North Carolina ranks as one of the best states for businesses year in and year out—and it’s easy to see why.
The Ewing Marion Kauffman Foundation’s Indicators of Entrepreneurship revealed that 83% of North Carolina businesses remain in operation after their first year—the fourth-highest rate in the country. The state also ranked 10th in the Tax Foundation’s 2023 list of tax-friendly states of businesses, in large part because of its low corporate income tax and unemployment tax.
Still, living in a tax-friendly state isn’t very helpful if you can’t keep up with your tax obligations. That’s why we’ve put together this guide to North Carolina’s small business taxes, which includes business tax rates, deadlines, and filing requirements. In this blog post, we’ll cover:
What business taxes do you pay in North Carolina?
Aspiring entrepreneurs might expect to pay taxes on the money their company makes, but in truth, there are many other taxes to plan for as a business owner. The taxes your company pays in North Carolina are determined by factors like your business structure, employer status, industry, and business activities.
However, most business owners will pay income, franchise, sales, and employer taxes, as well as any local or industry-specific taxes that apply. We’ll look at each of these taxes in the following sections.
North Carolina personal income tax
Pass-through entities—which typically include sole proprietorships, partnerships, and limited liability companies (LLCs)—don’t often pay income taxes themselves. Instead, the tax obligations are passed on to the business owners, who pay taxes through their personal tax returns at the state’s standard rates.
The 2023 state income tax rate for individual taxpayers is 4.75%.
How to file and pay
North Carolina personal tax returns (Form D-400) are due on the 15th day of the fourth month after the fiscal year ends. So if your business follows the calendar year, your filing deadline is April 15.
Taxpayers who prefer the ease of filing their returns electronically can use one of the eFile methods described on the North Carolina Department of Revenue (DOR) website. The webpage has information on paying your taxes online as well. If you prefer submitting your tax return by mail, send it to the appropriate address listed at the bottom of the form.
If you expect to owe $1,000 or more in income taxes, the DOR requires you to make quarterly estimated tax payments to cover your tax liability. These payments should be made by April 15, June 15, September 15, and January 15. Pay your taxes online or submit them by mail to the address below, along with Form NC-40:
North Carolina Department of Revenue
PO Box 25000
Raleigh, NC 27640-0630
Visit the Department of Revenue’s individual income tax webpage for more information on the personal income tax.
North Carolina partnership income tax
Partnerships (as well as LLCs that elect to be taxed as a partnership) that operate in North Carolina and are required to file a federal partnership return must file a state partnership return as well. Because they’re recognized as pass-through entities, these companies’ tax obligations are typically passed on to their business owners.
However, North Carolina now allows eligible partnerships, S corporations, and LLCs taxed as a partnership or S corporation to pay income taxes at the entity level. These entities— referred to as taxed PTEs by the state—can make this election by filling in the appropriate circle on the partnership return and filing the tax form by the due date.
Keep in mind that this election only covers the tax year the election was made. So, if a company wants to keep its taxed PTE status, it must make this election every year.
Taxed PTEs are charged the same tax rate as individual taxpayers, so they pay 4.75% of their taxable income in 2023.
How to file and pay
Partnership tax returns (Form D-403) are due on the 15th day of the fourth month after the end of the fiscal year (or April 15 for calendar filers).
You can file your returns electronically using one of the tax software providers authorized by the Department of Revenue. But if you prefer to file your return by mail, send the completed form to the following address:
North Carolina Department of Revenue
PO Box 25000
Raleigh, NC 27640-0640
Taxed PTEs that expect to have $500 or more in North Carolina income taxes must make quarterly estimated tax payments using Form NC-40 PTE (for partnerships) or Form CD-429 PTE (for S corporations). These payments should be submitted to the DOR by the 15th day of the fourth, sixth, ninth, and 12th months of the PTE’s fiscal year. Send your tax payments, along with the appropriate payment voucher, to the address above.
