North Carolina — Corporate Income / Franchise Tax

North Carolina imposes both a corporate income tax and a franchise tax on corporations doing business in the state. Unless specifically exempt under G.S. 105-125, all active and inactive domestic corporations, and all foreign corporations with a Certificate of Authority to do business in North Carolina, are required to file Form CD-405. A foreign corporation operating in North Carolina may be liable for income tax even if it is not required to obtain a certificate of authority. Even for a year in which a domestic corporation or a foreign corporation with a certificate of authority conducted no business activity or did not earn any net income in the state, it must file an income tax return.

Source: NCDOR Filing Requirements; G.S. 105-122; G.S. 105-125; 17 NCAC 05C .0101

North Carolina imposes a corporate income tax on the State net income of every C corporation doing business in the state. For taxable years beginning in 2025, the rate is 2.25%. The rate is scheduled to decrease to 2% for 2026, 1% for 2028, and 0% for taxable years beginning after 2029. S corporations are not subject to the corporate income tax.

Source: G.S. 105-130.3

North Carolina imposes an annual franchise tax on corporations doing business in the state. For C corporations, the rate is $1.50 per $1,000 of the tax base, with a maximum of $500 for the first $1 million of the tax base. For S corporations, the rate is $200 for the first $1 million of the tax base and $1.50 per $1,000 of the tax base exceeding $1 million. The minimum franchise tax is $200. The tax base is the greatest of: (1) the corporation's apportioned net worth, (2) 55% of the appraised value of its North Carolina real and tangible personal property, or (3) the corporation's total actual investment in tangible property in North Carolina.

Source: G.S. 105-122

For taxable years beginning on or after January 1, 2018, North Carolina apportions corporate income using a single sales factor. All apportionable income is apportioned to North Carolina by multiplying the income by the sales factor, which is a fraction with total sales in North Carolina during the income year as the numerator and total sales everywhere during the income year as the denominator. This replaced the prior formula that included property and payroll factors.

Source: G.S. 105-130.4(i)

North Carolina adopted market-based sourcing rules effective for taxable years beginning on or after January 1, 2020. Under G.S. 105-130.4(l), "receipts are in this State if the taxpayer's market for the receipts is in this State." If the market for a receipt cannot be determined, the state or states of assignment must be reasonably approximated. In cases where a taxpayer cannot ascertain the state or states to which receipts are assigned through reasonable approximation, the receipts must be excluded from the denominator of the taxpayer's sales factor.

Tangible personal property. Under G.S. 105-130.4(l)(2), sales of tangible personal property are sourced to North Carolina "if and to the extent the property is received in this State by the purchaser." This includes drop shipments: the statute provides that "direct delivery into this State by the taxpayer to a person or firm designated by the purchaser from within or without the State shall constitute delivery to the purchaser in this State."

Real property. Sales, rentals, leases, or licenses of real property are sourced to North Carolina under G.S. 105-130.4(l)(1) if and to the extent the property is located in this state.

Services — fundamental change from cost-of-performance. Receipts from services are sourced to North Carolina to the extent the service is delivered to a location in North Carolina under G.S. 105-130.4(l)(3). The regulations at 17 NCAC 05G .0701(a) clarify that "the term 'delivered to a location' refers to the location of the taxpayer's market for the service, which may not be the location of the taxpayer's employees or property." This represents a fundamental departure from North Carolina's pre-2020 law, which sourced services based on where the taxpayer's income-producing activities were performed (cost-of-performance sourcing).

The regulations establish detailed rules for specific service categories:

• In-person services (17 NCAC 05G .0802): Services performed on the body of a person (such as hair cutting or x-ray services) or in the physical presence of a customer are received in North Carolina if the customer is located in North Carolina. Services performed on real estate are received in North Carolina if the property is located in North Carolina. Services performed on tangible personal property that is shipped or delivered to the customer are received in North Carolina if the property is shipped or delivered to a customer located in North Carolina.

• Professional services to individual customers (17 NCAC 05G .1004(1)): Where the service is a professional service and the customer is an individual representing less than 5% of the taxpayer's sales of services, receipts are assigned to the customer's state of primary residence. If the taxpayer cannot reasonably identify that state, receipts are assigned to the state of the customer's billing address.

