Personal Income Taxes
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North Carolina taxable income is based on taxable income calculated for federal income tax purposes, with adjustments. Specific deductions and rates are shown below:
Retirement Benefits: General retirement benefits received by retirees of the state of North Carolina and its local governments or by retirees of the United States government (including military) are exempt if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the State's 401(k) and 457 (deferred compensation) plans if the retiree contributed to the plan prior to August 12, 1989.
Up to $4,000 in state, local, or federal government retirement benefits if the retiree did not have five years of creditable service as of August 12, 1989, or if the benefits are received from another state and its local governments, and up to $2,000 in private retirement benefits received by an individual taxpayer. (Note: No more than $4,000 in total retirement benefits can be deducted for each taxpayer in this group.)
Up to $35,000 of severance wages paid to a taxpayer as a result of the permanent closure of a manufacturing or processing plant, or as a result of permanent, involuntary termination from employment through no fault of the employee.
North Carolina allows a personal exemption of $2,500 for the taxpayer (unless he/she is claimed as a dependent on someone else's return) and $2,500 for each dependent if the taxpayer's federal adjusted gross income is less than the threshold amount for his/her filing status, as shown below.
North Carolina allows a basic standard deduction which does not include the cost-of-living adjustment permitted under federal law. This adjustment amount must be added back to taxable income. The standard deduction amounts are:
There is a tax credit of $60 for each dependant child for which the taxpayer was allowed to claim a personal exemption, if the taxpayer's federal adjusted gross income is less than the threshold amount for his filing status, as follows:
Employers are required to withhold individual income tax from wages and salaries of their employees. An individual is required to pay estimated income tax if the tax shown due on the estimated income tax return for the taxable year, reduced by the North Carolina tax withheld and allowable tax credits, is $500 or more regardless of the amount of income the individual has that is not subject to withholding. Generally the first estimated tax payment is due April 15th. Starting January 1, 2001, a pension payer that must withhold federal income from a pension payment to a North Carolina resident will be required to withhold State income tax. A pension recipient may elect not to have taxes withheld and certain pension payments will be exempt. Occupational License Taxes Occupational license taxes are levied by both the state and local governments on a variety of occupations and businesses. Rates vary between occupations, but totals are in most instances very moderate in amount. Local rates in many instances are subject to limits established by the State. Sales & Use Tax The General Assembly enacted legislation to temporarily increase the State rate of sales and use tax by ½%. The increase will be in effective October 16, 2001, and will expire June 30, 2003. A tax is levied on purchases of tangible commodities, room and cottage rentals, and laundry and dry cleaning services. The general sales tax rate increased from 4% to 4.5% effective October 16, 2001, and reverts to 4% effective July 1, 2003. (The 2% local sales and use tax rate applies to transactions subject to the state general rate and to food.) The tax does not apply to prescription drugs, insulin, false teeth, eyeglasses, gasoline, coin-operated laundries, or motor vehicles. Effective January 1, 2002, all telecommunications services, including interstate, will be taxed at 6%. Prepaid telephone calling arrangements will be subject to the general state and local sales tax rates. Sales of electricity to manufacturers, farmers, and commercial laundries and dry cleaners for non-residential use are taxed at 2.83%; sales of electricity for all other purposes are taxed at a 3% rate. The maximum tax on a single boat, aircraft, mobile classroom or mobile office is $1,500. Manufactured (mobile) homes are taxed at a 2% rate; the maximum tax per section of manufactured home is $300. A 5% tax on the gross receipts derived from providing direct-to-home satellite service goes into effect January 1, 2002; a 6% tax on the sales price of spirituous liquor other than mixed beverages goes into effect December 1, 2001. Beginning in 2002, there will be an annual sales tax holiday the first Friday, Saturday and Sunday in August. During this time State sales and use taxes will not apply to certain articles of clothing, school supplies, computers and printers and related supplied and educational software, and sport or recreational equipment. Piped Natural Gas Tax Effective July 1, 1999, both the sales tax and franchise tax on piped natural gas were repealed and replaced with a piped natural gas tax. The tax rate is a declining block rate based on the number of therms of gas consumed in a month. The rate starts at 4.7¢ for the first 200 therms received and declines to 0.3¢ for the number of therms received in excess of 500,000. White Goods Disposal Tax The State levies a flat rate tax of $3 on the purchase of each new white good, which includes such large appliances as refrigerators, freezers, washing machines, dishwashers, clothes dryers, ranges, and unit air conditioners. Highway Use Tax North Carolina levies a tax on the privilege of using the highways at the rate of 3% of the retail value of a motor vehicle. The tax cannont exceed the following limits per vehicle: $1,000 for Class A and Class B commercial motor vehicles (as defined by law). The $1,500 limit for other motor vehicles was repealed effective October 1, 2001. Tax is paid when the vehicle is purchased and titled in North Carolina. If the motor vehicle is purchased from an automobile dealer, "retail value" is sales price less any trade-in allowance. For casual sales, "retail value" is