How North Carolina's Franchise Tax Payment Works
What the North Carolina franchise tax is and who pays it
North Carolina's franchise tax is an annual fee that certain businesses pay to the state for the right to operate there. It is not an income tax — it is a separate charge based on the net worth of your business, not your profit. Most sole proprietorships and partnerships do not owe it. Corporations, limited liability companies (LLCs), and some other business structures do, though the threshold is high enough that many small businesses fall below it.
The tax applies only to businesses with net worth above a certain amount. For tax year 2024, that threshold is $60,000 in net worth. If your business is worth less than that, you owe nothing. The tax itself ranges from $200 to $2,500 per year, depending on your net worth bracket. You calculate it using your balance sheet as of the last day of your tax year — the same date you file your federal return.
The North Carolina Department of Revenue collects franchise tax payments. You do not pay it to your city or county, and you do not pay it when you renew your business license. It is a separate filing and payment to the state.
Key Takeaways
- North Carolina franchise tax applies only to corporations, LLCs, and certain other business structures with net worth above $60,000.
- The tax is based on your net worth on the last day of your tax year, not on your income or revenue.
- You file and pay through the North Carolina Department of Revenue, not through your city or county.
- Payment is due by the 15th day of the fourth month after your tax year ends — April 15 for a calendar-year business.
- You can pay online through the Department of Revenue's portal, by check, or by ACH transfer.
How to calculate what you owe
Start with your net worth — the value of everything your business owns minus everything it owes. This is the bottom line of your balance sheet. If that number is $60,000 or less, you owe no franchise tax and do not need to file. If it is above $60,000, you move to the next step.
North Carolina uses tax brackets for franchise tax. The amount you pay depends on which bracket your net worth falls into. For example, a business with $100,000 in net worth pays a different amount than one with $500,000. The Department of Revenue publishes the current brackets on its website each year. You can also download a worksheet that walks you through the calculation, or use tax software that handles franchise tax.
The key mistake is using revenue instead of net worth. Your business might bring in $500,000 a year but owe nothing in franchise tax if your net worth is below the threshold. Conversely, a business with low revenue but high net worth (perhaps because it owns real estate or equipment) may owe the tax. Use your balance sheet, not your income statement.
Where and how to file and pay
You file your franchise tax return with the North Carolina Department of Revenue. The form is called the Franchise Tax Return, and you can file it online through the Department's portal, by mail, or through a tax professional. Most businesses file online because it is faster and you receive confirmation immediately.
To file online, you will need to register for an account on the Department of Revenue's website if you do not already have one. You will provide your business name, federal employer identification number (EIN), and the net worth figure from your balance sheet. The system calculates your tax and tells you what you owe.
Payment is due by the 15th day of the fourth month after your tax year ends. For a business that runs on a calendar year (January through December), that means April 15. If your business uses a different tax year, your deadline shifts accordingly. If April 15 falls on a weekend or holiday, the deadline moves to the next business day.
Payment methods and timing
The North Carolina Department of Revenue accepts payment in three ways: online through their portal, by check mailed to the department, or by ACH transfer (electronic bank-to-bank payment). Online payment is the fastest — the money reaches the state within one business day, and you get a receipt immediately. Checks take five to seven business days to clear, so if you are close to the deadline, mail is risky.
If you pay by ACH, you will need your business bank account number and routing number. The Department of Revenue's website lists the ACH details and the deadline for submitting ACH payments (usually a day or two before the tax deadline to ensure it clears in time). If you use a payroll or accounting service, they may also offer to submit the payment on your behalf.
Late payment carries a penalty. If you miss the deadline, the Department of Revenue charges interest on the unpaid amount, starting from the due date. The interest rate is set quarterly and is currently around 8 percent per year, though it changes. A late payment also triggers a penalty of 10 percent of the unpaid tax, with a minimum of $10. Both the interest and penalty accrue until you pay.
What happens if you do not file or pay
If you do not file a franchise tax return by the deadline, the Department of Revenue will send you a notice. If you do not respond or file within 30 days, they will assess the tax based on their own estimate of your net worth — which is often higher than your actual net worth because they have incomplete information. You then owe that estimated amount plus penalties and interest.
If you do not pay after being assessed, the state can place a lien on your business assets. A lien is a legal claim that prevents you from selling property or equipment without paying the state first. The Department of Revenue can also suspend your business license or refer the debt to a collection agency. These actions can make it very difficult to operate or sell your business.
If you genuinely do not owe franchise tax because your net worth is below the threshold, you still need to file a return saying so. Filing a zero-tax return protects you because it creates an official record that you reported your net worth to the state. Without that record, the state can still assess you based on an estimate.
Exemptions and special situations
Some business structures are exempt from North Carolina franchise tax. Sole proprietorships and general partnerships do not owe it, regardless of net worth. S-corporations have special rules — they may owe franchise tax depending on how they are structured and whether they have elected to be taxed as a corporation for state purposes. Nonprofits and certain other entities also do not owe it.
If your business is new and has not completed a full tax year yet, you may not owe franchise tax for that first year. However, you should still contact the Department of Revenue or a tax professional to confirm, because the rules depend on when you started and how your business is structured.
If your business closes or dissolves, you may still owe franchise tax for the year in which you closed, calculated as of the date you stopped operating. You should file a final return and pay any amount due to avoid penalties and liens on your personal assets.
Frequently Asked Questions
Do I have to file if my business net worth is below $60,000?
You do not owe tax, but filing a zero-tax return is still a good idea. It creates an official record with the state that you reported your net worth, which protects you if the Department of Revenue later tries to assess you based on an estimate. Filing takes only a few minutes online.
What if I miss the April 15 deadline?
File and pay as soon as you realize the deadline has passed. The longer you wait, the more interest and penalties accumulate. Contact the Department of Revenue to ask about payment plans if you cannot pay the full amount immediately — they sometimes work with businesses on timing.
Can I deduct franchise tax from my federal income tax?
Yes. Franchise tax is a business expense and is deductible on your federal return. You report it on Schedule C (for sole proprietors) or on your corporate return, depending on your business structure. Keep your payment receipt and the Department of Revenue's confirmation for your records.
What if my net worth changes during the year?
Franchise tax is based on your net worth on the last day of your tax year only. Changes during the year do not matter. If your net worth was $100,000 on December 31 but dropped to $50,000 on January 15 of the next year, you still owe tax for the previous year based on the $100,000 figure.
Can I pay franchise tax through my accountant or tax software?
Yes. Many tax professionals and accounting software packages handle franchise tax filing and payment. They will file the return on your behalf and submit payment to the Department of Revenue. You will still need to provide your balance sheet and net worth figure, but the professional handles the rest.