For the first time ever in its annual rankings of state business tax climates, the nonpartisan Tax Foundation has recognized North Carolina as one of the ten most competitive states in its 2021 State Business Tax Climate Index. As recently as 2014, North Carolina ranked among the ten least competitive states in this index. After the impacts of the historic 2013 overhaul of our state’s tax code began to be felt, however, North Carolina quickly shot up the charts, rising from 44th to 16th between 2014 and 2015. While we have previously knocked on the door of the top ten, ranking 11th in 2017 and 2018, the 2021 index marks the first time we have cracked this elusive list – our state clocked in at 10th, a five-point improvement over our 2020 score.
The NC Chamber has been among the most ardent advocates of the reforms that helped catapult our state up the leaderboard in tax competitiveness, and we applaud the many lawmakers who championed these reforms. From reducing our personal income tax – a move that benefitted both families and small businesses taxed on their owners’ incomes – to implementing the lowest corporate tax rate in the country among states that levy one, job creators and growth-minded policymakers in our state have helped build one of the most attractive tax climates for new business investment.
With this latest round of tax rankings, North Carolina now has a strong lead over all neighboring states in tax competitiveness; our next highest-ranking neighbor, Tennessee, clocks in at 18th, while Virginia, Georgia, and South Carolina all fall in the bottom-half of all states. We must not grow complacent when it comes to protecting this competitive advantage, however, as our neighbors and the rest of the nation are working hard to make up lost ground.
To that end, the NC Chamber remains committed to continually improving North Carolina’s business tax climate. Going forward, our top priorities will include capping, reducing, and eliminating the regressive state franchise tax; decoupling from the Internal Revenue Code section 163(j) “limit deduction on interest expense” and reversing the 2018 franchise tax expansion on small businesses; ensuring the integrity of past and existing tax credit programs like the Renewable Energy Tax Credits and Historic Rehabilitation Tax Credits; and protecting the reforms that helped elevate North Carolina to our historically high standing in tax competitiveness.