Get more information on the North Carolina partnership tax by visiting the DOR partnership tax webpage. You can also learn more about the filing guidelines for partnerships and taxed PTEs by looking at the guide for partnership income tax returns.
North Carolina corporate income tax
Corporations that do business in North Carolina are required to pay corporate income taxes to the state.
The corporate income tax rate in North Carolina is 2.5%—the lowest corporate income tax rate of any state in the US.
How to file and pay
Corporate income tax returns (Form CD-405) are due on the 15th day of the fourth month following the end of the company’s fiscal year. For companies that follow the calendar year, the deadline is April 15.
You can submit your returns through one of the DOR’s authorized software providers, or mail them to the following address:
North Carolina Department of Revenue
PO Box 25000
Raleigh, NC 27640-0500
Corporations that expect their total income tax liability for the year to exceed $500 must pay estimated taxes quarterly. These payments must be sent to the Department of Revenue by the 15th day of the fourth, sixth, ninth, and 12th months of the corporation’s fiscal year. Pay your taxes through the North Carolina eServices online system using Form CD-429 (for C corporations) or Form CD-429 PTE (for S corporations).
To learn more about the state’s corporate income tax, go to the DOR website.
Franchise tax
Some states levy a franchise tax on companies for the privilege of doing business in their jurisdiction. North Carolina is one of them. This tax is assessed on all C corporations, S corporations, and LLCs taxed as either type of corporation unless the business is exempt according to the state’s franchise tax filing guidelines.
C corporations and LLCs taxed as C corporations pay a tax rate of $1.50 per $1,000 of the company’s net worth. Meanwhile, S corporations and LLCs taxed as such pay $200 for the first $1 million of the company’s tax base and $1.50 for every $1,000 that exceeds the $1 million threshold.
No matter the rate, however, all businesses subject to the franchise tax must pay a minimum tax of $200.
How to file and pay
North Carolina franchise taxes are filed and paid using the same form as the corporate tax return. As a result, the due dates and filing guidelines are the same.
Go to the Department of Revenue website to learn more about the North Carolina franchise tax.
Sales and use tax
Companies that sell physical products or certain taxable services in North Carolina are required to collect sales tax at the point of purchase and send it to the Department of Revenue.
Additionally, businesses may be subject to North Carolina use taxes on the following transactions:
- Tangible personal property purchased, leased, or rented outside the state for storage, use, or consumption in North Carolina
- Certain digital property purchased outside the state for storage, use, or consumption in North Carolina
- Certain taxable services
North Carolina’s sales and use tax rate is 4.75% in 2023.
Because of the numerous guidelines surrounding the state sales and use tax, you may want to contact your accountant or the Department of Revenue to determine whether your business is responsible for this tax.
How to file and pay
Businesses that are required to pay sales and use tax must register with the DOR through its online business registration webpage to receive a sales and use tax number and certificate of registration. A full list of the businesses required to register for a sales and use tax certificate can be found on the DOR website.
Once you’ve completed the registration process, you’ll typically be assigned a monthly or quarterly filing frequency based on your monthly sales and use tax liability. For monthly filers, returns and payments are due by the 20th day of the month following the filing period. Returns and payments for quarterly filers are due by the last day of January, April, July, and October.
File your sales and use tax returns (Form E-500) and make any necessary tax payments online through the DOR’s eServices portal.
For more information, visit the sales and use tax webpage on the Department of Revenue website.
Withholding tax
Companies with employees in North Carolina must withhold a portion of income from each employee’s wages and pay it to the Department of Revenue. These taxes are known as withholding taxes or employer taxes.
The withholding tax rate differs between employees as it’s dependent on factors like the employee’s wages and withholding allowances. You can use the wage bracket tables and formulas found in the income tax withholding guide to calculate your withholding tax liability for each employee.
