Earlier this year, North Carolina secured its first top ten finish in the State Business Tax Climate Index released each year by the Tax Foundation, a nonpartisan, D.C.-based think tank focused on issues of tax competitiveness. We once ranked as low as 46th in this index, with the highest corporate tax rate in the Southeast, before state leaders enacted a series of targeted tax reforms early last decade – with strong support from the NC Chamber – sent us on a steady rise up the charts.
Now members of the N.C. General Assembly have introduced a new tax reform package that Tax Foundation experts have indicated would, if passed, further elevate our state’s business tax climate to the fifth most competitive nationally. The package – incorporated as a committee substitute to House Bill 334 with a favorable vote by the Senate Finance Committee – includes numerous changes to state tax laws that would broadly benefit job creators in North Carolina.
After a thorough consideration of measures in the amended bill, the NC Chamber put our support behind this iteration of House Bill 334 on Friday, May 28, in our weekly This Week at the Capital newsletter. As we noted there, we believe the overall bill would contribute to an even more balanced business tax climate for our state. Taken together, its measures would support greater tax clarity and a lower tax burden for employers of all sizes and sectors and increase our attractiveness in an area that is top of mind for virtually all job creators looking to grow.
The bill also aims to ensure North Carolina employers who have received COVID-related assistance to maintain their workforce can continue receiving targeted assistance – measures that are part of the General Assembly’s larger efforts to provide solutions to the acute workforce challenges facing our state. As with our support for Senate Bill 116, which includes several workforce revitalization solutions introduced by members of the N.C. House, our support for House Bill 334 comes part-in-parcel with our commitment to championing efforts by both the House and Senate to secure the workforce solutions North Carolina needs at this crucial moment for our economy.
Key changes impacting business in House Bill 334 include:
- Simplification of the overly complicated and regressive franchise tax on business investment to eliminate two of three property-related bases in taxable year 2022, ensuring all businesses are levied this tax only on a net worth base (Initial data indicate this would save North Carolina businesses roughly $150 million each year)
- A reduction of the personal income tax rate (which applies to many kinds of businesses) from 5.25 percent to a more competitive rate of 4.99 percent
- A gradual phaseout of the corporate income tax rate (currently 2.5 percent) by way of an annual decrease of 0.5 percent beginning in 2024 and ending in 2028
- Creation of a $1 billion Job Opportunity and Business Savings Grant Program that will include both automatic and application-based grants for qualifying businesses that received benefits from state or federal COVID-related relief programs
- An extension of the mill rehabilitation tax credit until 2025 (currently scheduled to sunset in 2023)