North Carolina enacts corporate income tax and other tax changes

September 2015

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On September 18, 2015, North Carolina enacted its 2015 Appropriations Act, H.B. 97, which included significant tax changes.

Effective for tax years beginning on or after January 1, 2016, the corporate income tax rate decreases from 5.0% to 4.0% and the deduction of related party interest expenses is limited, with certain exceptions. The state will phase-in a single sales factor in the 2016 and 2017 tax years, with a 100% sales factor imposed in the 2018 tax year. Finally, certain taxpayers will have to file, by the original due date of their 2015 return, an information report calculating their sales factor using a market-based methodology.

Effective for franchise taxes due on or after January 1, 2017, the measure of tax changes to a newly defined ‘net worth’ basis and the cap for a holding company is increased from $75,000 to $150,000.

Effective for tax years beginning on or after January 1, 2017, the individual income tax rate decreases from 5.75% to 5.499%.

Effective March 1, 2016, sales tax applies to repair, maintenance, and installation services.

Note that the corporate income tax, corporate franchise tax, and individual income tax provisions will be repealed unless both H.B. 117 and H.B. 943 are ratified before January 1, 2016. The sales tax provisions under H.B. 97 are not subject to a contingency.

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