The Voice of Business, Industry & the Professions Since 1942
North Carolina's largest business group proudly serves as the state chamber of commerce

Single Sales Factor

Position: North Carolina’s formula for apportioning corporate income and franchise taxes should be based solely on destination-sales (Single Sales Factor) to remove the penalty multistate corporations now incur when they increase property investments and/or payroll in North Carolina. Not only would this encourage investment and job retention and creation by existing and new businesses, but it would spur exports. If legislation is not enacted for single sales factor, the double weighted formula should not be repealed.

Explanation: From the 1950’s North Carolina has used the three-factor formula for levying income and franchise taxes on multi-state corporations doing business in the state.  The three factors are (1) the proportion of a company’s sales in the state (destinations-sales), (2) the proportion of its total payroll paid in North Carolina, and (3) the value of its property in the state as a percentage of its total property.

Prior to 1989, each of the three factors carried equal weights.  Since 1989, North Carolina has double-weighted the sales factor, so that the sales proportion is counted twice in the apportionment formula, while property and payroll are only counted once.

Since 1989, 17 other states have double-weighted the sales factor, including Georgia, South Carolina and Tennessee.  As of the end of 1997, 25 states weight the sales factor by 50% with the property and payroll factors each weighted 25%.  The sales factor is being weighted more than 50% in nine* states, none of which are in the Southeast.

A single-sales factor formula would entirely remove the payroll and property factors from the apportionment formula. This would eliminate the tax penalty now incurred when a corporation decides to increase its North Carolina property investment and payroll relative to other states.

Adopting the single-sales factor here would give North Carolina a competitive edge in the Southeast in attracting and retaining investment and jobs of multi-state corporations. It would ameliorate the fact that North Carolina has a higher corporate income tax rate than its neighboring states in addition to a separately-imposed franchise tax which does not exist in Virginia and which is 50% higher than South Carolina’s rate.

A single-sales factor would advance further the reasons for NCCBI’s past support of double weighting, viz:

  • It would benefit companies that have a significant portion of their plants and payroll in North Carolina but sell into the nationwide market.
  • It would encourage multi-state manufacturers and distributors to invest in our state, and it is an incentive for such companies that are already here to expand their present investments.

*     Illinois, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Ohio & Texas

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Continue N.C. Budget Reform
Contingent Fee Audits
Defining "Doing Business" In North Carolina
Property Tax Exemptions For Construction In Progress And Product Samples
Machinery Tax And Sales Tax
Change The Net Economic Loss (Nel) Carryover
Remove Credit Balances From The Definition Of Unclaimed Property
Remove Inventories From Franchise Tax Base
Sales Tax Discount
Proposed Model Unclaimed Property Act
Allow an R&D Credit for the Actual Amount of N.C. Expenditure

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