North Carolina taxpayers get (another) break on Jan. 1. The (now flat) income tax goes from 5.8% to 5.75%. The corporate tax sees another reduction from 6% to 5%.
The Tax Foundation gives a special shoutout to North Carolina’s tax reform in their 2015 State Business Tax Climate Index:
Notable Ranking Changes in this Year’s Index:
North Carolina
Perhaps the greatest testament to the value
of the Index is its use as a success metric for comprehensive reforms passed last year in North Carolina. In this year’s edition, North Carolina has improved dramatically from 44th place last year to 16th place this year, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings.
North Carolina’s largest improvement was in
the individual income tax component section, where legislation restructured the previously multi-bracketed system with a top rate of 7.75 percent to a single-bracket system with a rate of 5.8 percent and a generous standard deduction of $7,500. This translates to an improvement of 27 rankings in the individual income tax component of the Index, with further improvement expected next year as the rate is expected to decrease again to 5.75 percent (see Table 4).
The corporate income tax rate in North Carolina is also phasing down. The rate fell from 6.9 percent last year to 6 percent this year, improving the state’s ranking in that component from
30th to 25th (see Table 3). The rate is subject to a trigger mechanism that will further reduce the rate in future years when state general fund revenues are healthy, to as low as 3 percent by 2017.
Finally, the state improved its sales tax structure this year by disallowing localities the ability to set their own tax bases, improving simplicity for sales tax filing. This improved the sales tax component from 47th to 33rd (see Table 5).1
We know state taxes and regulation matter. Are the tax reforms working? NC is now a leader in job creation with 99,000 jobs added last year, a 2.4 increase. North Carolina’s November unemployment rate is 5.8%, down from 7.2% a year ago. Our economy is improving, people are getting back to work, we’re on the right track. Let’s keep the momentum going. And enjoy that extra money in your pocket this year.