North Carolina has climbed to rank 9th in the nation for its tax climate, according to the latest study conducted by the nonprofit Tax Foundation. This rise in the rankings can be attributed to significant tax reforms undertaken by the state over the past decade, making it an attractive destination for work, residence, investment, and job creation.
Last year, North Carolina boasted the 10th-best tax system in the nation.
The Chairman of the Senate’s Finance Committee, which grapples with state-level tax policy, said North Carolina’s favorable tax climate can be attributed to the hard work and vision of legislative Republicans. Republican lawmakers took over a majority in the state House and Senate for the first time in over a century in 2010 and enacted many conservative tax reforms.
“North Carolina wasn’t always an example of a state with a business-friendly tax policy,” Sen. Paul Newton, R-Cabarrus, said. “For decades, Democrats had no real interest in making needed improvements.”
From 2001 to 2006, the personal income tax rate (PIT) in North Carolina was between 6.00 and 8.25 percent. The rate varied under the Democratic-controlled legislature and landed between 6.00 and 7.75 percent during the 2009 to 2010 tax year. Republicans cut the PIT to 5.8 percent for the 2014 tax year and cut it down to 4.99 percent in 2022.
“Since earning the majority in the General Assembly, Republicans have routinely improved our business tax climate, most notably implementing a flat personal income tax rate and drastically reducing it,” Newton said. “As a result of these tax policy changes – along with other efforts in workforce, infrastructure, and education – North Carolina is rightfully being recognized as having one of the best business climates in the country.”
The conservative reforms have made the state more appealing to businesses, investors, and job seekers. Other states have followed North Carolina’s approach by implementing similar tax reforms, including tethering rate reductions to revenue triggers to ensure budget stability.
The Tax Foundation’s tax climate study evaluates taxation in five key categories: personal income taxes, corporate income taxes, sales taxes, property taxes, and payroll taxes used to fund the state’s unemployment insurance system.
North Carolina’s progress is evident in these rankings. Before 2010, the state was consistently among the worst in the South for investment and growth and well below the national average, according to John Hood, President of the John William Pope Foundation. By 2014, the conservative-led legislature had reduced sales and income taxes, leading to North Carolina’s rise to the 31st position.
Most of the other states in the top 10 either do not tax personal income, corporate income, or retail sales. Utah is an exception. Utah’s success in the rankings is attributed to its application of relatively low rates across the board.
North Carolina has adopted an approach similar to Utah, but also has tax reforms set to take place through the end of the decade. The state is poised to eliminate its corporate income tax by 2030. The personal income tax could go as low as 2.49 percent by as early as 2027 if the state meets certain revenue triggers.