North Carolina has cut business taxes faster than almost any other state over the past decade. The corporate income tax is just 2% in 2026, the lowest of any state that has one, and it is scheduled to reach zero after 2029. The personal income tax is a flat 3.99%. The main costs that remain are the franchise tax on corporations and the $200 annual report fee for LLCs.
This guide covers North Carolina's business taxes for 2026, with worked examples and comparisons with its neighbors.
North Carolina business taxes at a glance
A North Carolina C corporation pays just 2% on profit, plus franchise tax on its net worth. Pass-through owners pay a flat 3.99% on business income. Customers pay 4.75% state sales tax plus county taxes, for combined rates around 7%. LLCs pay $125 to form and $200 a year for annual reports, while corporations pay franchise tax and a $25 report. With low taxes, a growing population and major research and banking centers in Raleigh-Durham and Charlotte, North Carolina consistently ranks among the top states for business.
Corporate income tax
| Tax year | Corporate income tax rate |
|---|---|
| 2024 | 2.5% |
| 2025 | 2.25% |
| 2026 | 2% |
| 2027 | 2% |
| 2028 | 1% |
| 2030 onward | 0% |
- Apportionment: Single sales factor with market-based sourcing since 2025.
- Combined reporting: Not required, though the Department of Revenue can require it in some cases.
- Credits: JDIG grants and One North Carolina Fund incentives replace most tax credits.
- Returns: Form CD-405 is due on the 15th day of the fourth month after year-end.
Franchise tax
| Item | Detail |
|---|---|
| Rate | $1.50 per $1,000 of net worth apportioned to North Carolina |
| Minimum | $200 |
| S corporations | $200 on the first $1 million of net worth, then $1.50 per $1,000 above |
| Who pays | C corporations and S corporations (and LLCs taxed as corporations) |
The franchise tax base was simplified in 2023 to net worth only, removing the investment in North Carolina property as an alternative base. LLCs taxed as partnerships don't pay franchise tax.
Personal income tax and pass-through owners
| Tax year | Personal income tax rate |
|---|---|
| 2024 | 4.5% |
| 2025 | 4.25% |
| 2026 | 3.99% |
| Future years | Cuts toward 2.49% if revenue triggers are met |
- Standard deduction: $12,750 for single filers.
- LLC owners, partners and sole proprietors pay 3.99% on profit.
- S corporation shareholders pay on their share.
- PTE election: Partnerships and S corporations can elect to pay tax at the entity level.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 4.75% |
| County taxes | 2% to 2.75% |
| Average combined rate | About 7.1% |
- Groceries are exempt from the state rate but taxed at 2% local rate.
- Services: North Carolina taxes repair, maintenance and installation services, as well as some digital products.
- Manufacturing machinery pays a privilege tax of 1% capped at $80 per article instead of sales tax.
- Remote sellers with more than $100,000 of North Carolina sales must collect.
Payroll and property taxes
- Unemployment insurance: Employers pay on a wage base above $30,000 that rises annually. New employers start at 1%.
- Property tax: Moderate, with business personal property, including equipment, taxed by counties. Inventories are exempt.
- Privilege license tax: Applies only to certain professions, such as attorneys, at $50 per year.
Forming a business in North Carolina: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $125 | $125 |
| Annual report | $200 (due April 15) | $25 (due with franchise tax return) |
| Franchise tax | None for LLCs taxed as partnerships | $200 minimum |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| North Carolina corporate tax at 2% | $10,000 |
| Federal tax at 21% on $490,000 | $102,900 |
| Total income tax | $112,900 (22.6%) |
Franchise tax would be added based on net worth. For a single LLC owner with $150,000 of North Carolina taxable income, state tax is about $5,985. At $75,000 it is about $2,993.
How North Carolina compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| North Carolina | 2% | 3.99% | 4.75% |
| Virginia | 6% | 5.75% | 5.3% |
| South Carolina | 5% | 5.21% | 6% |
| Tennessee | 6.5% excise plus franchise | None on wages | 7% |
| Georgia | 4.99% | 4.99% | 4% |
North Carolina's corporate tax is far below every neighbor's, and its personal income tax is the lowest among neighbors with a broad income tax. Tennessee has no tax on wages, but its excise and franchise taxes apply to LLCs, so North Carolina is often cheaper for pass-through businesses.
Choosing an entity in North Carolina
- LLC: $200 a year in report fees, no franchise tax and a 3.99% rate for owners.
- S corporation: Same personal rate, federal payroll savings, and franchise tax with a $200 minimum.
- C corporation: Just 2% state tax plus 21% federally, the lowest combined rate of any state with a corporate income tax. Franchise tax applies.
As the corporate rate falls to zero, C corporations will become even more attractive in North Carolina for businesses that retain earnings or qualify for the federal qualified small business stock exclusion.
Doing business across North Carolina
North Carolina's economy is spread across several growing metros. Charlotte is the second-largest banking center in the country, the Research Triangle of Raleigh, Durham and Chapel Hill hosts major technology and life sciences companies, and the Piedmont Triad and Asheville have strong manufacturing and tourism sectors. County sales tax rates range from 6.75% to 7.5%, so retailers in multiple counties should apply the correct rate at each location. Rapid growth has pushed up commercial real estate and labor costs in Raleigh and Charlotte.
Tax planning tips for North Carolina businesses
File the annual report on time. LLCs that don't file the $200 annual report can be administratively dissolved. The report is due April 15.
Check your franchise tax base. Since 2023, franchise tax is based only on net worth. Corporations that paid more under the old property-based alternative should see lower bills.
Elect the PTE tax if it helps. For profitable pass-through owners, the election makes state tax deductible federally.
Who pays the most in North Carolina
North Carolina's remaining taxes fall mainly on consumers, property owners and corporations with large balance sheets. Corporations with high net worth pay franchise tax regardless of profit, so a capital-intensive company with low earnings can pay more franchise tax than income tax. LLCs pay a relatively high $200 annual report fee. Pass-through owners and corporations with modest net worth, by contrast, pay some of the lowest state taxes in the Southeast.
Recent changes for 2025 and 2026
- Corporate rate cut to 2% for 2026, with further cuts to 0% after 2029.
- Personal rate cut to 3.99% for 2026.
- Franchise tax base simplified to net worth.
- Market-based sourcing for services adopted.
Is North Carolina a good state for business?
Advantages
- Lowest corporate income tax rate of any state with one
- Low flat personal income tax
- Strong talent pipeline from major universities
- Growing banking, technology and life sciences sectors
Drawbacks
- $200 annual report fee for LLCs
- Franchise tax on corporations
- Rising costs in fast-growing metros
- Hurricane risk on the coast
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Department of Revenue for sales tax, withholding and income tax.
- Register with the Division of Employment Security if you hire.
- File the annual report by April 15.
- File county business personal property listings each January.
- File Form CD-405, CD-401S or D-403 each year.
Compare North Carolina with its neighbors below or estimate your taxes in the United States calculator. See Corporation taxes for more.