Investment-Chilling, Double-Dipping Franchise Tax Harms Major Industries and Main Street – It’s Time to End It
A fair and well-balanced tax climate is one of the first things job creators look for when deciding where to locate and grow their business. Over the past decade, North Carolina’s leaders have worked hard – with strong support from the NC Chamber – to elevate our tax climate from one of the ten least welcoming for business to one of the ten best. However, a major impediment remains: The regressive franchise tax targeting tangible business investments in our state.
In recent years, NC Chamber members have pointed to the repeal of our state’s franchise tax as the single most important tax priority that would empower businesses of all sizes and sectors to invest with confidence in North Carolina.
Contrary to popular assumptions, our franchise tax doesn’t just impact “franchised” businesses. It burdens all businesses with assets in our state and deters new investments to boot. This annual “right-to-compete” fee is especially harmful to companies that rely on large capital investments, like advanced manufacturers and job creators in the defense, life sciences, energy, and transportation sectors. It also hurts the many small business owners and workers struggling to rebound from the pandemic, since businesses must pay this tax regardless of their yearly income – or lack thereof.
The NC Chamber’s advocacy team is working hard to ensure North Carolina’s leaders fully understand and recognize the need to repeal our regressive franchise tax. You can learn more about the importance of removing this self-limiting cap on our state’s success by following the hashtag #KeepCompetingNC on Twitter, Facebook and LinkedIn.
Other States Are Waking Up to the Damage Caused by Franchise Taxes – When Will North Carolina?
As of July 2021 | Source: The Tax Foundation
North Carolina is on a dwindling list of states undermining their own success by imposing a franchise tax. As more and more states wake up to the damage caused by franchise taxes, job creators are asking with mounting urgency: When will North Carolina quit hitting the snooze button and throw off this burdensome blanket on our growth?
The Price of Snoozing on Franchise Tax Reform
As the map above shows, North Carolina is one of only 16 states still imposing a franchise tax or equivalent mechanism. And our version of this tax is among the more regressive.
• Four states are in the process of phasing out their franchise taxes, and others are seriously considering ending theirs.
• In several states, businesses pay only the higher of the franchise tax or the corporate income tax; here in North Carolina, they pay both, making our tax even more regressive by comparison.
Over the last few years, the total franchise tax impact on North Carolina’s job creators has grown to rival that of the corporate income tax, even as the franchise tax unfairly – and unwisely – overburdens vital industries.
• Franchise taxes are especially harmful to capital-intensive companies, including the defense contractors who support our military heroes and the life science companies advancing efforts to end a global pandemic.
• Capital-intensive companies bring investments to our state that can invigorate entire local economies; losing out on these investments because of our franchise tax threatens to restrict future growth, especially in the rural communities that need it most.
• The franchise tax also hurts the small- and medium-sized businesses that have suffered the most from COVID-19, as even businesses posting losses don’t see proportionate relief from their franchise tax burdens.
Perhaps the most regressive aspect of our franchise tax is that it double taxes job creators for their investments. Businesses in our state are taxed on the income created by their assets – then, through the franchise tax, they’re taxed on the assets themselves.
• Assets bring value to a business because of the income they create. And that value is already taxed when a business pays its income taxes – taxing it again through a franchise tax is the very embodiment of duplicative taxation.
• What will happen if we become the only state imposing a franchise tax? Might we see an exodus of job creators seeking greener pastures? What will that mean for the North Carolinians they employ and the rural economies that depend on those investments to spur growth?