Foundation Forecast: North Carolina’s Next Moves on Tax Competitiveness
Tax reforms over the past decade have strengthened North Carolina’s position as a national leader for business competitiveness. But in a rapidly evolving policy landscape, competitiveness is not a fixed destination—it requires continued attention, analysis, and action.
In this edition of Foundation Forecast, we assess where North Carolina’s tax climate stands today, how it compares to peer states accelerating reform, and which policy choices will influence the state’s competitiveness over the next decade.
This Forecast was developed with input from Dan Gerlach, economic advisor to the NC Chamber, and Dana Magliola, senior director of infrastructure competitiveness, and reflects the NC Chamber Foundation’s commitment to data-driven analysis on issues central to North Carolina’s long-term economic growth.
Meredith Archie
President
NC Chamber Foundation
Foundation Forecast: North Carolina’s Next Moves on Tax Competitiveness
North Carolina has spent more than a decade deliberately improving its tax structure to support economic growth, investment, and job creation. Those efforts have paid dividends. Since 2010, the state has significantly improved its standing in national business tax rankings by lowering and flattening income tax rates and broadening tax bases. In the Tax Foundation’s 2026 State Business Tax Climate Index, North Carolina ranks 13th overall, placing it solidly among the nation’s more competitive states for business taxation (Tax Foundation, 2025). Most of the states that rank better than North Carolina do not levy one of the major taxes, especially a state income tax.
Yet as we enter 2026, tax competitiveness is no longer a static achievement. It is a moving target shaped by policy decisions in other states beyond North Carolina, shifting business models, workforce and talent recruiting pressures, the growing need to finance infrastructure, and strengthen resilience. The question for North Carolina is no longer whether past reforms worked, but whether the current tax structure positions the state to remain competitive over the next decade.
Where North Carolina Stands Today
North Carolina’s strongest performance continues to come from its corporate income tax structure, which ranks third best nationally under the Tax Foundation’s methodology. The state’s flat corporate rate, which stood at 2.25 percent in 2026, is scheduled under current law to phase down further, reaching zero later this decade (Tax Foundation, 2026). The unemployment insurance tax structure also performs well, ranking seventh nationally, reflecting stability and predictability for employers.
However, other components of the tax code remain less competitive. Property taxes, including the franchise tax, position North Carolina 21st, while the individual income tax system ranks 22nd nationally (Gannon, 2026). The Tax Foundation identifies the franchise tax as North Carolina’s single largest structural weakness, describing it as “unusually aggressive” because it taxes businesses based on net worth rather than profitability, discouraging capital investment and growth (Tax Foundation, 2026).
The NC Chamber has long agreed with this assessment. A tax levied on a company’s value rather than its ability to pay runs counter to modern tax principles and creates disincentives for investment, particularly for capital-intensive industries, such as advanced manufacturing, that North Carolina actively seeks to attract.
A Competitive Landscape That Is Rapidly Changing
While North Carolina’s reforms have been meaningful, other states are not standing still. Several peer and competitor states are pursuing even more aggressive tax policy changes. Georgia, Missouri, Iowa, Kentucky, and Mississippi, among others, are actively advancing plans to eliminate their state personal income taxes altogether. These moves change the competitive baseline, especially for mobile talent, entrepreneurs, and high-growth firms evaluating long-term location decisions.
The result is a relative shift in rankings. North Carolina has slipped from a top-10 position earlier in the decade to 13th today, not because the state reversed course, but because other states have accelerated reforms (Tax Foundation, 2021). In a competitive environment defined by momentum, maintaining the status quo increasingly functions as a policy choice with consequences.
Looking ahead five to ten years, North Carolina’s ranking trajectory will depend heavily on whether reforms continue or stall. If the state proceeds with structural modernization, particularly addressing the franchise tax, it is reasonable to expect improvement or stabilization in national rankings. If reform in North Carolina stagnates while peer states move, further erosion in the state’s standing is likely.