• Professional services to business customers (17 NCAC 05G .1004(2)): Receipts are assigned to the state where the contract with the customer is managed by the customer. If that state cannot be determined or reasonably approximated, receipts are assigned to the customer's billing address, and if that cannot be determined, to the customer's state of commercial domicile.

Intangible property. Receipts from licenses or sales of intangible property are assigned based on the nature of the intangible. The regulations at 17 NCAC 05G .1102 through .1201 distinguish between marketing intangibles (generally sourced based on where the intangible is used to reach the taxpayer's customers) and production intangibles (generally sourced to the customer's commercial domicile). The assignment rules are detailed and fact-specific; practitioners should consult the full regulations.

Industry-specific rules. North Carolina has adopted special sourcing rules that deviate from the general framework for: wholesale content distributors (G.S. 105-130.4A), banks (G.S. 105-130.4B), pipeline companies (G.S. 105-130.4(s2)), electric power companies (G.S. 105-130.4(s3)), and air and water transportation corporations (G.S. 105-130.4(r)).

Elective cost-of-performance for certain taxpayers. For taxpayers with a State net loss balance from 2019, G.S. 105-130.4(t3) provides an election to apportion receipts from services based on the percentage of income-producing activities performed in North Carolina (the pre-2020 cost-of-performance methodology). The election must be made on the 2020 tax year return in the form prescribed by the Secretary of Revenue and containing any supporting documentation the Secretary may require. The election is binding and irrevocable until the existing net loss balance is fully utilized or has expired. The election does not apply to franchise tax apportionment under G.S. 105-122(c1).

Administrative rules. The North Carolina Department of Revenue adopted comprehensive market-based sourcing regulations at 17 NCAC 05G pursuant to S.L. 2019-246, section 3, which directed the Codifier of Rules to enter the rules into the Administrative Code. The regulations became effective January 1, 2020, and establish uniform rules for determining to what extent the market for a sale is in North Carolina, methods for reasonable approximation, and provisions for excluding receipts from the sales factor when the state of assignment cannot be determined or reasonably approximated.

Source: G.S. 105-130.4; G.S. 105-130.4A; G.S. 105-130.4B; 17 NCAC 05G

North Carolina does not currently impose a corporate income tax or franchise tax nexus threshold based solely on bright-line (factor-presence) standards such as a specific dollar amount of property, payroll, or sales in the state. Instead, North Carolina establishes nexus for corporate income tax purposes based on whether a corporation is "doing business" in the state, as defined in the Department of Revenue regulations and statute. Public Law 86-272 continues to provide protection for certain interstate sellers of tangible personal property.

No "factor-presence" (bright-line) thresholds. North Carolina law does not contain a statutory economic nexus threshold for corporate income tax based solely on a corporation's amount of sales, property, or payroll in the state. States such as California and Ohio have adopted such thresholds, but North Carolina has not enacted such a test. Nexus is not created merely by exceeding any set dollar amount of sales or other activity.

Relevant tests and definitions. Nexus for North Carolina corporate income tax is governed primarily by the "doing business" definition in administrative regulations (see 17 NCAC 05C .0102), as well as factual determinations about in-state business activities. The presence of in-state employees, offices, inventory, or property generally creates nexus. Participation in partnerships or joint ventures operating in North Carolina can also create nexus for the corporate partner. Examples of what constitutes "doing business" and creates nexus are included in regulation 17 NCAC 05C .0102.

Application of P.L. 86-272. North Carolina's law adheres to the federal limitations established by Public Law 86-272 (15 U.S.C. § 381 et seq.) for sellers of tangible personal property whose in-state activities are limited to solicitation of sales. North Carolina follows these federal protections, as confirmed by 17 NCAC 05C .0103 and relevant DOR memoranda (e.g., CTAM 97-15).

No post-Wayfair sales-based economic nexus standard for corporate income tax. While North Carolina has adopted economic nexus (bright-line sales thresholds) for sales and use tax collection from remote sellers and marketplace facilitators post-Wayfair, no similar statutory economic nexus rule has been enacted for corporate income tax as of June 2026. Practitioners should continue to monitor for statutory changes, but as of this date, nexus remains governed by traditional "doing business" tests and P.L. 86-272 principles.

