North Carolina small business taxes: Types, rates, deadlines, and how to file in 2025

North Carolina is an increasingly attractive state to launch a new venture, thanks, in part to its business-friendly climate and rapid economic and population growth in popular urban centers like Greensboro, Charlotte, and Raleigh. In fact, North Carolina was named the “Best State for Business” by CNBC for two years running (2022, 2023) and the second best in 2024. Business taxes in North Carolina are relatively simple compared to other populous states, with a flat corporate tax rate and flat individual income tax rate, both of which have been coming down in recent years. North Carolina now has the lowest corporate state income tax in the country.

However, “relatively simple” still leaves plenty of room for complexity, and it’s important to understand how your business may be impacted by personal and corporate state income taxes, payroll taxes, sales and use tax, and excise taxes. Use our guide to help you navigate the ins and outs of North Carolina business taxes, including how to take advantage of exemptions, credits, and incentives that could save your business money. Whether you're just starting a business or looking to optimize your tax strategy, this guide has you covered.

Refer to the table of contents below to quickly find the information that matters most to you:

• Taxes in North Carolina overview
• Key North Carolina business tax adjustments for 2025
• North Carolina state income taxes
• Types of business taxes in North Carolina
• North Carolina business tax deductions, credits, and exemptions
• Types of North Carolina taxes for different business entity types
• North Carolina sales taxes

• Year-end business tax checklist
• Commonly missed tax deductions and credits
• Common mistakes to avoid when filing business taxes in North Carolina
• Find an accountant to help prepare your North Carolina business taxes
• Frequently asked questions

Taxes in North Carolina overview

• A flat rate state individual income tax of 4.25% 
• A flat rate state corporate income tax of 2.25% 
• 4.75% sales tax statewide plus local taxes in many jurisdictions for an average combined sales tax rate of 7%
• Other business taxes may include payroll taxes, excise taxes, and property taxes

Key North Carolina business tax adjustments for 2025

Staying informed about the latest tax changes is essential for businesses to maintain compliance, optimize their tax strategies, and plan ahead. Here are some important adjustments and updates that could impact your business:

Reduced individual income tax rate

• Starting January 1, 2025, North Carolina's individual income tax rate has dropped from 4.5% to 4.25%. The state plans to lower it further to 3.99% in the coming years.

Increased standard deduction

• The standard deduction will rise to $25,500 for married couples filing jointly; $19,125 for heads of household; and $12,750 for single filers.

Lower corporate income tax rate

• The corporate income tax rate decreased from 2.5% to 2.25% on January 1, 2025, as part of a phased elimination by 2030.

Changes to alcohol taxation

• Effective January 1, 2025, high-value liquor sales ($50,000+ per container) are exempt from the 30% excise tax. Instead, these sales will incur a capped use tax of $1,000.

Excise tax for motor fuels and alternative fuels

• The excise tax rate for motor fuels and alternative fuels will decrease from 40.4 cents to 40.3 cents per gallon or gallon equivalent for the period of January 1, 2025, to December 31, 2025.

North Carolina state income taxes

North Carolina has a state income tax, which you will need to withhold from employee paychecks along with other payroll taxes. 

What is the state income tax rate in North Carolina?

The North Carolina state income tax is a flat rate of 4.25% in 2025, and it’s heading down to 3.99% by 2026. 

Types of business taxes in North Carolina

As a business owner, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your finances is important.

Federal taxes

No matter where you open a business, you'll be responsible for paying federal taxes. There are dozens of federal tax forms with unique due dates and requirements, so using an accountant or small business accounting software can help you avoid mistakes that could lead to overpayment or penalties. 

As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:

Personal tax filing

Federal income tax returns:

Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.

Business tax filing

Business owners have additional filing requirements, depending on the business structure:

• Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
• Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
• Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
• S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
• Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.

Self-employment tax

If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Employment taxes

As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA). 

State taxes

North Carolina has a variety of state taxes, like most states. It’s important to know which kinds of taxes your business may be liable for, based on your structure and business activities.

North Carolina franchise tax

North Carolina levies a franchise tax on C and S corporations and limited liability companies that have elected to be treated as C corporations for tax purposes. This tax is for the privilege of engaging in business in the state. 

