Key Takeaways

  • North Carolina LLCs are generally treated as pass-through entities for tax purposes but may be subject to franchise tax if classified as a corporation.
  • All LLCs must register with the NC Department of Revenue and may be responsible for state and local taxes, including sales, use, and withholding taxes.
  • Single-member LLCs are disregarded entities unless an election is made to be treated as a corporation.
  • North Carolina does not impose a state-level business license tax but some counties or cities may require local licenses or permits.
  • Businesses must file annual reports and maintain compliance to avoid penalties or dissolution.

NC franchise tax is a tax placed on companies for the privilege of doing business in North Carolina. It applies to corporations and S corporations and is a tax on a business's net worth. C corporations in the state are subject to other types of taxes.

North Carolina's State Income Taxes

Most states impose some kind of tax on business income. In general, the specific taxes imposed on a business depend in part on its legal structure. States charge franchise taxes either based on a company's net worth or as a flat fee.

In most jurisdictions, corporations are subject to corporate tax, while “pass-through entities” — such as LLCs, partnerships, S corps, and sole proprietorships — are subject to state tax on personal income.

Tax rates vary widely from one state to another, which is true for personal and corporate tax rates. Corporate rates tend to be flat no matter the business income. They typically range from four to nine percent. Personal rates, which usually vary based on the amount of personal income, may range from zero to around nine percent or higher in some states.

The corporate income tax rate in North Carolina is four percent of net income.

In addition to these personal or corporate taxes, many states charge a separate tax on certain business types. These are usually called a franchise or privilege tax and are charged for the right or “privilege” of conducting business there.

Starting in 2016, the minimum franchise tax in North Carolina is $200. The rate is $1.50 per $1,000 of a corporation's net worth. There's no maximum on the tax except for qualified holding companies. For composite filers, the corporate tax rate is based on the individual's current income tax rate.

North Carolina imposes a corporate income tax on traditional corporations, which are also known as C corps. The state also imposes a franchise tax that applies to traditional corporations and S corporations.

If your business income passes directly to you, you must pay taxes on it via your personal state tax return.

Registering with the NC Department of Revenue

All North Carolina LLCs must register with the North Carolina Department of Revenue (NCDOR) by submitting Form NC-BR (Business Registration Application). This form registers the business for several tax types, including income tax withholding (if the LLC has employees), sales and use tax (if selling taxable goods or services), and other applicable business taxes. Registration can be completed online through the NCDOR website.

Taxes for Different Business Structures

The five most common business types in North Carolina are:

  • Corporation
  • S corporation
  • Limited Liability Company
  • Partnership
  • Sole proprietorship

Corporations in North Carolina are subject to the state's corporate income tax as well as the franchise tax.

S corporations are formed by starting a traditional corporation first. Then, the business files to elect special "S" status with the IRS. S corps, unlike C corps, are generally not subject to separate federal income tax. Instead, in an S corp, taxable income passes through to the individual shareholders or owners. Each shareholder pays their share of federal income tax based on the share of corporate income.

North Carolina recognizes S corp election, and S corps in the state are not subject to the corporate tax rate. However, S corps are still required to pay franchise taxes. In addition, each shareholder in an S corp owes taxes on their share of the S corp's income.

Like S corps, limited liability companies are pass-through entities. In general, an LLC does not pay income tax to the state or federal government. Instead, business income is distributed to the individual owners or members in the LLC. They pay state and federal taxes on the amount of income they receive.

LLCs are classified by default as partnerships (or, in the case of single-member LLCs, as “disregarded entities”), but you may choose to have your LLC classified as a corporation. If you make that decision, your LLC will be subject to franchise and corporate income taxes.

Income from partnerships goes to individual partners who pay taxes on the amount that they receive. They pay both state and federal taxes on this income. In a sole proprietorship, business income goes to the proprietor. They pay state taxes on that income.

Staying current with your taxes is just one thing business owners must do to stay compliant. If you are unsure of the taxes you are responsible for in North Carolina, you may either consult with a tax professional or refer to the information at the Secretary of State website.

LLC Franchise Tax Responsibilities in NC

While most LLCs in North Carolina are not directly subject to the franchise tax, those that elect to be taxed as corporations (by filing IRS Form 8832 or Form 2553) are. If your LLC is treated as a C Corporation or S Corporation for tax purposes, it must file both the NC corporate income tax return and the NC franchise tax return.

Franchise tax is assessed at a rate of $1.50 per $1,000 of the corporation’s net worth or capital stock base in North Carolina. The minimum franchise tax is $200, and for holding companies, the tax is capped at $150,000. Non-corporate LLCs classified as partnerships or disregarded entities are generally exempt from this tax unless they opt for corporate treatment.

Local Taxes and Business License Requirements

Although North Carolina does not impose a statewide business license, many cities and counties have their own requirements. Depending on where your LLC operates, you may need to obtain a privilege license or register for local taxes. Common local taxes include property taxes on business personal property and occupancy taxes for short-term rentals. Check with your county or city government for specific local requirements.

Filing and Compliance Requirements for LLCs

LLCs must file an Annual Report with the North Carolina Secretary of State. This report confirms key information about the LLC, including its current address, members or managers, and registered agent. The report is due each year by April 15 and can be filed online.

Failure to file the annual report or pay applicable taxes can result in penalties, interest, and administrative dissolution of the LLC. To remain in good standing, LLCs must:

  • File and pay income or franchise taxes if applicable.
  • File annual reports with the Secretary of State.
  • Maintain up-to-date business licenses or permits where required.
  • Comply with employment tax obligations if the LLC has employees.

Frequently Asked Questions

1. Do North Carolina LLCs pay franchise tax? Only LLCs that elect to be taxed as corporations (C Corp or S Corp) are subject to NC franchise tax. Most standard LLCs are not.

2. How do I register my LLC for taxes in NC? Submit Form NC-BR to the North Carolina Department of Revenue, either online or by mail.

3. Are single-member LLCs taxed differently in NC? Yes. By default, they are treated as disregarded entities and taxed through the owner’s personal income return, unless they elect corporate treatment.

4. Does North Carolina require a state business license? No, but local governments may require a privilege license or similar local registration.

5. When is the NC LLC annual report due? It is due each year by April 15 and must be filed with the Secretary of State.

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