Tax Comparison - North Carolina Verses South Carolina
The Carolinas have so much to offer when it comes to quality of life. From the Appalachian Mountains to the Outer Banks to the Blue Ridge Parkway to the Sea Islands, full-time and part-time residents alike enjoy mild temperatures, an abundance of nature and culture, historic surroundings, and a wide range of housing options in the Carolinas.
Once a decision is made to head to the Carolinas, it then becomes a matter of choosing between North and South. Most people will want to do a cost of living comparison first, and since taxes can be a significant piece of the cost of living pie, let’s take a quick look at what you can expect to pay in South Carolina taxes versus taxes in North Carolina.
Most states fund their budgets by using some combination of income, sales, excise and property taxes, plus fees (think park admittance or toll roads). Where one tax may be lower or non-existent, another tax may be higher to offset the lack of income from that source. Bear in mind that there are many variables to consider, and your tax professional should advise you on taxes that will most affect your particular situation. All information provided below is for 2015 forward, unless otherwise noted. Overall, people living in either North or South Carolina enjoy a reasonable tax climate when compared to the rest of the nation.
Personal Income Tax
Both states tax personal income, and offer plenty of resources on their state department of revenue websites such as forms, filing dates and instructions. In North Carolina, income is taxed at a flat rate of 5.75% with no personal exemptions. However, the deductions for taxable income range from $7,500 to $15,000, depending on filing status. Requirements for filing in North Carolina differ from federal returns.
In South Carolina, there are six tax brackets with rates ranging from 0% to 7%, and personal exemptions of $4K for singles and $8K for married couples are allowed, as well as exemptions for dependents and heads of household. South Carolina income tax requirements pretty much follow along with federal tax laws allowing deductions, adjustments and exemptions like the federal system. South Carolinians do no pay taxes on social security income and after the age of 65 can exempt up to $15,000 of income from any source.
Sales Tax and Use Tax
The state of South Carolina taxes purchases at a base rate of 6%. Use taxes are also applied to anything bought out-of-state but shipped in or brought in for use in state. Internet purchases, catalog, TV, and other such purchases are subject to the 6% use tax (if sales tax equal to South Carolina’s was not paid). Cities and municipalities can add on additional local sales or use taxes; however, prescriptions, hearing aids and dental prosthetics are exempt. Unprepared food is also exempt for the state sales tax but might be taxed locally. Residents 85 and older can get a 1% reduction. According to bankrate.com, South Carolina ranked 18th in the nation in sales taxes for 2015 (Tennessee came in at #1 with a combined average rate of 9.45%).
Sales taxes in North Carolina have a base rate on goods and some services of 4.75%, and most counties add another 2% or more in local taxes. North Carolina also imposes a use tax on personal property, digital property and some services bought outside of the state for use in state. In both states, use taxes are paid annually with state income taxes. North Carolina ranked 25th for combined sales tax rate in 2015.
Real Estate Taxes
South Carolina taxes on residential real estate can vary quite a bit depending on where you live and if your home is your primary residence, or a second home or rental property. For primary residences, taxes paid equal 4% of the fair market value of the home times the local millage rate plus any other local district taxes assessed, such as for fire or police, but with a school district tax credit. Non-primary residence owners pay the local millage on a rate equal to 6% of fair market value plus district taxes and are not exempt from paying school district taxes. Resident homeowners aged 65 and older or disabled can receive a $50,000 exemption against fair market value.
In North Carolina, residential real estate is also taxed on an ad valorem basis, with each county administering assessments and collections. Rates vary by county, and are applied to 100% of assessed value (values are determined by the assessor’s office). As an example, Brunswick County’s current rate is 48.5¢ per $100 of value. On a $350K home, the tax will be $1,570. Municipalities may add additional taxes to this, so you’ll want to contact the county tax assessor-collector office to determine current rates for a specific area. Homeowners age 65 and older or the disabled who meet certain income limit requirements can receive breaks on their property taxes in North Carolina.
Transfer taxes on the purchase or sale of homes in North and South Carolina are also different. In North Carolina, the transfer tax is $1 per $500 of sale price; however, in a few counties an additional amount (up to $5/$500) can be added. South Carolina imposes a deed recording fee of $1.85 per $500 regardless of county. In both states, the transfer taxes are typically paid by the seller, but terms may vary.
Personal Property Taxes
Non-business personal property is exempt from taxes in the Tar Heel State, with the exception of automobiles. Residents receive an annual vehicle tax and registration statement from the state. The amount of the tax varies widely depending on millage rates, but the DMV offers a tax estimator tool on their website. Tax due on a $20,000 automobile in Greenville, for example, would be approximately $270. The Palmetto State also collects personal property taxes on all types of vehicles, boats and airplanes. Automobiles are taxed at 6% of market value times the local millage rate for personal property.
Neither of the Carolinas impose inheritance taxes or intangibles taxes (stocks, bonds, mortgages, etc.), although they do tax capital gains. You should consult with your tax accountant or financial advisor on these issues.
Tar Heel or Palmetto?
Big city or small town? Industry, nature, or academia? Mountains, forests, lakes or seaside? The Carolinas offer something for every lifestyle. Home prices in many areas are at or below the national average, and other items in cost of living comparisons rate favorably, too. If you’re looking for a retirement or second home in a beautiful community, both North Carolina and South Carolina offer dozens of opportunities for active, healthy living in an affordable environment.
Of course, be sure to check with a Certified Public Accountant or Tax Attorney to help you determine which state's taxes are in your best interest. The tax information above is subject to change.
CAROLINA TAX COMPARISON AT A GLANCE
- INCOME TAX - Flat rate of 5.75%; no personal exemptions
- CAPITAL GAINS - Top rate of 5.8%
- INTANGIBLES TAX - None
- SALES & USE TAX - Base of 4.75% plus local tax. Average combined rate of 6.9%
- REAL ESTATE TAX - Millage rates vary by county and are applied per $100 of assessed value.
- TRANSPORTATION - Gasoline tax 34¢/gal; $52 auto title fee 3% Highway Use Tax on vehicles at time of title issue instead of sales tax
- PERSONAL PROPERTY - Vehicle Tag (registration) & Tax paid annually to state; rate varies by county/city and is based on appraised value
- ESTATE / INHERITANCE TAX - None
- INCOME TAX - Six brackets ranging from 0% to 7% for income above $14,550; personal exemptions
- CAPITAL GAINS - Top rate of 7%
- INTANGIBLES TAX - None
- SALES & USE TAX - Base of 6% plus local tax. Average combined rate of 7.13%. Discount of 1% available to those aged 85+.
- REAL ESTATE TAX - Primary residence owners pay 4% of FMV times local millage rate; non-residents pay 6% of FMV times local millage rate plus school district taxes.
- TRANSPORTATION - Gasoline tax 16¢/gal; $15 auto title fee; $20-24 registration every 2 years; sales tax capped at $300 for motor vehicle purchase ($150 for cars coming from out of state)
- PERSONAL PROPERTY - Vehicles are taxed at 6% annually, other property at 10.5% of depreciated value
- ESTATE / INHERITANCE TAX - None
- Bankrate.com> State Taxes
- The State of South Carolina official website
- The South Carolina Department of Revenue
- The State of North Carolina official website
- The North Carolina Department of Revenue
- Ballotpedia > Tax Policies by state