How is the franchise tax calculated?

The franchise tax rates are calculated as follows:

• For C corps: $1.50 per $1,000 (minimum $200)
• For S corps: $200 for the first $1,000,000 of the corporation's tax base and $1.50 per $1,000 of the tax base that exceeds $1,000,000 (minimum $200)

Who is liable for the North Carolina franchise tax?

Corporations doing business in North Carolina are liable for the franchise tax. An annual franchise or privilege tax is imposed on:

• Domestic corporations (organized under North Carolina laws)
• Foreign corporations (not organized under North Carolina laws) that have a Certificate of Authority to do business in the state or are in fact doing business in North Carolina

North Carolina corporate income tax

In addition to its franchise tax, North Carolina currently has a flat corporate income tax of 2.25%. However, the legislature has passed bills to phase out this income tax gradually, lowering the rate until it reaches 0% in 2030.

How is the corporate income tax calculated? 

Corporate income tax is calculated by applying the state's tax rate to a corporation's net taxable income. 

1. Use the corporation's federal taxable income.
2. Add or subtract as required by North Carolina law.
3. If applicable, allocate income to North Carolina using the state's formula.
4. Multiply taxable income by 2.25% (2025 rate).

Learn more about corporate income tax rates at the North Carolina Department of Revenue website. 

Who is liable for the corporate income tax?

Corporations are subject to corporate income tax if they are:

• Incorporated in North Carolina
• Conducting business within the state

The term "doing business" relates to having a nexus in the state. In North Carolina, nexus can be established through:

• Physical presence: Having tangible assets, property, or employees in the state.
• Economic presence: Deriving income from North Carolina in the current or previous calendar year, even without a physical presence.

Nexus rules can be complex and may change over time. It's advisable to consult with a tax professional or the North Carolina Department of Revenue for guidance specific to your business situation.

Excise Taxes

North Carolina levies special excise taxes on certain products, services, and business activities. Some examples include: 

Alcoholic beverages: Products such as liquor, beer, malt beverages, wine, and mixed drinks are subject to varying excise tax rates. For instance, fortified wine is taxed at $.2934/liter

Motor fuels: The excise tax rate for motor fuels and alternative fuels is currently 40.3 cents per gallon or gallon equivalent.

Cigarettes: There is an excise tax of $0.45 per cigarette pack. 

Unemployment tax

As in all states, employers must pay federal unemployment insurance (UI) taxes. In North Carolina, employers are responsible for funding the state's Unemployment Insurance (UI) program through payroll taxes. These taxes are not deducted from employee wages but are paid directly by employers. State UI tax is paid on each employee's wages up to a maximum annual amount. That amount is known as the "taxable wage base" or "taxable wage limit."

For 2025, the taxable wage limit for North Carolina UI tax is $32,600. Rates range from 0.06% to 5.76%, depending on the business’s experience rating.

See the North Carolina Department of Commerce website for more information. 

Local taxes

Cities and counties in North Carolina may levy additional local taxes to fund essential services and infrastructure such as schools, roads, and public safety.

Sales and use taxes

The state sales tax rate in North Carolina is 4.75%. However, cities and counties can add an additional 2% to 2.25% as local sales tax. In some areas, transit authorities may also impose an extra 0.5%. Rates vary by county and municipality. You can locate your local rate on the state Department of Revenue’s chart of local sales tax rates. 

Remote seller tax considerations

A remote seller is a business without a physical presence or legal obligation to register in North Carolina but sells products for delivery into the state. 

Remote sellers must register to collect and remit North Carolina sales and use tax if they exceed gross sales of over $100,000 sourced to North Carolina. This includes sales made through marketplaces. Sellers can voluntarily begin collecting and remitting tax before meeting these thresholds.

Property taxes

The property tax in North Carolina is a locally assessed tax, collected by the counties. The property tax rate is determined by each county assessor and varies widely depending on the location of the property. For information regarding your property tax bill (real property and motor vehicles), contact your local property tax office.

North Carolina business tax deductions, credits, and exemptions

Obtaining a tax exemption or tax credit can significantly reduce your tax burden as well as stimulate economic activity and help create new jobs in the state. Each tax credit program has specific eligibility requirements and application procedures. The North Carolina Department of Revenue provides information on all tax credits and eligibility requirements. 

