North Carolina Governor Signs Bill Cutting Personal and Business Taxes

Published July 24, 2013

Last week, North Carolina legislators passed major tax reform legislation, and Governor Pat McCrory (R) on Tuesday signed it into law. The measure lowers individual and corporate income taxes, abolishes the estate tax, and modestly broadens the sales tax base.  

The improvements in the state’s tax code will benefit individual taxpayers as well as business owners, and will make North Carolina a more attractive place for new investment, according to the non-partisan Tax Foundation. The simplification of gross receipts taxes and elimination of preferential rates for particular industries will also be a bonus for the state’s economy.

“Charging multiple tax rates on different industries and transactions is non-neutral and adds unnecessary complexity to the tax code,” said Tax Foundation economist Elizabeth Malm. “The expansion of the sales tax base to services is unfortunately far less comprehensive than we originally hoped, but the plan still represents a step forward. We hope that future reform efforts will continue this work.”

The legislation will reduce the income tax from 7.75 percent to 5.75 percent while eliminating carve-outs. It also provides a $7,500 standard deduction, an increase from the state’s existing $3,000 deduction, drops the corporate rate to 5 percent, modestly broadens the sales tax to include some service contracts, and eliminates the state’s estate tax.

“It was a privilege working with lawmakers and policy advocates in North Carolina as they decided how the state’s tax system should best be reformed,” said Tax Foundation Vice President for Legal and State Projects Joseph Henchman. “The Tax Foundation’s earliest work, stretching back to the late 1930s, involved helping taxpayers at the local and state levels who were working on ways to improve the tax systems where they lived. Several decades later, that work continues.”