Officially signed into law by Governor Roy Cooper on Nov. 18th 2021, the 2021 Appropriations Act affects North Carolina taxes – including the corporate income tax. This kicked off a tax plan to phase-out corporate income taxes by 2030, with the program officially starting with tax years beginning in 2025.
This plan will establish North Carolina as one of the most competitive states for corporations when it comes to their corporate tax collections. The Tax Foundation actually predicts that North Carolina will rank 1st when analysed in 2021, although their rank by index fell off their top 10 in 2022 and down to #11 [Source]. In the Corporate Tax Component, North Carolina ranked #4.
Presently (2022), North Carolina’s corporate income tax rate is 2.5%, this rate will remain the same during tax years from now to beginning in 2024. Adjustments made to phase out the income tax rate over the course of five years begin with tax years beginning in 2025:
The main benefit of decreasing income taxes will be cultivating a more competitive business environment. Previously, North Carolina made a similar change to attract more businesses to their state in the early 2010s leading to their ranking from 27 in Corporate Tax Component of the State Business Tax Climate Index to 4.
This reduction of corporate income tax will attract new businesses to develop, build the workforce, and rejuvenate NC’s economy. With their current workforce, world-class universities, quality of life and welcoming business regulatory environment it’s been questioned whether the corporate tax reductions are necessary, but it’s predicted that the lost tax collections from a 0% corporate income tax rate will be outweighed by the increase in tax revenues by employed individuals.
Currently, six other states levy no corporate income taxes. These include Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming. Out of the six, only South Dakota and Wyoming do not levy a gross receipts tax. This does not mean that they are alone in creating budgets and bills that are designed to boost their states economy and population.
Some states that are taking alternative action include Arizona, who passed Senate Bill 1783 establishing a flat tax of 2.5% instead of the previously progressive tax structure. Other states are investing in specific programs, such as Pensylvania including $5M of their budget dedicated to biotechnology projects statewide and more dedicated to improving schools and education opportunities.
Are you aware of the benefits and consequences of establishing your business in certain states? Consult with ModVentures today to stay up to date on what’s happening in your state that may affect your business.
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