If you’re starting or building a business in North Carolina, there are also grants and incentives for small businesses available through the North Carolina Department of Commerce. 

Here is an overview of some available tax credits.

• New Market Tax Credit: The New Market Tax Credit program encourages community investment by offering tax credits to individuals or companies that invest in a Community Development Entity (CDE). The CDE uses these funds to provide low-interest loans to new businesses in qualified census tracts.
• Opportunity Zones: North Carolina has 252 federally designated Opportunity Zones, many in the Southeast region, aimed at encouraging investment in areas with poverty rates over 20% or incomes below 80% of the median. The program offers tax incentives, including deferral, step-up in basis, and exclusion of long-term capital gains when reinvested in an Opportunity Fund.

Credit and exemptions for North Carolina sales and use tax

Certain businesses and activities in North Carolina qualify for sales tax exemptions, providing significant savings on purchases directly related to their operations. These exemptions are designed to support various sectors and promote economic growth within the state.

Pollution abatement equipment

Pollution abatement equipment and chemicals used in manufacturing processes for pollution control are exempt from North Carolina sales and use tax.

Data centers

North Carolina exempts sales tax on electricity, equipment, and software for qualifying data centers and internet data centers.

Research and development activities for physical, engineering and life science companies

Equipment, attachments, and repair parts sold to companies focused on research and development in physical, engineering, and life sciences are exempt from North Carolina sales and use tax.

Large fulfillment facilities

Equipment, accessories, attachments, and repair parts used in the distribution process at a large fulfillment facility are exempt from North Carolina sales and use tax, but electricity is not included. A large fulfillment facility primarily handles receiving, inventorying, sorting, repackaging, and distributing retail products. To qualify, the facility must invest $100 million in property and create at least 400 jobs within five years, as certified by the Secretary of Commerce.

Nonprofit organizations

Nonprofit organizations can qualify for sales and use tax exemptions by meeting specific criteria and applying through the state's Department of Revenue. Qualifying nonprofits in North Carolina must obtain a "Streamlined Sales and Use Tax Agreement Certificate of Exemption" (Form E-595E) from the North Carolina Department of Revenue.

Types of North Carolina taxes for different business entity types

Not all businesses pay taxes the same way. Different types of business entities in North Carolina may be subject to different taxes. If you haven’t set up your business yet and are considering options for structuring it, knowing the tax rules can help you make a decision. 

North Carolina sales taxes

North Carolina has a state sales and use tax rate of 4.75%. Many cities and counties also add additional sales tax. 

Services that are subject to sales tax in North Carolina include: 

• Dry cleaning and laundry 
• Telecommunications 
• Prepaid telephone calling service
• Video programming 
• Satellite digital audio radio 
• Admission charges to an entertainment activity
• Service contracts
• Repair, maintenance, and installation 

See a complete list of taxable items and services at the North Carolina Department of Revenue website. 

Do you need a sales tax permit?

Yes, if you have a nexus with North Carolina through business activities such as selling tangible personal property, certain digital property, or taxable services at retail, you are required to register with the North Carolina Department of Revenue to obtain a Certificate of Registration. Nexus establishes your obligation to collect and remit sales and use tax to the state.

To file business taxes in North Carolina, first determine your business structure and file federal taxes using the appropriate IRS forms. At the state level, register with the North Carolina Department of Revenue for a sales tax license, withholding account, or other applicable accounts based on your business activities. 

File required state tax returns, such as income tax, sales and use tax, or withholding tax returns, by deadlines. Keeping detailed financial records ensures compliance. For guidance and forms, visit the North Carolina Department of Revenue and IRS websites.

When are taxes due in North Carolina?

Businesses have various tax obligations, each with specific due dates.

Sales and use taxes

Filing frequency is determined by the amount of tax liability:

• Monthly filers: Returns are due by the 20th day of each month for businesses with a total tax liability consistently between $100 and $20,000 per month. 
• Quarterly filers: Returns are due on the last day of January, April, July, and October for businesses with a total tax liability consistently less than $100. 
• Monthly with prepayment filers: Returns are due by the 20th day of each month, along with a prepayment for the next month's liability, for businesses with a total tax liability consistently at least $20,000 per month. 