Source: G.S. 105-130.4; 17 NCAC 05C .0102; 17 NCAC 05C .0103; NCDOR Filing Requirements; CTAM 97-15

For taxable years beginning in 2027, North Carolina law does not expressly specify a corporate income tax rate in the text of G.S. 105-130.3. The statute lists rates for 2025 (2.25%), 2026 (2%), 2028 (1%), and after 2029 (0%), but contains no reference to 2027. In the absence of a rate change provision for 2027, the longstanding interpretive principle in tax law is that the last stated rate continues until amended by the legislature. This approach is supported by the North Carolina Department of Revenue, which states in its 2025 Biennial Tax Expenditure Report (January 2025, p. 20) that the rate is 2% for both 2026 and 2027. The DOR's published schedules and bulletins similarly indicate no rate change for 2027. Practitioners should monitor for legislative updates, but as of June 2026, the best-supported reading is that the 2% corporate tax rate applies to taxable years beginning in 2027 unless the law is amended before that time.

Source: G.S. 105-130.3 Source: NCDOR 2025 Tax Expenditure Report, January 2025, p. 20

North Carolina Form CD-405 (C Corporation Tax Return) is due on or before the 15th day of the fourth month following the close of the corporation’s income year. For corporations that use a calendar year, this is generally April 15. If the due date falls on a weekend or legal holiday, the return is due the next business day. This due date aligns with the federal corporate income tax return deadline under IRC § 6072(b), as incorporated by North Carolina law.

Statutory basis and return instructions:

• The due date for the corporate income and franchise tax return is set as the 15th day of the fourth month after the end of the income year according to current instructions and official guidance. G.S. 105-122(b) provides the Secretary of Revenue with authority to set deadlines for franchise tax, and returns for both tax types are filed on Form CD-405.
• The North Carolina Department of Revenue confirms these deadlines in its official Form CD-405 instructions. The official NCDOR pages and instructions, not the previously cited 'When and Where to File,' should now be relied upon, as the latter is deprecated.

Extensions:

• For tax years beginning before January 1, 2025: Corporations may request an automatic six-month extension by filing Form CD-419 (Application for Extension for Franchise and Corporate Income Tax Return).
• For tax years beginning on or after January 1, 2025: The extension period is increased to seven months, per NCDOR guidance. An extension for filing does not extend the time to pay the tax due.

Notable caveats:

• North Carolina follows the federal rule for fiscal-year filers—the due date is tied to the close of the taxpayer's income year, not the calendar date.
• If the corporation has been dissolved, withdrawn, or merged, a final return is due on or before the 15th day of the fourth month after the date of dissolution, withdrawal, or merger.

Source: NCDOR—Extensions Source: NCDOR 2024 CD-405 Instructions

(Former link to 'When and Where to File' is now broken and has been replaced by current NCDOR guidance. The extension period change is material for 2025+ years. Section revised 2024-06-15.)

North Carolina imposes no overall maximum franchise tax liability for general C corporations under G.S. 105-122. For taxable years beginning on or after January 1, 2025, C corporations must pay franchise tax at a rate of $1.50 per $1,000 of their tax base. There is a statutory minimum tax of $500 (per G.S. 105-122(d)), which means that for any tax base up to approximately $333,333, the corporation will pay the minimum of $500. There is no statutory ceiling or maximum franchise tax for C corporations: above the minimum threshold, the $1.50 per $1,000 rate applies to the full tax base, and no cap limits the total liability. The law does not set a maximum on tax paid for higher tax bases.

By contrast, corporations that qualify as holding companies under G.S. 105-120.2(c) are subject to a statutory maximum franchise tax of $150,000 per year (see G.S. 105-120.2(b)). Only those entities that meet the specific holding company ownership and activity test under subsection (c) qualify for this cap. This cap is expressly separate from the general C corporation rules and continues to apply following the 2025 base calculation changes (Session Law 2019-246, sec. 3.8(a), eff. Jan. 1, 2025).

Summary:

• General C corporations (G.S. 105-122): $500 minimum tax (up to ~$333,333 base); above that, $1.50 per $1,000 continues indefinitely; no overall maximum.
• Holding companies (G.S. 105-120.2(b)-(c)): Total franchise tax liability capped at $150,000 per year if strict ownership/activity test met.

