The Tax Foundation yesterday posted data on state corporate income taxes paid per capita. North Carolina finished 31st highest, with $105 in corporate tax collections per capita.
Unsurprisingly, collections were highest in New Hampshire at $525 per capita and Massachusetts at $342 per capita. Data is taken from fiscal year 2016.
In that year, North Carolina collected about $1 billion in corporate income taxes, down from $1.3 billion the previous year. In 2016, the corporate income tax rate rate dropped to 4%, down from 5% the year before, 6% in 2014, and 6.9% in 2013. These changes came courtesy of the 2013 tax reform.
Today, the corporate tax rate is 3%, and set to fall to 2.5% in 2019.
For fiscal year 2017-18, corporate tax collections dropped to $739 million – only about 3% of total state tax revenue.
Perhaps its time to consider eliminating such a small source of state revenue. No doubt the amount of compliance costs on businesses is high relative to the small amount of revenue raised. Moreover, the Tax Foundation discusses other reasons why the corporate tax is so damaging:
Revenue volatility is another reason states have reduced their reliance on corporate income taxes. Corporate income can vary drastically from one year to the next due to business cycle fluctuations, leading to unstable revenue collections. Finally, corporate income taxes have been shown to be more detrimental to economic growth than other major state tax types, including personal income taxes, consumption taxes, and property taxes, and they are administratively complex for both taxpayers and states.
A highly volatile, job-killing, administratively difficult tax that generates a small fraction of state income – that’s the corporate income tax.
Perhaps its time to consider cutting the rate all the way to zero.