Report Says N.C. Tax Is Eighth Highest

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Report Says N.C. Tax Eighth Highest

Special Report - October 27, 2009
North Carolinians pay the eighth highest sales tax rate in the nation, according to a new report from the Tax Foundation in Washington, D.C. The Tax Foundation Fiscal Fact No. 194: “Where Do State and Local Governments Get Their Tax Revenue” was released on October 9, using the most recently released Census data from the 2007 fiscal year. Then on October 16, the Tax Foundation released Fiscal Fact No. 196: “Updated State and Local Option Sales Tax.” The earlier report looked at a revenue breakdown by state of property taxes, general and selective sales taxes, individual income taxes, and licenses and other taxes. The second report then ranked states according to their combined state and local tax rate burden.

North Carolina’s tax revenue comes mostly from taxes levied on individual income (32.7 percent), property (22.5 percent), and general sales (21.9 percent). Selective sales taxes—usually levied on items like fuel, tobacco, insurance premiums, public utilities, amusements, and alcohol—account for just over 12 percent of the state’s tax revenue. The remaining 11 percent comes from corporate income taxes, licenses, and other non-categorical taxes on things like stock, transfers, and estates. North Carolina’s high dependence on individual income taxes ranks it fourth in the nation behind Oregon, Maryland, and Massachusetts, and ahead of states like New York, Virginia, and California.

North Carolina’s sales tax is a combination of a 5.75 percent statewide rate and a 2.32 percent average local rate. This total combined tax rate of 8.07 percent ranks North Carolina eighth in the nation, highest on the East Coast, behind only Tennessee, Louisiana, and Oklahoma in the Southeast. Tennessee’s 9.41 percent and California’s 9.06 percent rank those states first and second, respectively, for highest combined sales tax rate in the nation. Delaware, Montana, New Hampshire, and Oregon do not levy any state or local sales tax. Alaska does not have a general statewide sales tax, but does allow municipalities to charge local sales tax. Of states that have a sales tax rate above zero, Alaska is lowest at 1.13 percent, followed by Hawaii at 4.38 percent, while Maine and Virginia both average a 5 percent rate. However, the North Carolina statewide rate of 5.75 percent is tied with Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee for second highest behind only California’s 8.25 percent statewide sales tax.