North Carolina Set to Eliminate Corporate Income Tax in New State Budget
Governor Roy Cooper of North Carolina signed a new state budget for the next two years that will eventually eliminate the state’s 2.5% corporate income tax. The budget comes following two months of negotiations that left North Carolina as the only state without an enacted budget. As part of the negotiations, the phaseout plan will not begin until the end of 2025, with a full elimination of the tax beginning after 2029.
“This bill will allow taxpayers to keep more of their hard-earned money while keeping North Carolina on solid financial ground.”
A Look Inside the New Budget
North Carolina’s corporate income tax rate was already among the lowest of all states after being reduced from 6.9% to 2.5% in 2013. The elimination of corporate income tax in North Carolina’s new state budget will create a $900 million annual tax break for corporate shareholders. The new budget phases out the 2.5% tax over five years, with a 2.25% rate in 2025, a 2% rate from 2026-2027, a 1% rate from 2028-2029, and a 0% rate thereafter. Out-of-state corporations are expected to benefit from the tax break as well, considering 68% of corporate income tax paid to North Carolina is from large corporations receiving under 25% of their income from the state.
Along with the corporate income tax, the budget also reduces individual income tax rate and greatly simplifies the franchise tax base from three major bases to one. Bipartisan legislation was also approved in the budget to increase the salary of North Carolina teachers up to 5% and raise the hourly wage of public-school staff to at least $15 per hour beginning this fall. This bipartisan legislation, along with a budget overdue by four and a half months, is presumably why Governor Cooper allowed the corporate income tax elimination to be passed.