NC franchise tax and the 2026 conformity law: what Charlotte owners should ask a CPA

Takeaways

• North Carolina’s franchise tax applies to C corporations, S corporations and LLCs that elect corporate tax treatment; LLCs taxed as partnerships do not pay it.
• A C corporation pays $1.50 per $1,000 of its North Carolina net worth base, with a $200 minimum and a $500 cap on the first $1 million.
• An S corporation pays a flat $200 on the first $1 million of its franchise tax base, plus $1.50 per $1,000 above $1 million.
• Session Law 2026-31, signed by Gov. Josh Stein on July 2, 2026, moved North Carolina’s Internal Revenue Code reference date from January 1, 2023 to July 5, 2025.
• Session Law 2026-31 also repealed a franchise tax deduction for receivables owed by affiliated companies, retroactive to tax years beginning on or after January 1, 2021.

This guide is for Charlotte owners of C corporations, S corporations and LLCs that file as corporations. The NC franchise tax is an annual privilege tax North Carolina charges corporations for doing business in the state, measured by the net worth a company apportions to North Carolina. Senate Bill 595, enacted as Session Law 2026-31, left the franchise tax rates in place. The same bill changed how affiliated groups count intercompany debt, updated the federal tax code North Carolina follows and created an 80% add-back for research expensing; those are the items to raise with your CPA.

Who pays the NC franchise tax?

The NC franchise tax is owed by every active or inactive corporation chartered in North Carolina, plus every out-of-state corporation with a certificate of authority or doing business here, unless G.S. 105-125 exempts it, according to the North Carolina Department of Revenue’s filing requirements page. Under G.S. 105-114, “corporation” includes an LLC or partnership that elects to be taxed as a corporation and does not otherwise include an LLC or partnership. A Charlotte LLC taxed as a partnership (or a disregarded single-member LLC) files no franchise tax return of its own.

S corporations pay, too: G.S. 105-130.3 exempts them from corporate income tax, not franchise tax. An inactive corporation owes the $200 minimum every year until it formally dissolves or withdraws through the North Carolina Secretary of State, according to NCDOR’s franchise tax FAQ. A corporation that owns more than 50% of a noncorporate LLC adds that share of the LLC’s net worth to its own base under G.S. 105-114.1.

How is the NC franchise tax calculated?

The NC franchise tax is calculated on net worth alone for tax years beginning on or after January 1, 2023, after Session Law 2021-180 repealed two property-based alternatives. Net worth under G.S. 105-122 is total assets minus total liabilities under generally accepted accounting principles, with accumulated depreciation figured by the company’s federal tax method. A multistate company apportions that net worth to North Carolina with the same factor it uses for corporate income tax, NCDOR says.

The franchise tax rate depends on the entity type. A C corporation pays $1.50 per $1,000 of tax base, with a $200 minimum and a $500 maximum on the first $1 million; above $1 million, NCDOR’s 2025 Form CD-405 instructions say to multiply the excess by $1.50 per $1,000 and add $500. An S corporation pays $200 for the first $1 million plus $1.50 per $1,000 above that, per NCDOR’s franchise tax rates page. A holding company under G.S. 105-120.2 owes no more than $150,000.

The table applies those NCDOR rules to four sample tax bases; Queen City Magazine did the arithmetic.

Apportioned net worth (tax base)	C corporation franchise tax	S corporation franchise tax
$100,000	$200 (minimum)	$200
$250,000	$375	$200
$1,000,000	$500	$200
$3,000,000	$3,500	$3,200

The $500 cap is recent. Before tax years beginning January 1, 2025, a C corporation paid $1.50 per $1,000 on its whole base, so one with a base of $1 million or more now pays $1,000 less; NCDOR applies the cap starting with franchise tax reported on 2024 returns.

When is the NC franchise tax due?

The NC franchise tax is due on the 15th day of the fourth month after the income year closes (April 15 for a calendar-year company) on the same return as income tax: Form CD-405 for a C corporation or Form CD-401S for an S corporation. North Carolina treats the tax as prepaid. Under G.S. 105-114, the tax is for the income year in which it becomes due, so franchise tax figured on a December 31, 2025 balance sheet and paid in April 2026 covers 2026.

An extension buys time to file, not to pay. NCDOR grants seven months to file for tax years beginning on or after January 1, 2025, up from six, and its extensions page says penalties and interest still run on tax not paid by the original due date. Under G.S. 105-230, a corporation or LLC that goes 90 days past due can have its articles suspended by the Secretary of State; NCDOR charges a $25 reinstatement fee on top of the back tax.

What did Session Law 2026-31 change?

Session Law 2026-31 is Senate Bill 595, a broad revenue bill the General Assembly ratified on June 25, 2026 and Gov. Josh Stein signed at 3:22 p.m. on July 2, 2026, according to the enacted text. Part XII moved North Carolina’s Internal Revenue Code reference from January 1, 2023 to July 5, 2025. NCDOR’s FAQ on the 2026 session laws calls North Carolina a static conformity state, so the update brings in One Big Beautiful Bill Act changes that flow into federal taxable income or adjusted gross income, except where North Carolina decoupled; NCDOR says the new federal deductions for tips, overtime pay, car loan interest and seniors do not carry over.

