North Carolina enacted budget legislation which reduces the corporate income tax rates, adopts a 100% sales factor for apportionment, and increases the minimum and maximum amounts under the franchise tax. In addition, some taxpayers may be required to file an information report with their 2015 tax return to help the state determine whether to adopt market-based sourcing.
Corporate Tax Rate
Effective for tax years beginning on or after January 1, 2016, the tax rate for C corporations is decreased from 5% to 4%. The tax rate will be decreased further to 3% if the amount of net general fund tax collected in a fiscal year exceeds $20.975 billion.
Sales Factor for Apportionment
North Carolina is phasing in a 100% sales factor. Currently, the sales factor is double-weighted. Effective for tax years beginning on or after January 1, 2016, the sales factor will be triple-weighted. Effective for tax years beginning on or after January 1, 2017, the sales factor will be quadruple-weighted. Effective for tax years beginning on or after January 1, 2018, only a sales factor will be used for apportionment.
Taxpayers May Be Required to File Informational Report for 2015 Tax Year
The Revenue Laws Study Committee is directed to study the calculation of the sales factor using market‑based sourcing. To help the Committee determine the effect of market‑based sourcing on corporate taxpayers, each corporate taxpayer with apportionable income greater than ten million dollars ($10,000,000) and a North Carolina apportionment percentage less than one hundred percent (100%) is required to file an informational report with the Department of Revenue.
As part of its 2015 income tax return, each corporation required to file an informational report will be required to show the calculation of the taxable year 2014 sales factor using market‑based sourcing.
Effective January 1, 2017 for taxes due on or after that date, the franchise tax will be calculated on net worth. Currently, it is calculated on issued and outstanding capital stock, surplus, and undivided profits. The minimum tax was increased to $200 from $35 and the maximum tax was increased to $150,000 from $75,000.