North Carolina State Taxes
North Carolina State Tax ? Personal Income Tax
North Carolina imposes income tax on residents, part-year residents, and nonresidents who earn income from sources within the state:
- You are considered a part-year resident if you moved into North Carolina and became a resident during the tax year, or you moved out of North Carolina and became a resident of another state during the tax year.
- You are considered a nonresident if you live in North Carolina and earn income from the state but are a permanent resident of another state, or you live outside North Carolina but receive income from NC sources.
In general, taxpayers should use the same filing status on their North Carolina return that they used on their federal return. While there are slightly different income limits for those aged 65 or over and blind, taxpayers generally must file a North Carolina return if their gross income exceeds the following amounts:
- $5,500 and your filing status is ‘single’
- $6,900 and your filing status is ‘head of household’
- $11,000 and your filing status is ‘married filing jointly’
- $2,500 and your filing status is ‘married filing separately’
- $8,500 and your filing status is ‘qualifying widow/widower with dependent child’
The following tax rates apply to taxpayers who use the ‘single‘ filing status:
- 6% on the first $12,750 of North Carolina taxable income
- $765 plus 7% on taxable income between $12,751 and $60,000
- $4,072.50 plus 7.75% on taxable income of $60,001 or more
The following tax rates apply to taxpayers who use the ‘head of household‘ filing status:
- 6% on the first $17,000 of North Carolina taxable income
- $1,020 plus 7% on taxable income between $17,001 and $80,000
- $5,430 plus 7.75% on taxable income of $80,001 or more
The following tax rates apply to taxpayers who use the ‘married filing jointly‘ or ‘qualifying widow/widower‘ filing status:
- 6% on the first $21,250 of North Carolina taxable income
- $1,275 plus 7% on taxable income between $21,251 and $100,000
- $6,787.50 plus 7.75% on taxable income of $100,001 or more
The following tax rates apply to taxpayers who use the ‘married filing separately‘ filing status:
- 6% on the first $10,625 of North Carolina taxable income
- $637.50 plus 7% on taxable income between $10,626 and $50,000
- $3,393.75 plus 7.75% pm taxable income of $50,001 or more
North Carolina income tax is filed using Form D-400 (Individual Income Tax Return with no tax credits) or Form D-400TC (Individual Income Tax Return with Individual Tax Credits).
There are numerous tax credits available to North Carolina taxpayers, including the following:
- Earned Income Tax Credit
- Tax Credit for Children
- Tax Credit for Child and Dependent Care Expenses
- Tax Credit for Adoption Expenses
- Tax Credit for Charitable Contributions
- Tax Credit for Income Tax Paid to Another State or Country
- Business Incentive Tax Credits
- Tax Credit for Qualified Business Investments
- Tax Credit for Long-Term Care Insurance Premiums
For calendar year taxpayers, the North Carolina individual tax return is due by April 15th. An automatic 6-month extension may be granted if you file Form D-410 (Application for Extension for Filing Individual Income Tax Return) by the original due date. This is an extension for time only, not for payment ‘ any taxes you owe must still be paid by the original due date (April 15th).
Estimated tax payments should be made if your North Carolina income tax liability exceeds $1,000. Your estimated tax is equal to the amount of income tax you expect to owe, minus the tax you expect to have withheld, plus any tax credits. Estimated payments are generally due on a quarterly basis (April 15, June 15, September 15, and January 15). Estimated tax can be paid using Form NC-40 (Individual Estimated Income Tax).
North Carolina State Tax ? Corporate Tax
Corporate Income Tax
North Carolina imposes an income tax on all corporations (domestic and foreign) doing business in North Carolina. The term ‘doing business’ refers to the following activities:
- The maintenance of an office or other place of business in North Carolina
- The maintenance of inventory (of merchandise or material for sale, distribution, or manufacture) in North Carolina
- The selling/distributing of merchandise to customers in North Carolina directly from a company-owned vehicle, when the merchandise title is transferred to the customer at the time of sale
- The rendering of a service to customers in North Carolina by a foreign corporation
- The owning, renting, or operating of business or income-producing property in North Carolina (including realty, tangible personal property, trademarks, copyrights, and licenses)
This tax is levied on a corporation’s net taxable income (as defined in the Internal Revenue Code) with a rate of 6.9% for years beginning on or after January 1, 2000. Corporations that also operate outside of North Carolina must use certain allocation and apportionment provisions (provided in the NC General Statutes 105-130.4). Corporations should file annual income tax returns using Form CD-405 (C Corporation Tax Return) or Form CD-401S (S Corporation Tax Return).
