North Carolina

In 1921, North Carolina was one of the first states to adopt a graduated income tax. In 1923, it was one of the first to institute a statewide sales tax. The state and local tax system remains relative centralized, with about 60% of total non-federal taxes collected at the state level. All property taxes, however, are collected locally. In 2001, North Carolina temporarily added an 8.25% bracket for income above $120,000 to its three-bracket personal income tax schedule with rates 6% (up to $12,750 taxable income), 7% and 7.75% ($60,000 to $120,000). The rates are scheduled to decline after 2003. The corporate income tax is a flat rate of 6.9% of net income. Financial institutions are taxed on the basis of their assets ($30 for each $1 million in assets). In 2001, North Carolina increased its state sales and use tax from 4% to 4.5%. Local governments also impose sales taxes, ranging from 2 to 3%. Food, prescription drugs, and certain other articles are exempt from the state sales tax or have lowered rates, but food may be subject to local sales taxes. The state also imposes a wide array of excise taxes covering motor fuels, tobacco products, insurance premiums, public utilities, alcoholic beverages (the state controls all sales), amusements, and other selected items. The cigarette tax, at 5 cents a pack, is the 3rd-lowest in the country (after Virginia and Kentucky). The gasoline tax is indexed to inflation, and contrary to trend elsewhere, was reduced from 24.3 cents a gallon to 22.1 cents a gallon in 2002. The state estate tax, with a maximum rate of 17%, has been de-linked from the exemption for state death taxes in the federal estate tax, which is scheduled to be phased out by 2007. Death and gift taxes accounted for 0.76% of state taxes collected in 2002. Other state taxes include an oil and gas production tax, a forest product assessment tax, various license fees, and stamp taxes.

The state collected $15.535 billion in taxes in 2002 (down from $15.6 billion in 2001), of which 46.7% came from individual income taxes, 21.5% from selective sales taxes 20.6% came from the general sales tax, 5.7% from license fees, and 4.3% from corporate income taxes. In 2003, North Carolina ranked mid-way (25th ) among the states in terms of combined state and local tax burden, which amounted to about 9.5% of income.

The following table from the US Census Bureau provides a summary of taxes collected by the state in 2002.