North Carolina Business Taxes Explained

North Carolina has a relatively low corporate tax rate of 2.5%, which is a significant advantage for businesses looking to set up shop in the state. This rate applies to all corporations, regardless of their size or type.

The state also imposes a franchise tax on businesses, which is calculated based on the business's net worth. This tax can be a bit more complex, but essentially it's a tax on the business's value, not its profits.

Businesses in North Carolina are also required to pay a gross receipts tax, which is a tax on the total amount of money a business takes in from its sales. This tax is typically 0.5% of gross receipts, but can vary depending on the type of business.

Overall, North Carolina's business tax structure is designed to be relatively straightforward and easy to navigate, making it a great option for businesses of all sizes.

To register a business in North Carolina, you'll need to determine if you have sales tax nexus in the state, which means you have a physical presence or economic connection to the state that requires you to collect and remit sales tax.

You can register for a North Carolina seller's permit online through the NCDOR, providing necessary information such as business name and address, federal EIN number, and projected monthly sales.

There is currently no cost to register for a certificate of registration in North Carolina, making it a relatively straightforward process.

To get registered in North Carolina, you'll need to determine if you have sales tax nexus, which means you need to collect, file, and remit sales tax to the state.

You can register for a North Carolina seller's permit online through the NCDOR, providing required information about your business, including business name, address, and contact information, federal EIN number, and more.

The process may seem daunting, but Avalara Licensing can help you obtain your North Carolina business license and sales tax registration.

To register online, you'll need to provide the following information:

Fortunately, there is no cost to register for a certificate of registration in North Carolina.

Online filing is a convenient option for registering your business. You can file directly with the NCDOR by visiting their website and entering your transaction data manually.

Filing online is a free service, but be aware that preparing North Carolina sales tax returns can be time-consuming, especially for larger sellers.

If you choose to file online, you'll need to enter your transaction data manually, which can be a labor-intensive process.

North Carolina businesses are required to file various taxes, including corporate income taxes and sales taxes. The corporate income tax rate in North Carolina is 2.5% for tax years beginning on or after January 1, 2019.

Corporations with an income tax liability of $500 or more must pay estimated income taxes, which are due on the 15th day of the fourth, sixth, ninth, and twelfth months of the taxable year. Failure to pay estimated taxes results in an interest penalty.

Businesses must also consider other state tax obligations, such as sales taxes, which are levied on the sale of tangible goods and some services in North Carolina. To determine if you need to collect sales tax, ask yourself three questions: Do you have nexus in North Carolina? Are you selling taxable goods or services to North Carolina residents? Are your buyers required to pay sales tax?

As an out-of-state seller, you may be subject to North Carolina sales tax obligations, even if you don't have a physical presence in the state. Having a physical presence is no longer a requirement for establishing sales tax nexus.

You can establish sales tax nexus in North Carolina through various means, including click-through nexus, economic nexus, marketplace sales, or inventory in the state. For example, if you have an agreement to reward a person in North Carolina for referring potential purchasers through an internet link, and the total cumulative gross receipts from such referrals exceed $10,000 during the preceding four quarters, you may be considered to have sales tax nexus.

If you meet the economic thresholds, you may also establish sales tax nexus. As of November 1, 2018, a remote seller must register with the state and collect and remit North Carolina sales tax if their gross sales sourced to North Carolina exceed $100,000 in a calendar year, or if they make 200 or more separate transactions in North Carolina in a calendar year.

Here are the specific economic thresholds:

If you have sales tax nexus in North Carolina, you're required to register with the NCDOR and to charge, collect, and remit the appropriate tax to the state.

Businesses in North Carolina have various tax obligations. Corporations pay income taxes on earnings before owners receive profits or dividends, with a tax rate of 2.5% for tax years beginning on or after January 1, 2019.

Pass-through entities, such as sole proprietorships and partnerships, don't pay income taxes on profits, but owners pay taxes on business income on their personal tax returns. This is because profits pass through the company to the owner.

Businesses with an income tax liability of $500 or more pay estimated income taxes, with payments due during the fourth, sixth, ninth, and twelfth months of the taxable year. Failing to pay estimated taxes results in an interest penalty.

The due date for filing business income tax returns is the 15th day of the fourth month after the end of the income year, but a corporation may request a six-month extension to file an income tax return.

Here's a summary of the types of taxes that businesses in North Carolina may pay:

Businesses in North Carolina may also need to collect sales tax on the sale of tangible goods and some services. To determine if you need to collect sales tax, answer these three questions:

1. Do you have nexus in North Carolina?

2. Are you selling taxable goods or services to North Carolina residents?

3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you're required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

North Carolina is a destination-based state, meaning you're responsible for applying the sales tax rate determined by the ship-to address on all taxable sales. This means you'll need to know the sales tax rate for the specific location where your products are being shipped.

The state sales tax rate in North Carolina is 4.75%, but counties add their tax rate to the state tax rate to calculate the total tax rate. Some items sold in North Carolina are subject only to state sales tax, while others may be subject to a combined general tax rate or a miscellaneous rate.

