North Carolina Tax Rates

This post provides an overview of the primary taxes levied at the state level in North Carolina. The state is known for its competitive tax structure, driven by a flat individual income tax that is being phased down and one of the lowest corporate income tax rates in the country (which is also being phased out). For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

North Carolina utilizes a flat rate individual income tax system, with the rate being systematically reduced in scheduled legislative changes.

  • Tax Rate (2025): The state income tax rate for 2025 is scheduled to be a flat 4.25% of North Carolina taxable net income.
    • This flat rate is being phased down further to 3.99% for tax years beginning after 2025.
  • Local Income Tax: North Carolina does not impose a local or county income tax.
  • Retirement Income: Social Security benefits are not taxable in North Carolina. The state also exempts military pensions and allows a deduction for a portion of other government and private retirement income.

Sales and Use Tax

Sales tax is a significant source of state and local revenue, combining a low state rate with mandatory local additions.

  • State Rate: The general state sales tax rate is 4.75% on the retail sale of most tangible personal property.
  • Local Taxes: Counties and cities impose a mandatory local sales tax, which includes a minimum county rate and an optional transit tax.
  • Combined Rate: The combined state and local sales tax rate can range from 4.75% up to 7.5%, depending on the county and its adoption of the local transit tax. The average combined rate is approximately 7.00%.
  • Tax on Groceries: Unprepared food (groceries) is exempt from the 4.75% state sales tax but is subject to a 2.0% local tax rate in all counties.
  • Exemptions: Prescription drugs and most durable medical equipment are exempt from all state and local sales tax.
  • Use Tax: A state use tax of 4.75% plus the applicable local rate applies to taxable items purchased outside of North Carolina but used, stored, or consumed in the state if North Carolina sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in North Carolina are collected exclusively at the local level by counties and municipalities. The effective property tax rate is generally below the national average.

  • Assessment: All real property is assessed at 100% of its true market value as of January 1st of the reappraisal year. Counties are required to conduct a general reappraisal at least once every eight years.
  • Tax Calculation: The tax is determined by applying the local mill rate (set by county, city, and special district budgets) to the property’s assessed value. Rates vary significantly by jurisdiction.
  • Homestead Exclusion: The state provides a Homestead Exclusion that excludes a portion of the assessed value from property taxes for qualifying seniors (65 or older) or disabled residents, subject to income limits.

Corporate Income and Franchise Tax

North Carolina is aggressively phasing out its corporate income tax to zero, making it highly attractive for corporate headquarters.

1. Corporate Income Tax (CIT)

  • Tax Rate (2025): The corporate income tax rate is a flat 2.25% of the corporation’s North Carolina taxable net income (down from 2.50% in 2024). This is one of the lowest CIT rates in the nation.
  • Phase-Out: The CIT is scheduled to be phased out entirely (0.0% rate) for tax years beginning after 2029.
  • Apportionment: For multi-state corporations, North Carolina uses a single sales factor apportionment method to determine the amount of income taxable in the state.

2. Corporate Franchise Tax

  • Tax Base: This is a separate tax levied on a corporation’s tax base, which is now generally calculated based on the corporation’s apportioned net worth.
  • Rate: Effective January 1, 2025, the franchise tax rate is $1.50 per $1,000 of the tax base, with a maximum of $500 on the first $1,000,000 of the tax base for C-corporations.

Unique and Excise Taxes

  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, set at approximately 40.55 cents per gallon for gasoline.
  • Cigarette Tax: The state imposes a low excise tax on cigarettes, currently set at $0.45 per pack of 20 cigarettes.
  • No Estate or Inheritance Tax: North Carolina does not impose a state-level estate tax or inheritance tax.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.