The 2017 State Business Tax Climate Index ranked states for the 2017 fiscal year. North Carolina has maintained its current ranking since fiscal year 2015. Between fiscal years 2014 and 2015, the state experienced the sharpest jump in the index’s history, rising from 41st to 11th.
Jared Walczak, a policy analyst for the Tax Foundation and co-author of the index, said the analysis is designed to help states improve their tax structures.
A higher tax ranking can help the state attract new businesses, said Christopher Chung, CEO of the Economic Development Partnership of North Carolina.
A press release from Gov. Pat McCrory’s office said the tax reform he signed into law in 2013 caused the state’s higher ranking.
“We have come a long way since 2013 and will continue to adopt policies that make North Carolina one of the best states in the nation to live, work, visit and raise a family,” McCrory said.
McCrory’s 2013 reform lowered the corporate income tax from 6.9 percent to 6 percent in 2014 and 5 percent in 2015, and established a system to reduce the rate further when certain revenue goals are met.
“Basically it’s saying if the state’s doing well enough, from an income and tax revenue perspective, then it’s okay to lower the tax rate further,” Chung said.
That goal was met last year, Chung said, causing the corporate tax rate to drop from 5 percent to 4 percent — the lowest in the country, according to the index. In 2017, the rate will decrease to 3 percent.
On his campaign website, N.C. Attorney General Roy Cooper, McCrory’s opponent in the gubernatorial election, criticized North Carolina’s current economic policies.
“I am concerned about an economic development plan that focuses mostly on lower corporate taxes instead of having a real, holistic plan to streamline regulations, invest in our workforce, create a fair but low tax environment and recruit, retain and start up businesses in the biggest growth sectors of our economy,” he said.
The Tax Foundation ranked North Carolina’s individual income tax structure at 15th.
McCrory’s reform changed North Carolina’s personal income tax to a flat rate, which was reduced to 5.75 percent in 2015, and will be lowered to 5.5 percent in 2017. Chung said small business owners can be subject to individual income taxes instead of corporate income taxes.
“That said, tax climate is one of several important variables, including workforce and regulatory climate, that can influence corporate perceptions of a state,” Chung said.