the value set in a schedule of values adopted by the Commissioner of Motor Vehicles, less any trade allowance. Tobacco Products Tax An excise tax of 5 cents per package of 20 is levied on cigarettes. Tobacco products other than cigarettes are subject to a tax of 2% of the wholesale price. Alcohol Beverage Taxes Alcoholic beverages are sold only when authorized by local election. Beer is taxed at rates equivalent to 5 cents per can or bottle of 12 ounces. Wine is taxed at 21 cents or 24 cents per liter according to alcohol content. Liquor is sold through government operated stores and, although a tax is levied on sales, retail prices including the tax are competitive with or lower than prices in most other states. The law authorizes local elections to permit sales of liquor 'by the drink" by qualified restaurants and clubs. An additional tax of $20 on each four liters is levied on liquor purchased by restaurants or clubs for sale by the drink. Motor Vehicle Taxes and Fees State annual registration license fee is $20 per private passenger vehicle. In some counties, an additional annual registration tax of $5 is imposed for the Regional Transportation Authority. Municipalities in most areas may levy a fee not to exceed $5 although some municipalities are authorized to adopt fee not to exceed $25. State gasoline tax is 24.2 cents per gallon during the period January 1 through June 30, 2002. The rate consists of motor fuels tax of 17.5 cents per gallon plus a rate equal to the greater of 3.5 cents per gallon or 7 percent of the average wholesale price per gallon, now 6.7 cents. The wholesale price component of the rate is set semiannually by the Secretary of Revenue. There are no local gasoline taxes. The State levies a scrap tire disposal tax on each new tire sold. Exemptions include: recapped tires, bicycle tires, and other tires for vehicles propelled by human power. The tax is 1% of the sales price on tires with a bead diameter of at least 20 inches, and 2% on tires with a bead diameter of less than 20 inches. The 2% tax rate will revert to 1% effective July 1, 2002. Estate Tax The North Carolina tax was repealed effective for estates of decedents dying on or after January 1, 1999. The remaining estate tax is equal to the state death tax credit allowed on the federal estate tax return. Provisions are included for prorating the federal death tax credit between North Carolina and other states in which property owned by the decedent was located. (Under federal law, the first $675,000 in property - $700,000 in 2002 - and property passing to a surviving spouse are exempt.) Gift Tax A gift tax is imposed on a donor with donees divided into three classes: Class A: Any lineal ancestor or descendant, or adopted child or stepchild. Class B: Includes brother, sister, descendant of a brother or sister, and aunt or uncle by blood of the donor. Class C: Includes all others. Gifts of $10,000 or less per year to any individual are not taxable. (Exclusion does not apply to gifts of future interest.) Gifts to spouses are exempt, including property given to a spouse as a qualified terminable interest property under federal law. In addition, a lifetime exemption of $100,000 is allowed each donor for gifts made to Class A donees, including the donor's lineal issue, lineal ancestor, adopted child or stepchild of the donor. When this exemption or any part thereof is applied against gifts to more than one donee, it is apportioned among the donees in the same ratio as the gross gift after exclusion to each donee is to the total gifts to Class A donees in the calendar year in which the gifts are made. Rates of Tax
Local property tax are levied on real estate and tangible personal property. The State does not levy a tax on such property. Tax rates vary greatly between localities, but are in general moderate due to the fact that most of the operating cost of public schools and the cost of construction and maintenance of most roads are borne by the state government. The weighted average combined tax rate on rurally-located property for 2000 - 2001 was 71.0 cents per $100 of appraised valuation. The average combined rate (county, city and district) on municipally-located property in 2000 - 2001 was $1.13 per $100 of appraised value. Although "appraised value" is, by law, to be full market value, this is a standard not always achieved. Real property is required to be revalued every eight years, although counties may revalue earlier. For this reason tax value are frequently below market values. Household tangible personal property in the personal residence of the owner is exempt from property taxation. A homestead exemption of $20,000 is allowed if the property owner is age 65 or over, or is totally and permanently disabled, and the combined income of the owner and the spouse does not exceed $15,000. Effective July 1, 2002, the exclusion is increased to the greater of $20,000 or 50% of the appraised value of the residence, and the income limit for eligibility is increased to $18,000. The homestead exemption is applicable only to the owner's permanent residence. A separate exclusion of $38,000 applies to the assessed value of housing and land owned and used as a residence by a disabled veteran who receives benefits under U.S.C. 2101, but the exclusion must be the total exclusion applicable to the property. Real Estate Transfer Taxes An excise tax is levied on transfers of real estate at the rate of $1 of each $500, or fraction thereof, of the consideration or value of the property conveyed. Occupancy Tax A local occupancy tax on the rental of rooms and lodging is levied in certain counties and municipalities primarily for the purpose of generating revenue to promote development of travel and tourism. The N.C. General Assembly authorized the transient occupancy tax for specific county/municipal, prescribing the administration, rate limitation, and disposition of taxes, with the local government having the option of imposing the levy. Tax rates vary, but the most common rate is 3%. Source: North Carolina Department of Revenue, Tax Research Division 2002 |
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