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Carolina’s corporate income tax rate for ■ 55% of the appraised value of North With the phaseout of the corporate
2021 is 2.5% and will be phased out Carolina real and tangible property. income tax, North Carolina will be
under the following schedule: The bill removes the book value and one of three states that impose neither
■ 2025 — 2.25% 55% of the appraised value as a pos- a corporate income tax nor statewide
■ 2026 — 2% sible tax base for franchise tax purposes. gross receipts tax. The state is projecting
■ 2028 — 1% Beginning with the 2022 tax returns, all corporate tax revenue to be approxi-
■ 2030 and beyond — 0% (S.B. 105 at franchise tax will be calculated from the mately $1.3 billion for both fiscal year
Section 42.2.(a)). company’s net worth (prior to passage 2021–2022 and 2022–2023 (id.).
Beginning with the 2022 tax returns of S.B. 105, most taxpayers used this
of C corporations and S corporations, base for their franchise tax calculation). IRC conformity
the calculation of the franchise tax in The elimination of the two property S.B. 105 updates the state’s IRC con-
the state will be simplified (id. at Section bases likely will reduce the franchise tax formity from May 1, 2020, to April 1,
42.3.(a)). Under prior law, the franchise liability for entities that have a material 2021, with certain modifications (S.B.
tax is calculated by using the highest tax amount of real and personal property in 105 at Section 42.4.(a)). This amend-
base from one of three methods: North Carolina. The elimination of the ment changes a number of the state’s
■ Net worth as computed in accordance two property bases is expected to reduce prior positions, including the treat-
with generally accepted accounting tax revenue to the state by $173 million ment of Paycheck Protection Program
principles; in fiscal year 2022–2023, the first year of (PPP)–related loan expenses as well as
■ Book value of North Carolina real its implementation (Joint Conference excess business interest expense under
and tangible property; or Committee Report at A1). Sec. 163(j). Taxpayers who deducted

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