A. Corporations Subject to the Tax, Tax Rate and Allocation Requirements
(G.S. 105-130.3 and 105-130.4) (Section .0100)
- Domestic and Foreign Corporations Required to File (Section
All domestic corporations (those chartered in North Carolina)
and all foreign corporations which are doing business in North
Carolina are subject to income tax and are required to file annual
income tax returns, except corporations specifically exempt from
the tax under G.S. 105-130.11, and S corporations exempt under
Because of a difference between the State income tax laws and
the laws under the North Carolina Business Corporation Act, a
foreign corporation operating in North Carolina may be liable
for income tax but, at the same time, not be required to obtain
a certificate of authority to do business in North Carolina. For
example, a Virginia corporation engaged in the general contracting
business which obtains a single job in North Carolina to be completed
within six months, would not, under the Business Corporation Act,
be required to obtain a certificate of authority to do business
in this State but would be subject to income tax.
Note: Even for a year in which it was inactive or did not earn
any net income, a corporation must file an income tax return as
a matter of record.
- "Doing Business" Defined
For income tax purposes, the term "doing business" means
the operation of any business enterprise or activity in North
Carolina for economic gain, including, but not limited to, the
Corporations who are partners in a partnership or joint venture
operating in North Carolina are considered to be "doing business".
"Doing business" by an inter-state motor carrier is
defined as the performance of any of the following business activities
in North Carolina:
- The maintenance of an office or other place of business
in North Carolina.
- The maintenance in North Carolina of an inventory of merchandise
or material for sale, distribution or manufacture, regardless
of whether kept on the premises of the taxpayer or in a public
or rented warehouse.
- The selling or distributing of merchandise to customers
in North Carolina directly from a company-owned or operated
vehicle when title to the merchandise is transferred from
the seller or distributor to the customer at the time of the
sale or distribution.
- The rendering of a service to clients or customers in North
Carolina by agents or employees of a foreign corporation.
- The owning, renting, or operating of business or income
producing property in North Carolina including, but not limited
to, the following:
- Tangible personal property
- Trademarks, tradenames, franchise rights, computer programs,
copyrights, patented processes, licenses
- The maintenance of an office in the State.
- The operation of a terminal or other place of business in
- Having an employee working out of the office or terminal
of another company.
- Dropping off or gathering up shipments in the State.
- Corporations Operating in Interstate Commerce (Section .0103)
The fact that a foreign corporation's activities or operations
in North Carolina are a part of its over-all interstate business
does not exempt the corporation from income tax liability. A corporation
doing business in North Carolina in any of the capacities outlined
in the preceding paragraph is subject to income tax even if its
only operations in this State are a part of its interstate business.
A foreign corporation not domesticated in North Carolina whose
only activity in this State is the solicitation of sales of tangible
personal property by either resident or non-resident salesmen
is not required, under the Department's present policy, to file
income tax returns. However, if such a corporation maintains an
office or other place of business in North Carolina, or if it
owns business property in this State, it is subject to the tax.
- Tax Rate and Basis for the Tax (G.S. 105-130.3 and G.S. 105-130.4)
An income tax is levied on the net taxable income of all corporations
chartered in North Carolina or doing business in North Carolina,
unless they are specifically exempt from tax under G.S. 105-130.11.
Net taxable income shall be the same as taxable income as defined
in the Internal Revenue Code in effect for the income year for
which the returns are to be filed, subject to the adjustments
provided in G.S. 105-130.5.
The corporate income tax rate is 6.90%
In the case of a corporation that has business operations both
within and without North Carolina, its net taxable income shall
be allocated and apportioned to this State in accordance with
- Corporations Required to Allocate Income (G.S. 105-130.4)
(Section .0600) A corporation taxable both within and without
North Carolina is required to use the allocation and apportionment
provisions of G.S. 105-130.4 in reporting its net income or net
loss to North Carolina. For purposes of allocation and apportionment,
a corporation is taxable in another state if:
"Business activity" includes any activity by a corporation
that would establish a taxable nexus pursuant to 15 United States
Code, Section 381 (P.L. 86-272). The filing of a unitary-combined
return in another state with other related corporations does not,
by itself, constitute "business activity" for purposes
of determining if a corporation subject to income tax in this
state is allowed to allocate and apportion income.
- The corporation's business activity in that state subjects
it to a net income tax or a tax measured by net income, or
- That state has jurisdiction based on the corporation's business
activity in that state to subject the corporation to a tax
measured by net income regardless of whether that state exercises
- When in Doubt as to Liability
Any foreign corporation operating in North Carolina which is not
certain of its tax status should promptly apply to the Department
for a determination of its status. Complete detailed information
as to the corporation's operations should be submitted. All correspondence
concerning the matter should be addressed to Corporate Income
and Franchise Tax Division, P.O. Box 25000, N.C. Department of
Revenue, Raleigh, N.C. 27640-0001.
To avoid the possibility of costly penalties and interest charges
for delinquent filing of returns, corporations should ask for
a determination of their tax status before commencing business
in this State.
- Tax Forms Mailed to Taxpayer
The corporation income tax return, Form CD-405 or Form CD-401S,
is available from the Department of Revenue in Raleigh or from
any of the branch offices located throughout the State. The returns
and other related schedules are also available from the Department's
web site at www.dor.state.nc.us.