North Carolina Business Tax Rates: What to Know

Navigating the business tax landscape in North Carolina involves understanding a system where obligations are determined by a company’s legal formation, commercial activities, and status as an employer. The state imposes several distinct taxes, and a business’s profile dictates which of these it must pay. Compliance requires a clear comprehension of how corporate income, franchise, sales, and payroll taxes apply to different operational frameworks.

Corporate Income and Franchise Tax

For businesses structured as C-Corporations, North Carolina levies a corporate income tax on the company’s net profits. The corporate income tax rate is 2.25% for 2025. This rate is part of a legislative plan to gradually reduce it until it is phased out completely in 2030. The tax is calculated based on the corporation’s federal taxable income, with certain adjustments specific to North Carolina law, and is reported annually.

In addition to the income tax, C-Corporations are subject to a franchise tax for the privilege of doing business in the state. This tax is calculated on the corporation’s North Carolina apportioned net worth. The franchise tax rate is $1.50 for every $1,000 of the company’s net worth, with a minimum tax of $200. Corporations must calculate both the income tax and the franchise tax and pay whichever amount is greater.

The net worth calculation begins with the corporation’s total assets, determined according to generally accepted accounting principles (GAAP), and then subtracts total liabilities. The resulting net worth is then apportioned to North Carolina based on the company’s sales factor, which reflects the ratio of its sales in the state to its total sales everywhere.

Taxation of Pass-Through Entities

Entities such as S-Corporations, partnerships, and most Limited Liability Companies (LLCs) are treated as pass-through entities for tax purposes. This structure means the business itself does not pay income tax at the entity level. Instead, the profits and losses are “passed through” to the individual owners, partners, or members. These individuals then report their share of the income on their personal state income tax returns and pay tax at the individual income tax rate.

North Carolina offers an optional Pass-Through Entity (PTE) Tax election, which provides a workaround to the federal $10,000 State and Local Tax (SALT) deduction limitation. By making this irrevocable annual election, the partnership or S-Corporation chooses to be taxed at the entity level on its North Carolina taxable income at the state’s personal income tax rate. This allows the state tax payment to be deducted at the entity level for federal tax purposes. Eligibility for the PTE tax election has been expanded to include partnerships with partners that are corporations or certain trusts, and the election must be made on a timely filed return. If an entity makes this election, owners report their share of the income on personal returns but receive a credit for the tax paid on their behalf.

State and Local Sales and Use Tax

Businesses engaged in selling tangible personal property, certain digital property, or taxable services in North Carolina are required to collect and remit sales tax. The statewide sales tax rate is 4.75%. However, the total tax rate a customer pays is often higher, as most counties and some municipalities levy additional local sales taxes. These local rates can add up to 2.75% to the state rate, resulting in combined rates that vary by location.

A business’s obligation to collect sales tax is determined by “nexus,” which is its connection to the state. Nexus can be established through a physical presence, such as an office or employees in North Carolina. Economic nexus is triggered when a remote seller exceeds $100,000 in gross sales into the state in the previous or current calendar year. Once nexus is established, the business must register with the North Carolina Department of Revenue (NCDOR) and collect the appropriate sales tax.

Sales tax applies to transactions within North Carolina. Use tax is due on items purchased from outside the state for use in North Carolina when no sales tax was paid at the time of purchase. The use tax rate is the same as the sales tax rate, and businesses are responsible for remitting it to the NCDOR.

Employer Payroll Tax Obligations

Income Tax Withholding

Employers in North Carolina must withhold state income tax from employee wages and remit the funds to the North Carolina Department of Revenue (NCDOR). This is not a tax on the business itself, but a collection requirement. The amount withheld is determined by the employee’s wages and the information on their Form NC-4, Employee’s Withholding Allowance Certificate.

This withholding obligation applies to wages paid to North Carolina residents, regardless of where the work is performed, and to nonresidents for services performed within the state. An exception exists for resident employees working in another state if that state also requires income tax withholding. The frequency of remitting these withheld funds depends on the amount of tax withheld and aligns with federal deposit schedules.

State Unemployment Insurance

State Unemployment Insurance (SUI) is a payroll tax paid directly by the employer to fund assistance for unemployed workers. The tax is calculated as a percentage of each employee’s wages up to the taxable wage base, which is $32,600 for 2025.

For new employers, the SUI tax rate is set at a standard 1.0%. After an initial period, this rate is subject to change annually based on the employer’s “experience rating.” This rating is influenced by the employer’s history of layoffs and the number of former employees who have received unemployment benefits. Rates for experienced employers can range from as low as 0.06% to as high as 5.76%.

Required Business Tax Registrations

Before filing returns or remitting payments for corporate income, franchise, sales, and withholding taxes, a business must register with the North Carolina Department of Revenue (NCDOR). Registration is completed through the NCDOR’s online portal using a Federal Employer Identification Number (FEIN) or Social Security Number (SSN), the business’s legal name and address, and details about its structure. Upon successful submission, the system issues an account ID number required for all filings and payments.

For unemployment insurance tax, businesses with employees must complete a separate registration with the North Carolina Division of Employment Security (DES). Employers submit an Employer Status Report online to establish their unemployment insurance tax account. This registration provides the business with its Employer Account Number and initial SUI tax rate, allowing it to make required quarterly contributions.