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New State Tax Climate Report Gives NC High Marks on Affordability Across Business Types

Since 2013, when North Carolina’s leaders secured a sweeping round of forward-thinking tax reforms with the strong support of pro-growth advocates like the NC Chamber, it seems each year brings new evidence that our increasingly well-balanced tax code is giving a more diverse pool of companies the green light to invest in our state. From 2014 to 2015 – as the full measure of those historic reforms was taking effect – North Carolina rocketed from 44th to 16th in the annual State Business Tax Climate Index put out by the Tax Foundation, a nonpartisan, D.C.-based think tank.

We’ve climbed gradually from there. In 2021, North Carolina’s now-proven recipe of competitive rates, broader bases, and more sensible incentive offerings paid off yet again with our first ever top-10 finish in this esteemed index.

Our 10th-place ranking in the 2021 Business Tax Climate Index put us firmly ahead of all neighboring states and most of our regional competitors. Now a new report compiled by the Tax Foundation in partnership with global accounting firm KPMG LLP offers more evidence that our business-friendly attitude is paying dividends toward a more competitive future. This new report, Location Matters, finds that new businesses in North Carolina enjoy the third-lowest overall effective tax rate nationally, while mature North Carolina firms enjoy the fifth-lowest effective rate compared to their counterparts elsewhere.

Read the full Location Matters report here.

Given our dramatic rise in the State Business Tax Climate Index, it’s no surprise that North Carolina earns high marks in this new tax report. But what sets Location Matters apart from the Tax Foundation’s signature index, you ask? Well, rather than simply gauging each state’s competitiveness by ranking how it compares nationally on key metrics like corporate and personal income tax rates – a useful yet incomplete approach that can fail to yield apples-to-apples assessments between states with widely variant rate structures – the experts behind Location Matters computed the real tax costs paid by model firms of various types in each state. This provides a complementary view of the nation’s tax climates that helps reveal parts of the image left obscured by other methodologies.

Among the takeaways from Location Matters, the report finds that corporate headquarters in North Carolina enjoy especially competitive rates compared to those elsewhere. In fact, new firms in this category enjoy a lower effective tax rate than anywhere else in the country while mature firms see the third-lowest effective tax rate relative to those in other states. Indeed, most of the model North Carolina firms explored in the report perform well – and many perform exceptionally.

The upshot for state leaders is this: No matter which method we use to analyze our state’s tax offerings, it’s clear our balanced, business-friendly approach has primed us to compete for companies of all sizes and specialties, and to attract top talent regardless of industry. To get the full picture behind Location Matters, you’ll have to click the link above and explore the findings for yourself.

Location Matters was unveiled today in our state through the joint efforts of the NC Chamber Foundation and our friends at the Economic Development Partnership of North Carolina (EDPNC). We thank the team at EDPNC for their partnership and support, just as we thank the experts behind the Location Matters report for providing this unique resource that will empower us to more accurately benchmark our state’s progress in a key policy area at the heart of our continued success.