By Nyamekye Daniel
(The Center Square) – North Carolina has one of the best business tax climates in the country, according to the Tax Foundation’s 2021 State Business Tax Climate Index.
The state ranked 10th out of 50 states for its overall business tax climate for 2021. It is an improvement from its ranking of 15th last year.
The index compares states on more than 120 variables in the five major areas of taxation: corporate, individual income, sales, unemployment insurance and property taxes.
“States with more competitive tax systems score well in the Index because they are best suited to generate economic growth,” Tax Foundation researchers wrote.
North Carolina received an overall score of 5.51 out of 10 for its business climate. Contributing to that score was its corporate tax, where the state received 6.09 points and ranked fourth in the U.S. below only South Dakota, Wyoming and Missouri. North Carolina’s top corporate tax rate is 2.5%. The state ranked third for its corporate tax in last year’s index.
The Tax Foundation also ranked North Carolina one of the best states for its unemployment tax rate. With a score of 5.5, the state ranked 10th out of 50 states – the same spot as last year. The state’s base unemployment tax rate is 1.9%.
North Carolina ranked 16th for its individual tax rate of 5.25%, with a score of 5.71 out of 10. The state and average local sales tax rates combined is 6.98%, which placed North Carolina 22nd out of 50 states. The state’s lowest ranking was 26th for its property tax. State and local property tax collections per capita in North Carolina are $974.
Despite its high ranking, Tax Foundation analysts criticized North Carolina for its use of tax incentives to attract businesses to the state.
The Tax Foundation cited North Carolina’s 2004 deal with Dell Computers for $240 million in tax credits and grants in exchange for a new assembly plant in Winton-Salem. The plant closed within four years without fulfilling its job creation and economic contribution targets.
North Carolina ended its grant incentive agreement with Deutsche Bank in July because the financial institution failed to uphold its end of its 12-year incentive deal. In 2015, the bank promised to hire 250 local employees for its Cary facility in exchange for $3.4 million in grants. The company failed to reach its employment goal.
In the state’s most-recent deal, announced Oct. 22, North Carolina plans to trade $15.5 million in tax incentives for a Pratt & Whitney aerospace facility in Asheville.
“State lawmakers are mindful of their states’ business tax climates, but they are sometimes tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform,” the Tax Foundation wrote. “A far more effective approach is the systematic improvement of the state’s business tax climate for the long term to improve the state’s competitiveness.”
Wyoming was the highest-ranked state in the country, and New Jersey was the lowest.