How to file and pay
In order to pay state withholding taxes, first you’ll need to register your business with the Department of Revenue and get a withholding tax identification number. Apply for a tax ID number through the DOR online business registration webpage.
The DOR will then assign you a monthly, quarterly, or semi-weekly filing frequency based on the amount of income taxes you withhold each month. However, most small businesses can expect to file withholding tax returns (Form NC-5) monthly or quarterly:
- Returns for monthly filers are due on the 15th day of the month following the tax period (so taxes and returns for March are due on April 15, for example)
- Returns for quarterly filers are due by the last day of the month following the end of the calendar quarter
No matter your filing frequency, you’ll also need to file Form NC-3, along with the state copies of your employee information returns, each year by January 31.
You can visit the DOR withholding tax webpage to learn more about the North Carolina withholding tax.
Unemployment insurance tax
North Carolina employers also need to pay state unemployment insurance taxes to the Department of Commerce’s Division of Employment Security (DES) if their gross payroll is $1,500 or more in a calendar quarter or if they employed at least one person for 20 different weeks throughout the year. These taxes pay for the unemployment benefits of eligible workers who leave the company.
New employers in North Carolina pay a tax rate of 1% on the first $29,600 of each employee’s wages. Established employers are assigned a new tax rate ranging from 0.06% to 5.76% in 2023. Find details on the state’s UI tax rates by going to the DES unemployment tax rate webpage.
How to file and pay
Before filing any UI returns, companies must create an employer tax account through the DES website. Once you have your employer tax account, you’ll file unemployment tax returns (Form NCUI 101) each quarter by April 30, July 31, October 31, and January 31. These returns and any tax payments can be submitted through the same DES portal you used to create your employer tax account.
One thing to keep in mind: On November 13, 2023, the DES launched a new online system called NCSUITS to replace the current UI filing system, so these tax filing guidelines may change. Visit the NCSUITS webpage to learn more about what to expect with this new system.
For more information on the North Carolina unemployment tax, visit the DES employer webpage.
Other industry-related and local taxes
Note that your company may also be responsible for other state taxes, depending on its industry and business activities.
For instance, people in certain professions—like attorneys, doctors, and engineers—are assessed a privilege license tax for practicing their trades or doing business within the state. You can learn more about these taxes by visiting the DOR privilege license tax webpage.
North Carolina also levies taxes on certain products, services, and business activities. These taxes include:
- Motor Fuels Tax
- Alcoholic Beverages Tax
- Tobacco Products Tax
- Motor Carrier Tax
- Dry Cleaning Solvent Tax
- Insurance Gross Premiums Tax
- Property Tax
In addition to the taxes imposed by the state, many cities and counties in North Carolina levy their own sales taxes on businesses in their jurisdictions. Because North Carolina sets the maximum local sales tax at 2.75%, the average combined state and local sales tax rate is 6.99%. A full list of local sales taxes by county is available on the Department of Revenue website.
Because the taxes covered in this section depend on your company’s location, industry, and business activities, it’s important to talk with your tax advisor or accountant to determine which taxes you’re required to pay.
North Carolina business tax breakdown by business type
To help you keep track of your tax obligations, we’ve included a chart breaking down what taxes each business entity type can expect to pay in North Carolina. Remember that pass-through entities don’t pay federal income taxes at the entity level—their business owners pay taxes through their personal tax returns instead.
| Business type | Personal income tax | Partnership income tax | Corporate income tax | Franchise tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
| C corporation | No | No | Yes | Yes, if it meets the income threshold | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| S corporation | Yes, if it’s not a taxed partnership | Yes, if it’s a taxed PTE | Depends on how it’s structured | Yes, if it meets the income threshold | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| LLC | Depends on how it’s structured | Depends on how it’s structured | Depends on how it’s structured | Depends on how it’s structured | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Partnership | Yes (pass-through), if not paying the PTE tax | Yes, if it’s a taxed PTE | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Sole proprietorship | Yes (pass-through) | No | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
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