Frequently Asked Questions about N.C. Franchise, Corporate Income and Insurance Tax Do I need to apply for a corporate identification number? No. For corporate income and franchise tax purposes, taxpayers are identified by their Federal identification Number and the number assigned by the Secretary of State. What is the Department's current position regarding Nexus in North Carolina: "Physical Presence" vs. "Economic Presence?" The Department's current position concerning nexus is to administer the rule as amended November 2, 1992. Except for an amendment effective January 1, 1994, which removed ambiguous language in the first paragraph, North Carolina's Doing Business Rule, 17 NCAC 5C .0102, has not changed since November 2, 1992. In 1992, the Department clarified the language of the original rule pertaining to income producing property in this state. The original rule dated back to February 1, 1976. Originally, subdivision .0102(5) stated simply that "the owning, renting, or operating of business or income-producing property (real or personal) in North Carolina" would be considered to be doing business in this state. The 1992 revision includes more specific examples of the types of income producing property that create nexus. Those examples include: (i) realty; (ii) tangible personal property; (iii) trademarks, tradenames, franchise rights, computer programs, copyrights, patented processes, and licenses. Additionally, subsections addressing corporations with partnership and joint venture interests in this state and motor carrier operations were incorporated into the rule. The Tax Review Board upheld the Department's position on May 7, 2002. (See A&F Trademark, Inc. Decision number 381.) For apportionment purposes, does North Carolina have a "throwback" rule? No. For corporations permitted to apportion income, only those sales made within North Carolina are required to be included in the numerator of the sales factor. However, sales of a corporation which is not required to file an income tax return in another state are considered to be this state. Does North Carolina recognize a single member Limited Liability Company? Yes. Do I need a North Carolina tax-exempt number for my non-profit corporation? No. The Department of Revenue will issue a tax-exempt letter with proof of your federal exemption. (Read more about non-profits.) What is the tax rate in North Carolina? Corporate Income Tax: Effective for tax years beginning on or after January 1, 2019, the tax rate for C-Corporations is 2.5%. Effective for tax years 2017 and 2018, the tax rate for C-Corporations is 3.0%. Franchise Tax: (Read more about franchise tax.) For C-Corporations, the franchise tax rate is $1.50 per $1,000. The minimum franchise tax is $200. For S-Corporations: For tax years beginning on or after January 1, 2019, the tax rate for an S-Corporation is $200 for the first one million dollars ($1,000,000) of the corporation’s tax base and $1.50 per $1,000 of its tax base that exceeds one million dollars ($1,000,000). Since franchise tax is paid for the income year in which the tax becomes due, this rate reduction will apply to the franchise tax reported on the 2018 and later corporate tax returns. For tax years prior to January 1, 2019, the franchise tax rate is $1.50 per $1,000 (applies to 2017 and prior corporate tax returns). The minimum franchise tax is $200. What is the basis for suspension? North Carolina General Statute 105-230 requires the Department of Revenue to notify the Secretary of State when a "corporation or a limited liability company fails to file any report or return or to pay any tax or fee required by the tax laws for 90 days after it is due." It further requires the Secretary of State to "suspend the articles of incorporation, articles of organization, or certificate of authority, as appropriate, of the corporation or limited liability company." All the powers and privileges of the corporation will cease upon the suspension. My corporation has been suspended by the Department of Revenue. What do I need to do in order to be reinstated? You must file all returns for all tax schedules and pay all tax, penalty, and interest due and pay a $25 reinstatement fee. Upon receipt, the corporation will be reinstated and the Department will notify the Secretary of State’s office. What should I do if I receive a Notice of Failure to File a corporate return? If a return was filed, send a copy of the return, canceled check with which payment was made, and a copy of the delinquent letter to the Corporate Work Group - Central Examination, Post Office Box 871, Raleigh, NC 27602. If a return was not filed, send the return and payment for the tax, penalties, and interest to North Carolina Department of Revenue, Post Office Box 25000, and Raleigh, NC 27640-0710. Does an inactive corporation or a corporation that has no assets have to file a return? A corporation that is inactive or has no assets is subject annually to a minimum franchise tax of $200.00. A return must be filed for each year in which there was no activity and a $200.00 payment must be made. Returns are required through the date of formal dissolution or withdrawal through the Office of the Secretary of State. If a corporation is dissolved or withdraws from doing business in this State, is a return required? If a corporation is dissolved or formally withdraws via the Office of the Secretary of State, no franchise tax is required with the income return filed for the year in which the application is filed or with any subsequent income returns that may be required in connection with winding up the affairs of the corporation. A final return is required by the 15th day of the fourth month after the close of business. What if my corporation is in bankruptcy? Corporations in bankruptcy are not required to pay pre-petition tax, penalty, and interest; however, returns must still be filed. Corporations in bankruptcy are required to file post-petition returns and pay the tax, penalty, and interest due.