If a due date falls on a weekend or holiday, the return is due the next business day.

Corporate income and franchise taxes

Annual returns are due on or before the 15th day of the fourth month following the end of the income year. For calendar-year taxpayers, this is typically April 15. 

Estimated taxes

Businesses may be required to make quarterly estimated tax payments if their anticipated tax liability exceeds certain thresholds. The due dates for these payments are:

• 1st Quarter Payment: Due on April 15 (for income earned January 1 - March 31)
• 2nd Quarter Payment: Due on June 15 (for income earned April 1 - May 31)
• 3rd Quarter Payment: Due on September 15 (for income earned June 1 - August 31)
• 4th Quarter Payment: Due on January 15 of the following year (for income earned September 1 - December 31)

If any due date falls on a weekend or holiday, the payment is due the next business day.

Note: Starting with the 2025 tax year (filed in 2026), North Carolina will extend the state corporate income tax return deadline to one month after the federal extended due date, changing the timeline for both C corporations and S corporations. This is a shift from the previous alignment with federal deadlines.

For more detailed information, consult the North Carolina Department of Revenue's resources on filing frequencies and due dates.

Year-end business tax checklist

Stress less during tax season. Use this small business tax checklist to ensure you have everything you need to stay organized throughout the year and file your taxes accurately and on time:

Year-round business tax preparation

• Maintain accurate records: Keep detailed records of all income and expenses throughout the year.
• Categorize expenses: Organize your expenses into relevant categories for easier tax preparation.
• Reconcile bank accounts: Regularly reconcile your bank accounts to ensure accuracy and identify any discrepancies.
• Track mileage: If you use your vehicle for business purposes, keep a detailed mileage log.
• Stay informed: Keep up-to-date on federal and state tax laws and regulations that might affect your business.

Pre-filing checklist

• Gather necessary forms and documents:
• Previous year's tax returns (up to three years prior for both state and federal)
• Accounting journals and ledgers
• Balance sheet and income statement
• Transactional supporting documents (bank deposit slips, bank statements, invoices, checkbook, credit card statements)
• Vehicle and mileage logs
• Expense receipts
• Employee tax forms (W-9, I-9, W-2, 1099)
• Non-employee tax forms (1099-MISC)
• State tax forms
• List of home office deductions (if applicable)
• Understand which tax forms to file: Determine the specific tax forms required for your business structure and tax obligations.
• Review and verify information: Double-check all information for accuracy before filing.
• Consider estimated taxes: If required, calculate and pay estimated taxes throughout the year.

Filing and beyond

• File your tax returns: Submit your tax returns electronically or by mail before the deadline.
• Request filing extensions (if needed): If you need more time to file, request an extension before the deadline.
• Keep copies of your tax returns: Store copies of your filed tax returns for future reference.
• Plan for next year: Start organizing your records and planning for the next tax season.

Commonly missed tax deductions and credits

Take advantage of valuable tax breaks. Many small businesses overlook possible deductions and credits that could significantly reduce their tax liability. Be sure you claim all the deductions and credits you qualify for.

Common business tax deductions

• Advertising
• Depreciation of assets
• Employee salaries and benefits
• General business expenses
• Home office expenses
• Insurance
• Business loan interest
• Internet and phone services
• Legal services
• Licenses
• Meals and entertainment (for business purposes)
• Business-related travel and mileage expenses
• Commercial property rent 
• Training and education
• Cost of goods sold (COGS)
• Business banking fees

Proper documentation and recordkeeping are essential to justify deductions in case of an audit. Consulting a tax professional can help ensure compliance with tax laws and maximize your eligible deductions.

Small business tax credits

Take time to familiarize yourself with the variety of business tax credits that may be available to you. Here are some common ones: 

• Alternative Motor Vehicle Credit for electric cars and hybrids used for business
• Disabled Access Credit for expenses related to improving accessibility
• Investment Credit, including credits for energy, reforestation, and rehabilitation projects
• Paid Family and Medical Leave Credit for eligible employers providing paid leave
• Small Employer Health Insurance Premiums Credit for employers with fewer than 25 employees contributing to health insurance premiums
• Work Opportunity Credit for businesses hiring individuals from targeted groups

For a complete list of federal tax credits and detailed eligibility requirements, visit the IRS website.

