Franchise tax reduction and elimination would boost NC's economic climate

Published April 25, 2019

North Carolina legislators have introduced a bill to provide more tax relief for NC workers and businesses.

Senate Bill 622, The Tax Reduction Act of 2019, would reduce the franchise tax on businesses and increase the standard deduction for individual tax filers. The franchise tax reduction would save businesses about $250 million a year, according to reports.

According to this Tax Foundation’s analysis, “reducing the franchise tax would make the state even more attractive as a destination for business investment.” The franchise tax is levied against the net worth of a business, and as such work as a disincentive to invest in the state. “Franchise taxes can be especially burdensome to new businesses, capital-intensive businesses, and struggling businesses because they are owed even when businesses post losses or barely break even,” wrote Tax Foundation analyst Katherine Loughead.

The majority of small businesses fail after a few years, but the franchise tax forces struggling businesses that are unprofitable, or small businesses with little or no assets, to still pay at least the minimum $200 each year.

NC is one of only 16 states that still levy a franchise tax, and among still fewer states that force businesses to pay both a corporate income tax and a franchise tax.

“Reducing, and eventually eliminating, the antiquated franchise tax would make North Carolina even more attractive as a destination for business investment,” concluded Loughead.

SB 622, however, also contains some undesirable provisions. Namely, it includes language that would impose about $100 million of taxes on internet sales through vendors like eBay and Amazon, along with new taxes on short-term “accommodation facilitators” like Airbnb. The bill also extends targeted tax breaks to NASCAR, airlines, property rehabilitation projects and corporate welfare payments.