Tax Policy in a 2026 Context
As of early 2026, tax competitiveness cannot be evaluated in isolation. Businesses increasingly assess states based on how tax policy interacts with other foundational systems. Infrastructure financing needs are growing, not shrinking. North Carolina faces substantial capital demands for transportation networks, water and wastewater systems, energy generation and transmission, and broadband expansion. The American Society of Civil Engineers continues to document gaps between infrastructure needs and funding levels nationwide, including in North Carolina (ASCE, 2025). In its most recent “report card.” North Carolina’s roads experienced a shift from a C to a C- between the 2026 grades and a previous analysis completed in 2013. A competitive tax structure must coexist with a sustainable revenue framework capable of supporting these investments.
Workforce participation constraints are also shaping economic outcomes. Housing availability, childcare access, workforce shortages, and transportation connectivity all affect labor force participation and talent attraction. According to the Bureau of Labor Statistics, labor force participation nationally remains below pre-pandemic levels, and states that fail to align tax, housing, and workforce policy risk limiting growth even with favorable tax rates.
Interstate competition for manufacturing, logistics, and advanced industries has intensified. Despite North Carolina’s recent success and numerous economic development wins, the environment continues to become more competitive. Federal and state incentives, global supply chain realignment, and onshoring trends have increased the stakes for site selection decisions. Tax policy is one of several filters used early in those decisions, and structural outliers like the franchise tax can eliminate otherwise competitive locations from consideration early in the process.
Why the Franchise Tax Matters Structurally
The franchise tax is not simply a ranking issue. It is a structural issue that directly affects investment behavior (Locke Foundation, 2024). Because it taxes net worth rather than profits, it can penalize companies during downturns, early growth phases, or periods of heavy capital investment. It also disproportionately affects manufacturers, utilities, and logistics firms that hold significant physical assets. Eliminating the franchise tax would modernize the tax code to better align with contemporary business models, reduce distortions in investment decisions, and reinforce the state’s commitment to long-term growth.
Any reform must account for revenue replacement and fiscal sustainability. The NC Chamber and its members recognize the need to fund public safety, infrastructure, and education and workforce development—but those priorities reinforce the case for modernization. A tax system that promotes investment and growth expands the base over time, strengthening the state’s ability to meet its public obligations (Joffe, 2024).
A Forward-Looking Path
Taking our foot off the gas is not an option in a policy environment defined by rapid change. Tax competitiveness is a core component of North Carolina’s broader economic strategy. Modernizing outdated structures and aligning tax policy with infrastructure and workforce goals will position the state not just to compete today, but to lead over the next decade.
North Carolina’s track record shows what deliberate policy can achieve. Sustaining that advantage will require the same focus and urgency to remain the number one place to do business in America.
American Society of Civil Engineers. 2025 Infrastructure Report Card: North Carolina. American Society of Civil Engineers, https://infrastructurereportcard.org/state-item/north-carolina/.
Bureau of Labor Statistics. “Civilian Labor Force Participation Rate.” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm.
Gannon, Patrick. “North Carolina Income Tax Rate Drops to 3.99% in 2026.” The News & Observer, 1 Jan. 2026, https://www.newsobserver.com/news/politics-government/article314079953.html.
Joffe, Marc. “State Fiscal Health and Cost-Saving Strategies.” Policy Analysis No. 969, Cato Institute, 20 Feb. 2024, https://www.cato.org/policy-analysis/state-fiscal-health-cost-saving-strategies.
John Locke Foundation. “Repealing North Carolina’s Franchise Tax.” John Locke Foundation, https://www.johnlocke.org/research/repealing-north-carolinas-franchise-tax/.
Tax Foundation. 2026 State Business Tax Climate Index. Tax Foundation, 2026, https://taxfoundation.org/state-business-tax-climate-index-2026/.
Tax Foundation. State Corporate Income Tax Rates and Brackets. Tax Foundation, 2026, https://taxfoundation.org/state-corporate-income-tax-rates-brackets/