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North Carolina Enacts New Tax Reform Legislation

PenNorth Carolina Governor Pat McCrory signed a comprehensive tax reform package into law that flattens individual tax rates, reduces the corporate tax rate, eliminates the state estate tax, and modifies the sales tax base. Pertinent changes included in H998 are:

  • A single individual income tax rate of 5.8 percent takes effect in 2014.  The rate drops to 5.75 percent in 2015.
  • Corporate income tax rates drop from 6.9 percent to 6 percent in 2014 and to 5 percent in 2015.  There are contingency provisions to drop the rate even further in 2016 (to 4 percent) and 2017 (to 3 percent) should the state meet certain revenue goals of its own.

IMPACT ON CREDITS AND INCENTIVES

Major credits and incentives that are currently available to a broad range of taxpayers remain relatively unaffected. Among the credits not amended or repealed by the new law are:

  • Article 3J suite of credits (including the Job Creation Credit, the Credit for Investing in Business Property, and the Credit for Investing in Real Property)
  • State Work Opportunity Tax Credit
  • Ports Tax Credit
  • Renewable Energy Tax Credit

The new law does not change the sunset provisions for the continuing credits referenced above: the Article 3J credits, Work Opportunity Tax Credit, and the Ports Tax Credit are scheduled to expire for tax years beginning on or after January 1, 2014, while the Renewable Energy Tax Credit is set to expire at the end of 2016.

The North Carolina Research and Development Credit, which was to expire for tax years beginning on or after January 1, 2014, has been extended by the new law for two additional years.

The new law does repeal some limited scope, less used credits, including the Gleaned Crops Credit, Poultry Composting Facilities Credit, Credit for Property Taxes Paid on Farm Machinery, and the Interactive Digital Media Credit.

Learn more about leveraging tax credits and incentives with help from ADP.


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