You'll need to verify the correct tax rate for the goods you're selling and collect that tax rate from consumers. A list of who should register for sales and use tax is available on the North Carolina Department of Revenue's website.

Here are the different types of sales tax rates in North Carolina:

Keep in mind that sales tax rates can vary depending on the region, county, or city where your business is located. Be sure to check with the North Carolina Department of Revenue to confirm whether your business is required to collect sales tax and how much you must pay.

In some states, sales tax rates and rules vary depending on the location of the seller and the origin of the sale. North Carolina, however, is a destination-based state.

This means sales tax is based on the location of the buyer, not the seller. The sales tax rate is determined by the ship-to address on all taxable sales.

In North Carolina, you're responsible for applying the sales tax rate determined by the ship-to address. This is in contrast to origin-based sourcing, where the sales tax rate would be based on the seller's location.

For example, if you're selling to a buyer in North Carolina, you'll need to apply the sales tax rate for that buyer's location.

The North Carolina use tax is due by individuals and businesses on tangible personal property purchased, leased, or rented inside or outside the state for storage, use, or consumption in North Carolina. This tax applies to tangible personal property, which includes items that can be weighed, seen, felt, measured, or can be perceptible to the senses.

The use tax is also due on taxable services sourced to North Carolina and certain digital property purchased inside or outside the state for storage, use, or consumption in North Carolina. This means that if you're a business owner, you may be required to collect use tax from your customers, even if you're selling digital products.

To determine if you're required to collect use tax, you need to verify the correct tax rate for goods sold and collect that tax rate from consumers. The state sales tax rate in North Carolina is 4.75%, but the total tax may be higher depending on additional sales tax levied by individual municipalities.

Here's a breakdown of the types of property subject to use tax in North Carolina:

It's essential to note that North Carolina use tax rules are slightly more complicated than sales tax rules, and you may need to pay use tax to the Department of Revenue when retailers, remote sellers, or facilitators do not collect sales or use tax on taxable transactions.

The franchise tax is a type of tax imposed by North Carolina on businesses for the privilege of conducting business in the state. It's not a tax on franchises, but rather a tax on the right to exist as a legal entity and do business in the state.

The franchise tax is also known as a privilege tax, and it's typically applied to C-Corporations and S-Corporations. The tax rate varies depending on the entity type, with C-Corporations paying $1.50 per $1,000 of net worth base.

The minimum franchise tax in North Carolina can vary depending on the tax year and entity type. For example, the minimum tax rate for C-Corporations is $35.

To determine whether you're required to pay the franchise tax, it's best to talk to your accountant or tax preparer, or contact the NC Department of Revenue. They can help ensure you're paying the correct amount and meeting any necessary requirements.

LLCs may also be subject to the franchise tax in certain circumstances, such as if they're treated as C-Corporations for federal tax purposes and have corporate members with activities in North Carolina.

In North Carolina, filing a sales tax return is a two-step process that involves submitting sales data and remitting collected tax dollars to the NCDOR. You can access, prepare, and print form E-500 online or file online with the North Carolina DOR payment and filing portal.

To avoid costly errors and save time, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can help business owners steer clear of mistakes due to inexperience and a lack of deep knowledge about North Carolina sales tax code.

You'll need to gather documents containing the information needed to complete tax returns, such as accounting documents, bank account statements, and sales reports. The North Carolina Department of Revenue collects corporate taxes, and companies may pay corporate income taxes and franchise taxes online through the state's eServices website.

Here are the due dates for North Carolina sales tax filing:

If your business is consistently liable for more than $20,000 a month in state and local sales and use taxes, you are required to make a monthly prepayment on or before the 20th day of each month.

Streamlined sales tax is a game-changer for remote sellers. The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), allows remote sellers to register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

North Carolina became a full member of the SST on October 1, 2005.

To file your North Carolina sales tax return, you'll need to submit the required sales data and remit the collected tax dollars to the NCDOR. This is a two-step process that requires you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

You can access, prepare, and print form E-500 online, or file online with the North Carolina DOR payment and filing portal. This makes the process relatively straightforward.

If you're short on time or not familiar with North Carolina sales tax code, you can outsource your sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara.

Properly tracking income and expenses is crucial before you prepare business tax returns. This includes gathering documents such as accounting documents, bank account statements, balance sheets, sales reports, credit card statements, employer wage reports, and asset purchase statements.

You can use the North Carolina Department of Revenue's eServices website to pay corporate taxes, franchise taxes, withholding, and sales tax online. To do this, you'll need to register with the NCDOR and obtain an NCID user ID and password.

Some businesses may need to file tax returns, including employees who withhold federal and state income tax. As an agent of the state of North Carolina, your role is to transfer tax dollars from consumers to the tax authorities.

Here are the North Carolina sales tax filing due dates by filing frequency:

Late North Carolina sales tax filings can result in penalties, interest, and even additional liability for the new business owner.

Filing a North Carolina sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible.

The longer you wait to file, the greater the penalty and the greater the interest.