January 13, 2015

North Carolina

State & Local Taxes in 2015


North Carolina Tax Code Features

Progressive Features

• Provides a targeted nonrefundable child tax credit

• State sales tax base excludes groceries

Regressive Features

• Personal income tax uses a flat rate

• Comparatively high state and local sales tax rates

• Local sales tax bases include groceries

• Fails to provide refundable Earned Income Tax Credit (EITC) since credit was eliminated in 2013

• Fails to provide a property tax “circuit breaker” credit for low-income taxpayers

• Child Tax Credit is nonrefundable

Tax Changes Enacted in 2013 & 2014

• Converted graduated personal income tax to a flat 5.75 percent rate

• Eliminated all credits other than the child tax credit which was increased by $25 for those with incomes under $40,000

• Eliminated personal exemptions and increased standard deduction

• Eliminated all itemized deductions other than mortgage interest and property taxes (subject to a $20,000 cap), and charitable contributions (no cap)

• Eliminated $50,000 business pass-through exclusion from personal income tax

• Cut the corporate income tax rate

• Expanded the sales tax base to a few goods and services; electricity now subject to full state and local sales tax rate

ITEP Tax Inequality Index

According to ITEP’s Tax Inequality Index, North Carolina has the 31st most unfair state and local tax system in the country. States with regressive tax structures have negative tax inequality indexes, meaning that incomes are less equal in those states after state and local taxes than before (See Appendix B for state-by-state rankings and more details).

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