Data: North Carolina tax breaks by cost, benefit
"Tax expenditure” is the term given to any provision in the law that gives a taxpayer the right to pay less than their full tax bill. There are hundreds of those deductions, credits, reductions and other breaks in North Carolina tax law.
The following list itemizes each deduction as accounted for in the N.C. Department of Revenue’s latest Tax Expenditure Report. When the cost of a break is listed as "N/A," the department either did not estimate an amount or included its cost in a related tax break. Tax affected descriptions are noted at the bottom of the page.
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Tax affected descriptions
Privilege taxes are imposed for the privilege of carrying on business or doing a remunerative act within the state. Privilege taxes on corporations are discussed under the “franchise tax” article. There is no standard tax base or tax rate for privilege taxes that covers all businesses or activities. However, in order to determine preferential tax rates and exclusions, the tax rate is assumed to be 3 percent when the tax base is gross receipts and $50 when there is a flat licensing fee. In fiscal year 2010-11, approximately $41.8 million was collected from this tax.
The tax rate on a pack of cigarettes increased from 35 cents to 45 cents on Sept. 1, 2009. The tax rate on other tobacco products increased from 10 percent of the price of the products to 12.8 percent as of Sept. 1, 2009. During fiscal year 2010-11, approximately $290 million was collected from this tax.
Alcoholic Beverage License and Excise Taxes
On Sept. 1, 2009, the excise tax on the sale of malt beverages increased from 53.177 cents per gallon to 61.71 cents per gallon. On Sept. 1, 2009, the excise tax on the sale of unfortified wine increased from 21 cents per liter to 26.34 cents per liter. The excise tax on the sale of fortified wine increased from 24 cents per liter to 29.34 cents per liter. On Sept. 1, 2009, the excise tax on liquor sold in ABC stores rose from 25 to 30 percent. During fiscal year 2010-11, $309.3 million was collected from this tax. Of this amount, $34.0 million was distributed to local governments.
The general business franchise tax is a privilege tax on corporations operating in North Carolina. The tax is currently $1.50 for every $1,000.
Corporation Income Tax
The corporation income tax is a tax on the profits of C-corporations operating in North Carolina. The tax rate is 6.9 percent of the corporation’s state net income.
Business and Energy Tax Credits
In general, all of the tax credits in this chapter and the following, through the chapter on the Tax Incentives for Railroad Intermodal Facilities (Article 3K), share certain attributes that affect estimation of fiscal year budget effects. For instance, taxpayers may take credits only up to 50 percent of their net franchise tax or income tax liability for the year (with the exception of the refundable low-income housing credits and the credit for major computing manufacturing facilities). Also, in some cases the credits generated in a given year must be taken in installments over several succeeding years. These attributes can create a large difference in the amount of credits generated in a year and the amount of credits actually taken.
Tax Credits for Growing Businesses
The tax credits under this section were effective beginning Jan. 1, 2007. The companies that qualify for these credits must meet certain eligibility requirements as laid out in G.S. 105-129.83. The credits are taken in equal installments over the four years (seven years for Real Property Credit) following the taxable year in which the jobs or eligible property are placed in service.
Individual Income Tax
The individual income tax is the largest component of the State’s General Fund revenues. In fiscal year 2010-11, the state collected nearly $9.9 billion from this tax. For taxable years beginning Jan. 1, 2008, there are three marginal tax rates: 6 percent, 7 percent, and 7.75 percent. Tax brackets vary by marital status and by whether an individual is the head of a household.
Sales and Use Tax
The sales tax in North Carolina is imposed on final sales (including the value of leases and rentals) of tangible personal property occurring in the state, and the use tax is imposed on purchases made outside the state if the property purchased is used in North Carolina. In addition to retail sales, the sales and use tax is imposed on several services, such as accommodation rentals, restaurants and laundry and dry-cleaning services.
Highway Use Tax
The highway use tax is applied to retail sales or leases of motor vehicles in North Carolina. The tax rate on sales and long-term leases is 3 percent, while there is an 8 percent tax on short-term leases. In fiscal year 2010-11, the total amount of tax collected was $523 million, mostly from retail sales. Taxes collected at the rate of 8 percent are credited directly to the General Fund, while the remaining funds are credited to the Highway Trust Fund.
Scrap Tire Disposal Tax
For tires with bead diameter less than 20 inches, the tax rate is 2 percent. For tires with bead diameter 20 inches or greater, the tax rate is 1 percent. In fiscal year 2010-11, $16.2 million was collected from this tax. Of this amount, $11.1 million was transferred to local governments.
White Goods Disposal Tax
The tax is imposed on a white goods retailer at a flat rate of $3 for each new white good sold. In fiscal year 2010-11, $1.7 million was collected for state agencies from this tax. During this period, an additional $2.5 million was raised for local government reserves.
Piped Natural Gas Tax
The tax is imposed on piped natural gas received for consumption in this state. The marginal tax rate declines as the monthly volume of piped gas consumed increases, as shown in the following schedule: $.047 for the first 200 therms, $.035 for therms between 201 and 15,000, $.024 for 15,001 to 60,000 therms, $.015 for 60,001 to 500,000 therms, and $.003 for each therm over 500,000. In fiscal year 2010-11, $54.7 million was collected from this tax. Approximately $23.7 million of this amount was distributed to municipalities. (Municipalities receive ½ the amount of tax collected from consumers in their jurisdictions.)
Taxes on Insurance Companies
The tax on an insurer is measured by gross premiums from business done in this state during the calendar year. The basic tax rate is 1.9 percent. However, premiums on worker compensation plans are taxed at 2.5 percent, and there are additional taxes on premiums related to fire and lightning insurance coverage.
Excise Stamp Tax on Conveyances
This tax is levied on each instrument by which any interest in real property is conveyed to another person. The tax rate is $1 on each $500 of real property value or fractional part thereof. This tax applies to timber deeds and contracts for the sale of standing timber as if these were transfers of real property. Fifty percent of the taxes collected are deposited in county funds, and the counties may also retain an additional 2 percent for administrative costs. In fiscal year 2010-2011, $32 million was collected by the state from this tax. The proceeds are deposited into the Natural Heritage Trust Fund and the Parks and Recreation Trust Fund.
Excise Tax on Motor Fuels (Article 36C) and Alternative Fuels (Article 36D)
The motor fuel excise tax rate consists of a per gallon flat rate (17.5 cents) plus a variable wholesale component which is the greater of either 3.5 cents or 7 percent of the average wholesale price of motor fuel for an applicable six-month base period. The tax base includes only fuel for vehicles licensed for highway use. Fuels sold for non-highway use are exempt from the Motor Fuels Tax but are subject to the Sales and Use Tax. The tax rate on Alternative Fuels is set equivalent to the tax on motor fuels, as determined by the Secretary of Revenue.