Franchise tax changes

Part VIII of Session Law 2026-31 holds the franchise tax changes, including these three. Section 8.7 repealed G.S. 105-122(b)(2a), which let a creditor corporation subtract money owed to it by a parent, subsidiary or affiliate when the debtor had already added that debt to its own net worth; the repeal reaches tax years beginning on or after January 1, 2021 (franchise tax reported on 2020 and later returns). Section 8.4 added a deduction for investments in insurance companies owned more than 80%, retroactive to 2019. Section 8.2 restated the C corporation rate with an explicit $200 minimum.

The repeal lands on groups with intercompany balances. G.S. 105-122(b)(2) still makes a debtor add affiliate debt to its net worth unless the debt creates qualified interest expense, so the same balance can raise the debtor’s base with no offset for the creditor. EY’s July 30, 2026 tax alert says legislators called the change a technical correction and that its retroactive reach raises questions for taxpayers who relied on the old statute.

Income tax changes in the same law

North Carolina did not adopt Internal Revenue Code section 174A(a), which lets companies fully expense domestic research and experimental costs. A taxpayer that took the federal deduction adds back 80% and deducts 25% of the add-back in each of the next four years, per NCDOR’s July 23, 2026 notice. In NCDOR’s example, a C corporation that expensed $100,000 in 2025 adds $80,000 to 2025 income and deducts $20,000 a year from 2026 through 2029.

The bonus depreciation add-back did not change, but the 2025 federal figure it starts from did. EY says the state starting point now reflects 100% federal bonus depreciation, but G.S. 105-130.5B still requires an 85% add-back, recovered at 20% a year over five years, and NCDOR’s FAQ answers “No” when asked whether that adjustment changed. NCDOR’s February 2026 guidance told corporations to use 40% bonus depreciation on 2025 North Carolina returns, so a company that filed under that guidance and placed equipment in service in 2025 should ask its CPA whether to amend.

Do Charlotte companies need to amend 2022 to 2025 returns?

Charlotte companies need to amend a 2022 to 2025 North Carolina return when Session Law 2026-31 changes taxable income for that year, NCDOR’s FAQ says. The research add-back reaches back to 2022 for taxpayers who elected retroactive federal treatment under section 174A for 2022, 2023 or 2024, and starts with 2025 for everyone else. A refund claim must be filed within the statute of limitations; extra tax due carries penalties and interest from the original due date, though NCDOR accepts penalty waiver requests. The franchise tax repeal reaches further back, to franchise tax reported on 2020 returns, and NCDOR had posted no amendment steps for it as of November 13, 2026.

Which Charlotte businesses can mostly set the 2026 law aside?

Charlotte businesses that can mostly set Session Law 2026-31 aside are single companies with no affiliate balances, no domestic research expensing, no past deduction for affiliated receivables and no 2025 equipment purchases that took federal bonus depreciation. A stand-alone S corporation with $400,000 of net worth still owes $200. One exception: an LLC taxed as a partnership pays no franchise tax, but members who expensed research costs through the LLC may owe the 80% add-back on personal returns, and NCDOR says the LLC must pass them the needed information.

What should you ask your CPA about the NC franchise tax?

The NC franchise tax questions below fit a 30-minute CPA meeting; bring last year’s Form CD-405 or CD-401S and the year-end balance sheet. This guide is general information, not tax advice; check your situation with a CPA.

1. Is our company a corporation for North Carolina franchise tax purposes, or does our LLC’s federal tax classification keep us out of the tax under G.S. 105-114?
2. Where does our apportioned net worth base sit against the $200 minimum and the $500 cap on the first $1 million?
3. Did we deduct receivables from a parent, subsidiary or affiliate on a 2020 to 2025 return under the repealed G.S. 105-122(b)(2a), and how will NCDOR treat those years?
4. Did we, or a pass-through entity we own, fully expense domestic research costs under section 174A, and do we need amended North Carolina returns?
5. Should an inactive corporation we no longer use be formally dissolved with the Secretary of State to stop the $200 annual minimum?

Good to know

The following items are time-sensitive as of November 13, 2026.

• NCDOR says it will publish 2026 North Carolina returns and instructions, including the Session Law 2026-31 changes, in January 2027.
• Calendar-year 2026 franchise and income tax returns on Form CD-405 or CD-401S are due April 15, 2027.
• North Carolina’s corporate income tax rate is 2% for tax years beginning in 2026 and 1% from 2028 under G.S. 105-130.3; the franchise tax has no scheduled phaseout.
• NCDOR updated its July 23, 2026 notice on July 29 and October 9, 2026; this guide was checked against NCDOR and General Assembly pages on November 13, 2026.

Last updated November 13, 2026.

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