In addition to the federal tax incentives, consider if you could qualify for ones specifically for North Carolina businesses, such as:

• Historic preservation tax credit: North Carolina offers a 15% tax credit for rehabilitating income-producing historic structures for expenses up to $10 million and 10% for expenses from $10 million to $20 million, with a 5% bonus for projects in Tier 1 or Tier 2 counties or targeted investment sites. Learn more about the tier at the County Development Tier Designations page.
• Electricity, fuel, and natural gas sales and use tax exemption: Electricity, fuel, and piped natural gas used in manufacturing operations are exempt from sales and use tax in North Carolina. This exemption applies only to facilities primarily engaged in manufacturing, defined as a single building, a group of buildings on contiguous parcels, or related property under common ownership.
• Raw materials sales and use tax exemption: Purchases of raw materials, components, or packaging that become part of a manufactured product sold to customers are also exempt from sales and use tax.

Where do I send my North Carolina tax reports and payments?

The North Carolina Department of Revenue (NCDOR) offers options for filing your state taxes. The NCDOR website offers online bank draft and credit/debit card payment options for corporate and franchise taxes. ACH Credit and ACH Debit batch methods are popular payment options for many businesses. If your business tax liability is at least $240,000 in a 12-month period, you will be required to pay electronically. 

For withholding taxes, most taxpayers can file and pay by paper or online. However, you must pay by electronic funds transfer if you average more than $20,000 per month. Visit this NCDOR page for details. 

Should I file and pay by paper or electronically?

The North Carolina Department of Revenue mandates electronic filing and payment for certain taxpayers. If your business tax liability is at least $240,000 in a 12-month period, you will be notified by letter of the electronic payment requirement. Any of the Department's electronic payment methods will satisfy the electronic payment requirement.

Even if not required, online filing and payment are encouraged for all taxpayers due to increased efficiency and security. The NCDOR website offers various electronic services to facilitate this process. 

Common mistakes to avoid when filing business taxes in North Carolina

Managing business taxes may seem complicated, but with some preparation, you can stay on track and avoid mistakes. Here are some common pitfalls to watch out for:

H3: Misclassifying workers

Make sure you're correctly classifying your workers as employees or independent contractors. Misclassification can lead to hefty penalties and back taxes.

Missing deductions

Don't leave money on the table. Explore all eligible deductions, such as those for home office expenses, business travel, and equipment purchases.

Forgetting about the corporate income tax

Remember that North Carolina has a corporate franchise tax, which is a tax on net income for corporations. Make sure you understand the filing requirements and deadlines.

Overlooking sales tax

If your business sells taxable goods or services, ensure you're collecting and remitting sales tax correctly. North Carolina has varying local rates, so stay informed.

Failing to pay estimated taxes

If you expect to owe a significant amount in taxes, make sure you're paying estimated taxes throughout the year to avoid penalties.

By staying organized, understanding the tax laws, and seeking professional advice when needed, you can manage your tax responsibilities with confidence and keep your business on the path to success.

Find an accountant to help prepare your North Carolina business taxes

With a low corporate income tax, a favorable legal and regulatory climate, and a strong pool of qualified talent, North Carolina can be a great place to do business. But your tax filings can still be complex. To ensure you file and pay properly, consider partnering with an experienced accountant or bookkeeper who is knowledgeable about tax issues and North Carolina’s tax laws and codes.

In North Carolina, there are no state-specific licensing requirements for tax preparers. However, you should ensure your chosen professional: 

• Meets IRS requirements
• Has a Preparer Tax Identification Number (PTIN) and an Electronic Filing Identification Number (EFIN)
• Completed the Annual Filing Season Program (AFSP), which covers topics such as new tax laws, filing requirements, ethics, and professional conduct

Find an accountant in North Carolina here, and consider using the right small business accounting software to streamline your finances and ensure you're prepared for tax season with accurate reporting.

Disclaimer: 

This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.