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Navigating Changes in Tax Law After Relocating To North Carolina

November 24, 2021 By wrlaw

North Carolina is a great state to live in. Whether you are an individual who has just moved here or a business owner, some changes to the tax law that you may not be aware of could affect your finances. This blog post will introduce those changes and offer advice on how to adapt after moving to the Old North State.

1. Sales tax

In a move to make the sales tax system fairer, effective October 1st, 2020, North Carolina State Sales and use tax is currently at 4.75% plus an applicable local rate ranging between 6.75% to 7%. Additionally, items or goods at the general rate attract an additional local option sales tax rate capped at a flat rate of 2.25% for all counties in North Carolina.

Under the NC sales tax, goods subject to this levy include physical property, like furniture, home appliances, and motor vehicles. On the other hand, groceries, prescription medicine, gasoline fall, electricity storage, and consumption are sales and use tax exempted. 

Sales Tax on ‘Remote Sales’ in NC is also capped at 4.75%. However, the levy applies if the cumulative sales exceed $100,000. You are also required to charge sales tax if you did 200 or more separate transactions in North Carolina within the tax year understated or the previous year. 

2. Income tax for new NC residents

Under North Carolina law, a person who moves to the State for a “definite term or particular undertaking” and abandons the intent to return to their original state of residence is subject to North Carolina income tax. This provision covers all income earned or derived from any source in North Carolina after all applicable deductions and exemptions. This includes salary, wages, commissions, and self-employment such as business income. The new resident’s income is reported on Form D-400, Part B.

The exemptions under North Carolina law that may affect your tax bracket include retirement income received during the year but did not work in NC all year round, or if you worked fewer than 6 months in the state. You’ll only be taxed on the income earned in NC. Other exemptions include unemployment benefits and qualified military wages earned outside North Carolina.

According to the 2020 Personal Taxes Bulletin, a taxpayer can also take credit for personal income taxes paid to their previous state of residence. However, the amount of the credit cannot exceed the North Carolina tax liability. 

3. State income tax deduction for federal taxes paid

The state income tax deduction for federal taxes paid is limited to $10,750 per individual or $16,125 for the head of household and $21,500 for married taxpayers filing jointly. This restriction applies only to the extent that the taxpayer itemizes deductions on Schedule A (Form D-400). It should also be claimed in the taxable year 2017 and each taxable year after that.

4. NOL carryover deduction

As of June 30th, 2020, Governor Cooper assented into law Session Law 2020-58 House Bill 1080. The new Notice under the State and Federal provisions suspended the 80% NOL carryforward deduction limit until the end of the tax year 2021. This suspension also covers NOLs incurred during the tax years 2018, 2019, and 2020.

For this reason, filers can now carry over NOLs indefinitely without worrying about the 80% limit. This reduces tax liability by allowing the business owners (S-Corps & C Corps) to file for NOL deductions on their personal income tax returns.

5. Corporate income tax

The North Carolina Senate, on June 10th, 2021, passed House Bill 334 with their own amendments. The amended Bill that seeks to reduce the state’s 2.5% corporate income tax, provide a moratorium of three years between 2024-2026 before the rate is reduced by 0.5% and completely phased it out by 2028. This law is meant to attract foreign investments, resulting in job creation and growth for the state’s economy.

Contact Our North Carolina Tax Attorneys

The tax attorneys at Wilson Ratledge can help you navigate all your tax issues. We understand that it can be very complicated or stressful to deal with tax controversies or tax planning. This is why we do all we can to help our clients and ensure that they have nothing to worry about. Contact us today for more help in adjusting to the local tax laws as you continue settling in North Carolina.

Filed Under: Taxes

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