Source: G.S. 105-122 Source: G.S. 105-120.2 Source: NCDOR Directive CD-18-1

North Carolina does not allow taxpayers to voluntarily elect combined or unitary filing for corporate income tax purposes. The authority to require or permit a combined return rests exclusively with the Secretary of Revenue, except in limited circumstances involving written advice from the Secretary.

Statutory prohibition of voluntary election Under N.C. Gen. Stat. § 105-130.14(a), a corporation, including those in an affiliated group conducting a unitary business, "shall not file a consolidated or combined return with the Secretary unless the Secretary, in writing, requires a consolidated or combined return as provided in G.S. 105-130.5A or advises the corporation in writing to file on this basis in response to the corporation’s written request." Thus, taxpayers are prohibited from filing a combined or unitary return on a voluntary, elective basis. There is no mechanism for taxpayers to self-elect combination—filing on such a basis without Secretary approval would be invalid.

Secretary-initiated combination The discretion to require combination is detailed in G.S. 105-130.5A, which authorizes the Secretary to require combined reporting if separate filings do not accurately reflect North Carolina net income, typically due to non-arm's length intercompany transactions or income-shifting arrangements. The Secretary uses a facts-and-circumstances analysis and must provide written findings specifying the basis for requiring combination. The taxpayer may request inclusion of fewer than all unitary group members (partial combination), but this can only occur with consent.

No published procedure for voluntary or proactive combined returns There are no regulations, bulletins, or official publications establishing a process for taxpayers to elect or request voluntary combined or unitary filing, other than submitting a written request for advice. The official NCDOR bulletins and Directive CD-12-01 clarify that combination is not available as a taxpayer election.

Summary:

• Combined or unitary filing is not elective in North Carolina.
• It is available only if formally required or advised by the Secretary of Revenue.
• There is no published voluntary or proactive election regime for combination, and affiliated groups cannot unilaterally file as a unitary group.

Source: N.C. Gen. Stat. § 105-130.14(a) Source: N.C. Gen. Stat. § 105-130.5A Source: NCDOR 2024 Corporate Income, Franchise & Insurance Tax Bulletin § 4 Source: NCDOR Directive CD-12-01

Overview. North Carolina corporate taxpayers may deduct state net operating losses (NOLs) and net economic losses (NELs) subject to the limitations and rules set out in Chapter 105 of the North Carolina General Statutes. North Carolina does not conform fully to the federal NOL rules, and critically, North Carolina has not allowed NOL carrybacks for corporate income tax purposes since 2014. Only carryforwards are allowed—both as to NOL and the pre-2015 net economic loss system.

NOL vs. NEL: two regimes.

• For tax years beginning before 2015, corporations calculated and deducted Net Economic Losses (NEL) under G.S. 105-130.8, which provided a 15-year carryforward (but no carryback). NELs generated under this section may continue to be carried forward for the remaining years in their carryforward period but are not allowed to be carried back to previous years. NELs expire at the end of the fifteenth year following the loss year if not used.
• For tax years beginning on or after January 1, 2015, the state uses the federal definition of NOL as modified by G.S. 105-130.8A and related provisions. However, North Carolina does _not_ allow any NOL carryback. NOLs may be carried forward up to 20 years, but never back to a prior year. This rule is affirmed in G.S. 105-130.8A(b): "A taxpayer may carry forward a net operating loss generated in a taxable year beginning on or after January 1, 2015, to each of the 20 taxable years following the year of the loss." For NOLs post-2014, the starting point is the federal NOL, but certain NC-specific modifications apply as described in G.S. 105-130.8A(c)-(g).

No carryback—decoupling from federal CARES Act. North Carolina does not conform to the federal NOL carryback rules, including those that were temporarily expanded under the federal CARES Act (IRC § 172 provisions). North Carolina explicitly decoupled from these federal changes. All NOLs for state purposes are carryforward only, not carryback.

NEL and NOL tracking and limitations.

• Unused NELs from pre-2015 may still be used within their original 15-year period, after which they expire. NOLs for years after 2014 are subject to the 20-year carryforward limit.
• If there is a merger or acquisition, special limitations may apply—practitioners should review both G.S. 105-130.8 and 105-130.8A for change-of-ownership and federal consolidated return rules incorporated by reference.

Source: G.S. 105-130.8 Source: G.S. 105-130.8A Source: NCDOR 2022 Corporate Income, Franchise & Insurance Tax Bulletin