In December, the nationally focused, nonpartisan Tax Foundation released its much-anticipated 2022 State Business Tax Climate Index, ranking North Carolina as the 11th most business-friendly tax climate nationwide. For those confused by our one-spot slide from 10th place in the Tax Foundation’s previous report, even after the NC Chamber and our pro-growth allies succeeded in securing key reforms like a reduced and simplified franchise tax in the 2021 state budget, worry no more. The reasons for that are based on timing and technical considerations surrounding the analysis that went into the report.
Let’s clarify the situation:
First, our backward step from 10th to 11th was rooted in actions taken elsewhere – last year, Tennessee issued a full repeal of its personal income tax – not misguided action taken here in North Carolina. While this is an important reminder that competing states are consistently improving their own tax climates to attract new investments and top-level talent, it’s not a sign that we’ve faltered in our efforts to build a truly world-class business tax climate in our state.
Quite the contrary, in fact, since what is even more important to understand than the above point is that the Tax Foundation’s latest rankings did not actually factor in the effects of North Carolina’s most recent round of tax reforms. That’s because those reforms only happened in November, quite late in an unusually long-running legislative session, and the report only assessed state tax laws effective through July 2021.
Tax Foundation experts have assured the NC Chamber team that North Carolina is indeed projected to further our rise in the rankings thanks to these robust reforms, with a trajectory to become the fifth best state for business taxes once reforms take full effect.
This is welcome – though not at all surprising – news for NC Chamber members and North Carolina job creators across sectors and business types, and a sure sign that our competitive approach to tax reform is continuing to pay dividends toward our future success. For questions about the NC Chamber’s continued focus on tax competitiveness and where we’re headed from here, contact NC Chamber Director of Government Affairs Mark Coggins.