NC gas tax bumping up, state income taxes going down in 2023

Tax policies that passed the North Carolina General Assembly in recent years mean several taxes get recalculated come Jan. 1.

Posted Updated
State budget
Travis Fain
, WRAL state government reporter

North Carolina's gasoline tax will go up 2 cents a gallon come January 1, while the state's personal income tax rate drops a bit.

The franchise tax that businesses pay will be simplified as well in the new year as tax policies that the General Assembly voted through over the last few years take effect.

The state income tax rate for 2022 is 4.99%. That drops to 4.75% for 2023, and the plan is to keep enacting small cuts until the rate hits 3.99% in 2027. It’s a flat rate, so everyone who owes state income taxes pays on the same rate, regardless of income.

The state gas tax now is 38.5 cents a gallon. That increases to 40.5 cents a gallon come Jan. 1, due to a formula that takes population growth and inflation into account. The federal gas tax is an additional 18.4 cents a gallon.

The franchise tax is a tax that businesses pay on their net worth, or on the value of property they own in the state. It has been calculated one of three ways, depending on which one produces the highest number. Starting in 2023 two of those methods will be eliminated, a change that should particularly benefit companies that have expensive equipment located in state.

In addition to simplifying things, the change is expected to cut business taxes by $738 million over five years. Republican leaders in the General Assembly have said that, eventually, they'd like to do away with this tax entirely.

State lawmakers already plan to phase out the state's corporate income tax, a tax they've cut little by little over the last decade. A full phaseout is slated to begin in 2025, with the tax falling to zero in 2030. For now the corporate rate remains 2.5%.

According to the Tax Foundation, a national research and policy group, 38 states have "noteworthy tax changes" taking effect on Jan. 1.

"Most of these changes represent net tax reductions, the result of an unprecedented wave of rate reductions and other tax cuts in the past two years as states respond to burgeoning revenues, greater tax competition in an era of enhanced mobility, and the impact of high inflation on residents," the foundation said in a recent report.
Despite years of tax cuts, North Carolina's state government continues to collect more annual revenue and has exceeded expectations for several years. Earlier this month, state analysts said revenues were running $1.2 billion, or about 10%, above target for the first five months of the current fiscal year.

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