Frequently Asked Questions about N.C. Franchise, Corporate Income and Insurance Tax Do I need to apply for a corporate identification number? No. For corporate income and franchise tax purposes, taxpayers are identified by their Federal identification Number and the number assigned by the Secretary of State. What is the Department's current position regarding Nexus in North Carolina: "Physical Presence" vs. "Economic Presence?" The Department's current position concerning nexus is to administer the rule as amended November 2, 1992. Except for an amendment effective January 1, 1994, which removed ambiguous language in the first paragraph, North Carolina's Doing Business Rule, 17 NCAC 5C .0102, has not changed since November 2, 1992. In 1992, the Department clarified the language of the original rule pertaining to income producing property in this state. The original rule dated back to February 1, 1976. Originally, subdivision .0102(5) stated simply that "the owning, renting, or operating of business or income-producing property (real or personal) in North Carolina" would be considered to be doing business in this state. The 1992 revision includes more specific examples of the types of income producing property that create nexus. Those examples include: (i) realty; (ii) tangible personal property; (iii) trademarks, tradenames, franchise rights, computer programs, copyrights, patented processes, and licenses. Additionally, subsections addressing corporations with partnership and joint venture interests in this state and motor carrier operations were incorporated into the rule. The Tax Review Board upheld the Department's position on May 7, 2002. (See A&F Trademark, Inc. Decision number 381.) For apportionment purposes, does North Carolina have a "throwback" rule? No. For corporations permitted to apportion income, only those sales made within North Carolina are required to be included in the numerator of the sales factor. However, sales of a corporation which is not required to file an income tax return in another state are considered to be this state. Does North Carolina recognize a single member Limited Liability Company? Yes. Do I need a North Carolina tax-exempt number for my non-profit corporation? No. The Department of Revenue will issue a tax-exempt letter with proof of your federal exemption. (Read more about non-profits.) What is the tax rate in North Carolina? Corporate Income Tax: Effective for tax years beginning on or after January 1, 2019, the tax rate for C-Corporations is 2.5%. Effective for tax years 2017 and 2018, the tax rate for C-Corporations is 3.0%. Franchise Tax: (Read more about franchise tax.) For C-Corporations, the franchise tax rate is $1.50 per $1,000. The minimum franchise tax is $200. For S-Corporations: For tax years beginning on or after January 1, 2019, the tax rate for an S-Corporation is $200 for the first one million dollars ($1,000,000) of the corporation’s tax base and $1.50 per $1,000 of its tax base that exceeds one million dollars ($1,000,000). Since franchise tax is paid for the income year in which the tax becomes due, this rate reduction will apply to the franchise tax reported on the 2018 and later corporate tax returns. For tax years prior to January 1, 2019, the franchise tax rate is $1.50 per $1,000 (applies to 2017 and prior corporate tax returns). The minimum franchise tax is $200. What is the basis for suspension? North Carolina General Statute 105-230 requires the Department of Revenue to notify the Secretary of State when a "corporation or a limited liability company fails to file any report or return or to pay any tax or fee required by the tax laws for 90 days after it is due." It further requires the Secretary of State to "suspend the articles of incorporation, articles of organization, or certificate of authority, as appropriate, of the corporation or limited liability company." All the powers and privileges of the corporation will cease upon the suspension. My corporation has been suspended by the Department of Revenue. What do I need to do in order to be reinstated? You must file all returns for all tax schedules and pay all tax, penalty, and interest due and pay a $25 reinstatement fee. Upon receipt, the corporation will be reinstated and the Department will notify the Secretary of State’s office. What should I do if I receive a Notice of Failure to File a corporate return? If a return was filed, send a copy of the return, canceled check with which payment was made, and a copy of the delinquent letter to the Corporate Work Group - Central Examination, Post Office Box 871, Raleigh, NC 27602. If a return was not filed, send the return and payment for the tax, penalties, and interest to North Carolina Department of Revenue, Post Office Box 25000, and Raleigh, NC 27640-0710. Does an inactive corporation or a corporation that has no assets have to file a return? A corporation that is inactive or has no assets is subject annually to a minimum franchise tax of $200.00. A return must be filed for each year in which there was no activity and a $200.00 payment must be made. Returns are required through the date of formal dissolution or withdrawal through the Office of the Secretary of State. If a corporation is dissolved or withdraws from doing business in this State, is a return required? If a corporation is dissolved or formally withdraws via the Office of the Secretary of State, no franchise tax is required with the income return filed for the year in which the application is filed or with any subsequent income returns that may be required in connection with winding up the affairs of the corporation. A final return is required by the 15th day of the fourth month after the close of business. What if my corporation is in bankruptcy? Corporations in bankruptcy are not required to pay pre-petition tax, penalty, and interest; however, returns must still be filed. Corporations in bankruptcy are required to file post-petition returns and pay the tax, penalty, and interest due.
