The Tar Heel State is a southeastern U.S. state with a landscape ranging from Atlantic Ocean beaches to the Appalachian Mountains. Charlotte, the state’s largest city, is home to the NFL’s Carolina Panthers and museums, such as the NASCAR Hall of Fame. The state motto (“First in Flight”) honors the Wright Brothers, who flew their first plane in Kitty Hawk on the Outer Banks.
North Carolina provides a large range of recreational activities, from swimming at the beach to skiing in the mountains. North Carolina also offers everything from theme parks to lighthouses.
Business Climate
North Carolina is the leading U.S. state in the production of flue-cured tobacco and sweet potatoes, and second in the farming of pigs and hogs, trout and turkeys. In the three most recent USDA surveys, North Carolina also ranked second in the production of Christmas trees.
The state has a diverse economy because of its great availability of hydroelectric power, its pleasant climate, and its variety of soils. North Carolina leads the nation in the production of tobacco, textiles, and furniture. Charlotte is a major textile and trade center.
Every year the Appalachian Mountains attract several million tourists to the Western part of the state, including the historic Biltmore Estate. The scenic Blue Ridge Parkway and the Great Smokey Mountains National Park are two of the most visited national parks in the U.S. The city of Ashville is consistently voted as one of the top places to visit and live in the U.S., known for its rich art decor and architecture, mountain scenery and outdoor activities.
Tax Climate
North Carolina’s top individual income tax rate is 5.49%. The top corporate income tax is 3%.
In general, corporations engaged in multistate business activities are required to apportion to North Carolina all apportionable income. After a few years of phasing out the 3 factor formula, beginning in 2018 North Carolina has adopted a single sales factor apportionment formula.
North Carolina adheres to the market based sourcing rules for sourcing of services.
Sales Tax Structure
The state sales tax rate is 4.75%, and counties within the state may impose an additional sales tax rate. The highest combined rate is 7.5%. Sales of grocery items are exempt from North Carolina state sales tax, but still subject to local taxes at a uniform reduced rate of 2%.
Following the lead of many other states after the recent U.S. Supreme Court ruling in South Dakota v. Wayfiair, North Carolina has also enacted an economic nexus statute. If a company has gross sales of $100,000 or more sourced to North Carolina in the prior or current year or has 200 or more separate transactions, they must register, collect and remit North Carolina sales tax, effective Nov. 1, 2018.
North Carolina is moderate in its approach to taxation of technology products for sales tax purposes. All digital products are taxable. Prewritten computer software that is electronically downloaded is taxable; however, there is an exemption if the software is designed to run on an enterprise operating system. Custom computer software that is electronically downloaded is exempt from taxation. Lastly, all cloud services are exempt from taxation. How products are produced, sold and delivered is critical to determining its tax status.
Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (e.g. school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. However, North Carolina does not currently have any scheduled sales tax holidays.
Random Facts
- The University of North Carolina Chapel Hill is the oldest state university in the United States.
- In 1903 the Wright Brothers made the first successful powered flight by man at Kill Devil Hill near Kitty Hawk.
- Babe Ruth hit his first home run in Fayetteville on March 7, 1914.
- North Carolina is the largest producer of sweet potatoes in the nation. Students at a Wilson County school petitioned the North Carolina General Assembly for the establishment of the sweet potato as the official state vegetable.
- Andrew Jackson, seventh president of the United States, was born in the Waxsaws area on the border of North and South Carolina.
- North Carolina was the first state in the nation to establish a state museum of art.
- The General Assembly of 1987 adopted milk as the official state beverage.
Our team at Miles Consulting Group is always available to discuss the specifics of your state tax situation, whether in North Carolina or other states, we can help you navigate the complex tax structures arising from your multistate operations. Call us to help you achieve the best tax efficiencies.
