North Carolina has held on to its No. 11 ranking in an influential comparison of business tax climates in all 50 states.
The nonpartisan, pro-business Tax Foundation produces the State Business Tax Climate Index annually to give taxpayers, businesses and policymakers a way to assess the competitiveness of state tax codes. The foundation considers corporate, personal income, sales, unemployment insurance and property tax rates in developing the overall rankings.
North Carolina rose four spots last year to rank as having the 11th most-competitive business tax climate in the country. It ranks the same in this year’s report.
“After the most dramatic improvement in the Index’s history in 2015 ‒ from 41st to 12th in one year ‒ North Carolina has continued to improve its tax structure, and now imposes the lowest-rate corporate income tax in the country at 3 percent, down from 4 percent the previous year,” the latest Index report says. “This rate cut improves the state from fourth to third on the corporate income tax component, the best ranking for any state that imposes a corporate tax. (Six states forgo corporate income taxes, but four of them impose economically distortive gross receipts taxes in their stead.)”
“An individual income tax reduction, from 5.75 to 5.499 percent, improved the state’s individual income tax component rank from 15th to 13th,” the report adds.
While North Carolina remains just shy of being ranked among the Top 10 states in the latest State Business Tax Climate Index, most of the Top 10 states have one thing in common: They lack one of the major taxes such as personal income, corporate income or sales.
“At 11th overall, North Carolina trails only Utah and Indiana among states which do not forgo any of the major tax types,” the latest Index report says.
North Carolina’s plans to further cut business and personal income tax rates in 2019 may affect its ranking in future Index surveys. Earlier this year, lawmakers decided to reduce the state’s corporate income tax rate to 2.5 percent and flat-rate personal income tax to 5.25 percent in 2019.
The least competitive states in the latest State Business Tax Climate Index and their overall rankings were Rhode Island (41), Louisiana (42), Maryland (43), Connecticut (44), Ohio (45), Minnesota (46), Vermont (47), California (48), New York (49) and New Jersey (50).