivered with the product to the customer are exempt from sales and use tax.
- Bioprocessing; pharmaceutical and medical manufacturing and distribution; aircraft manufacturing;, computer manufacturing; motor vehicle manufacturing; semiconductor manufacturing; air courier services; financial services, securities operations and related development; professional motor racing vehicles; railroad intermodal facilities; paper from pulp manufacturing; and turbine manufacturing companies may receive a refund of sales taxes on purchases of building materials, supplies; fixtures and equipment if the facility costs at least $50 million in Tier 1 counties and $100 million in Tier 2 and 3 counties.
- Qualifying Article 3J businesses in a development tier one area that places machinery and equipment in service in that area is allowed a refund of the sales and use tax paid by it on the machinery and equipment, which includes engines, machinery, equipment, tools, and implements used or designed to be used in one of the businesses.
- Sales of electricity to manufacturers for qualifying purposes will be exempt from sales and use tax.
- Sales of electricity and eligible business property to Software Publishing Datacenters or web search portal businesses that invests at least $250 million in private funds are exempt from sales and use tax. A second datacenter constructed within 5 years and $75 million in investment may also qualify.
- Manufacturers are exempt from piped natural gas tax.
- Testing or medical labs engaged in analytical services are eligible for a 50 percent refund on sales and use taxes paid on purchases of supplied used or consumed for analytical activities.
- Manufacturers purchasing fuel, other than electricity or piped natural gas used to operate a manufacturing plant, are exempt from sales and use tax and privilege tax.
- Motor vehicles are exempt from sales and use tax but are subject to the highway use tax. Highway use tax is 3 percent of the retail value of the motor vehicle with a maximum tax of $1,000 per Class A and B commercial vehicles.
- Aircraft, boats, railway cars and mobile offices are taxed at 3 percent with a maximum tax of $1,500 per item.
- Custom computer software and computer software delivered electronically are exempt from sales and use tax. All telecommunications services are taxed at a combined rate of 8 percent.
Our great labor environment and skilled productive workers, along with a comprehensive workforce development network and exceptional educational opportunities, ensure that people and businesses have what they need to Thrive. Our many skilled workers, as well as the highly specialized pools of talent already here, give your company a competitive advantage. They are dependable, hardworking and more than that, they are happy. That's because they have the types of careers and opportunities available to them that help them succeed. Making them more productive. In fact, North Carolina workers are 36% more productive than the average U.S. worker.
Strong labor pipeline:
In today's global economy, people are the most important asset to any company and North Carolina gives them what they need to flourish:
• Exceptional educational opportunities
• Friendly labor environment
• Comprehensive workforce development network
Skilled, productive workers and a friendly labor environment
A growing and diverse population that fuels a high-quality labor force for today's advanced manufacturing and knowledge-based industries. The lowest unionization rate in the nation keeps wages affordable and the workplace flexible.
Exceptional educational opportunities
Accessible state community colleges and university systems and outstanding private institutions all constantly developing new talent.
Comprehensive workforce development network
Customized recruiting, screening and training services and lifelong learning opportunities available through a coordinated network of agencies.
North Carolina State Contact:
North Carolina Department of Commerce
301 N. Wilmington Street
4310 Mail Service Center
Raleigh, NC 27699-4310
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.