(The Center Square) — North Carolinians will be able to keep more of their money in 2023 following a scheduled income tax reduction to start the New Year.
The 2021 Appropriations Act approved by North Carolina lawmakers in November 2021 will cut the state’s flat individual income tax rate from the current 4.99% to 4.75% starting Jan. 1.
The law will further reduce the rate to 3.99% in 2027 and will phase out the corporate income tax by 2030, according to the Tax Foundation.
Other North Carolina tax changes for 2023 involve a simplified franchise tax, a gas tax hike and deductions for businesses that received federal Paycheck Protections Program loans.
The changes will reduce franchise tax liability for many businesses by shifting from a system that currently requires businesses to calculate their franchise tax liability using three different bases and to remit the highest total, to one based solely on their apportioned net worth.
The North Carolina Department of Revenue also alerted motorists last month that the state’s motor fuels tax rate will increase by 2 cents for 2023, going from 38.5 cents to 40.5 cents per gallon.
Over the last decade, North Carolina’s motor fuels tax has ranged from a high of 38.9 cents per gallon in 2012 to 34 cents per gallon in 2016. The current 38.5 cents per gallon rate marked a 2.4 cents increase over the previous rate of 36.1 cents per gallon for 2020 and 2021, according to NCDOR data.
“The motor fuel excise tax rate is calculated by using the motor fuel excise tax rate of the preceding calendar year, multiplied by a percentage,” a DCDOR notice read. “The percentage is 100 percent plus or minus the sum of the annual percentage change in State population for the applicable calendar year, multiplied by 75 percent and the annual energy index percentage change in the Consumer Price Index for All Urban Consumers, multiplied by 25 percent.”
In addition to the road tax, every gallon of motor fuel also includes a .0025 cents per gallon inspection tax, which is slated to remain the same in 2023.
The Tax Foundation reports some North Carolina businesses that deducted expenses for state income tax that were ultimately covered by forgiven Paycheck Protect Program loans will have to add the expenses back next year.
Guidance from NCDOR explains the 2020 General Assembly enacted legislation requiring North Carolina taxpayers to add back the amount of expenses paid with forgiven PPP loan proceeds, but the law was delayed in 2021.
“As amended, a taxpayer is not required to add to federal income the amount of otherwise deductible expenses paid with forgiven PPP loan proceeds until tax years beginning on or after January 1, 2023,” the guidance read. “Because the General Assembly chose to suspend the State-level PPP addback until 2023, North Carolina conforms to the federal treatment of expenses paid by PPP loans for tax year 2020.”