Corporate Franchise Tax
North Carolina imposes a Franchise Tax on total/allocated capital stock, surplus, and undivided profits for domestic and foreign corporations. The franchise tax rate is $1.50 per $1,000, with a minimum tax of $35.00. This tax is applied to the largest of the following 3 bases:
- Capital stock, surplus, and undivided profits
- 55% of appraised ad valorem tax value of all tangible property in North Carolina
- The actual investment in tangible property in North Carolina
Insurance Premium Tax
North Carolina imposes different types of insurance premium taxes, based on the type of insurance company and the type of insurance written. This tax is based on gross premiums from business done within North Carolina during the calendar year. Tax rates include the following:
- A tax rate of 2.5% for Workers’ Compensation
- An additional tax rate of 0.74% for Property Coverage Contracts (imposed on 10% of the gross premiums)
- A tax rate of 0.5% for Additional Local Fire and Lightning
- A tax rate of 1.9% for Article 65 Corporations
- A tax rate of 1.9% for Health Maintenance Organizations (2007)
- A tax rate of 5.5% for Insurance Regulatory Charge (2007)
- A tax rate of 1.9% for other taxable contracts
North Carolina State Tax ? Sales & Use Tax
North Carolina imposes a 5.75% general state sales tax rate that applies to the retail sales of tangible personal property. The same items are also subject to a 2% local sales tax rate ? resulting in a combined tax rate of 7.75%. Certain counties may levy a rate different from the 2% local tax:
- The counties of Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson, and Surry have a rate of 2.25% ? making a combined tax rate of 8%
- Mecklenburg County imposes an additional 0.5% tax for public transit ? resulting in a total tax rate of 8.25%
All tangible personal property sold or delivered for storage, use, or consumption in North Carolina is subject to sales/use tax. This includes the following items:
- Books, cassettes, compact discs, and audio and video tapes
- Computers and electronic equipment
- Clothing and jewelry
- Appliances, furniture, and other home furnishings
- Rental of rooms, lodgings, or other furnished accommodations
- Cleaning and laundering services
- Qualifying food purchases
The ‘use tax’ applies to out-of-state purchases for items that would normally be subject to sales tax if bought in North Carolina. This often includes purchases made by catalog, mail order, shopping networks, and Internet. It has the same rate as the sales tax and it is often the personal responsibility of the consumer to report and pay. Use tax can be reported with Form E-554 (Consumer Use Tax Return).
North Carolina State Tax ? Property Tax
Property tax in North Carolina is a locally administered tax, collected by the counties. The Department of Revenue has a Property Tax Division that supervises the valuation and taxation of property throughout the State.
There are 3 main elements of the NC property tax system (exempt from this tax are inventories and household personal property):
- Real Property generally refers to land, and anything built, installed, or growing on that land. All counties are required to reappraise real property at least every 8 years, although a number of counties reappraise every 4 years. Between reappraisals, county assessors may adjust real property values due to certain factors (e.g., minor improvements to property or nationwide economic conditions).
- Personal Property (tangible and intangible) in North Carolina is taxed according to its true value in money. Personal property generally refers to movable private property. Exceptions are non-business personal property and inventories owned by retailers, wholesalers, manufacturers, and contactors. Personal property is appraised as of January 1st and should be listed by the owner during the regular January listing period.
- Motor Vehicles include cars, trucks, trailers, motorcycles, and similar property. Registered motor vehicles do not have to be listed in January ? though unregistered motor vehicles must be listed in January with other personal property. Your vehicle will be taxed based on the county that appears on your vehicle registration card (from the Division of Motor Vehicles).
The tax rate for each county is determined by the county commissioners, who appoint county assessors and tax collectors. In general, the property tax lien date is January 1st ? meaning that an individual who owns property as of that date is liable for property taxes in the county where the property is located.
If a property owner is unsatisfied with the appraised value of his/her property, they may make a formal appeal to the local Board of Equalization and Review. However, it is recommended that property owners first contact their local tax office and attempt to resolve the difference informally.
To calculate your property tax, multiply the applicable (combined county and municipal/district) tax rate to the appraised value of the property.
There are also various property tax exclusions available to the elderly, veterans, and the disabled. Specific information for exclusions is provided by local property tax offices.
North Carolina State Tax Forms
Form NC-40 (Individual Estimated Income Tax)
Form D-400 (Individual Income Tax Return ? no tax credits)
Form D-400TC (Individual Income Tax Return ? with Individual Tax Credits)
Form D-400V (Individual Income Payment Voucher)
Form D-410 (Application for Extension for Filing Individual Income Tax Return)
Form D-400X (Amended Individual Income Tax Return)
North Carolina State Tax Resources
North Carolina Department of Revenue: www.dornc.com
NC Individual Tax Forms and Publications: www.dornc.com/downloads/individual
NC Department of Revenue ‘Electronic Services’ center: www.dornc.com/electronic
North Carolina E-File program (electronic filing): www.dornc.com/electronic/e-file
Check the status of your NC state tax refund online: www.dornc.com/electronic/individual/status
List of NC County Property Assessors: www.dornc.com/CountyList
North Carolina’s Tax Freedom Day is April 9th.