As the long legislative session begins to wind down at the General Assembly, there are still a few priorities we’re pushing for that will spur economic growth and job creation across North Carolina, creating an even better financial climate that puts more money back into our state’s economy and benefits us all. One of those issues is a top priority on our 2019 Jobs Agenda: reducing the franchise tax and thus removing an unnecessary burden on North Carolina businesses. This would allow them to create new jobs and bolster local and regional economies, benefiting communities across the state.

Right now, the franchise tax is essentially a double tax on businesses at the state level. According to the nonpartisan Tax Foundation: “Some states with both a corporate income tax and a franchise tax allow businesses to pay one or the other, whichever amount is higher. But North Carolina is among the states requiring businesses to pay both, which increases tax burdens and compliance costs and applies duplicative layers of taxes on the same income.”

Further, the franchise tax disproportionately affects new businesses interested in growing their footprint in our state. Again from the Tax Foundation: “Franchise taxes can be especially burdensome to new businesses, capital-intensive businesses, and struggling businesses because they are owed even when businesses post losses or barely break even. As a result, many businesses have to reach into their valuable cash flow to pay the tax.” 

Additionally, because the franchise tax is levied on a business’s net worth rather than their net income, it discourages in-state investment and the accumulation of assets—many business owners could choose to expand and grow their net worth in states where they aren’t charged this burdensome tax. With a reduced franchise tax, those business owners may instead choose to invest here in North Carolina—essentially growing the economic pie in their communities and across the state.

Legislation like Senate Bill 622 and language that was included in the annual budget would make key changes to the franchise tax that would better enable job creators to invest in their businesses and support their communities, and we’re looking forward to progress on this issue soon.

We’ll continue to advocate for a cap, reduction, and eventual elimination of the franchise tax to support the job creators in our state who are helping spread economic opportunity for everyone. For any questions on the franchise tax or other tax policy, please contact Jason Soper.

Sincerely,

Gary J. Salamido
Chief Operating Officer and Acting President
NC Chamber