Registration Requirements in North Carolina
Business Corporations, Nonprofit Corporations, Limited Liability Companies (LLC), Limited Partnerships (LP), Limited Liability Partnerships(LLP or RLLP), and Limited Liability Limited Partnerships (LLLP) are required to register with the NC Secretary of State. The website can be found here:
Sole Proprietorships and general partnerships may be required to file an assumed name certificate in the county which their principal business is located.
Certain businesses in North Carolina will need to register with the North Carolina Department of Revenue. More information can be found at the link below:
S Corporation Tax
North Carolina does not require S corporations to pay income tax; however, they are required to pay the state’s corporate franchise tax, described below. In addition, each individual S corporation shareholder will owe state tax on his or her share of the company’s income. S corporations are required to file Form CD-401S - S corporation Tax Return.
Not required to pay income tax or corporation occupation tax to North Carolina. Business income is passed to partners who pay North Carolina income tax on their personal return. Partnerships are required to file Form CD-401S - Partnership Tax Return.
North Carolina’s franchise tax applies to both C corporations and S corporations. The tax applies to whichever of the three different tax bases yields the largest tax; the three bases are:
Investment in N.C. Tangible Property
Appraised Value of N.C. Tangible Property
Regardless of which of the three tax bases applies, the tax rate is $1.50 per $1,000. There is a minimum franchise tax of $200. Franchise tax is due at the same time as corporate income tax, the 15th day of the fourth month after year-end.
Qualified “Nonresident Partners” of S corporations may elect to have the business report and pay a “composite income tax” on behalf of the taxpayer. The rate for composite income tax is 5.499% minus the taxpayers share of credits. This election is found on the S corporation returns.
Individual Income Tax
North Carolina has a static conformity with the Internal Revenue Code as it existed on May 1, 2020.
Even though the conformity is subsequent to the CARES Act, also known as the Coronavirus Aid, Relief, and Economic Security Act, North Carolina specifically decouples from numerous CARES Act provisions.
This includes the Federal NOL carryback provision; federal taxpayers with NOLs generated in tax years 2018, 2019 and 2020 are allowed to be carried back 5 years and anything remaining is carried forward indefinitely. However, North Carolina decoupled from this provision. Any NOL taken in these periods in excess of 80% of taxable income must be added back when calculating North Carolina's individual income tax. NOL's will then be recalculated using the 80% limitation and then carried forward as five equal deductions prospectively for tax years 2021 through 2025.
They also decoupled from the federal provision which excludes PPP loan forgiveness from gross income and expenses. These amounts will be factored back into your North Carolina individual and corporate income tax returns.
Also, any above the line charitable contributions that are allowable on your federal return due to the CARES act will also have to be added back to your North Carolina return.
The starting point for computing North Carolina's personal income tax liability is the federal AGI. They offer a state defined standard deduction which is based on your federal filing status and allows an itemized deduction but only if you itemized on your federal return. Here are the standard deduction amounts for 2019:
The itemized deduction is similar to the federal itemized deduction but with a few minor changes.
North Carolina eliminated personal exemptions when they were eliminated on the federal level starting in 2018. They do, however, allow a child tax credit for any qualifying child as defined by the Internal Revenue Code.
They do not conform to the Internal Revenue Code (IRC) section 199A, also known as the QBI deduction.
Shareholders and partners with income assignable to North Carolina may need to file an individual income tax return that reflects their portion of North Carolina income. Individual income is taxed at a flat rate of 5.25%.
S corporation, partnership, and individual income tax returns are all due on the 15th day of the fourth month following the close of the tax year. For calendar filers, the due date is April 15th. If the due date falls on a weekend or holiday, the due date is the following business day.
Filing An Extension
The North Carolina Department of Revenue may allow an extension of up to six months if an extension application is received in a timely manner.
S corporations use form CD-419:
Partnerships use form D-410P:
Individuals use form D-410:
S corporations and partnerhsips in North Carolina are not required to make estimated payments.
Individuals who expect to owe $1,000 or more in tax are required to make estimated payments on Form NC-40:
The late filing penalty in North Carolina is 5% per month, up to 25% of the net tax due. Late payments are subject to a 10% penalty and interest on any unpaid balance. The current interest rate is 5% annually.
If your business was formed or is located in another state, but generates income in North Carolina, it may be subject to North Carolina taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
North Carolina Secretary of State
North Carolina Department of Revenue