Some of our C and S Corporation clients are seeing significantly higher franchise taxes from the state of North Carolina for tax year 2016. In 2015, the legislature passed House Bill 97 which made significant changes to North Carolina’s tax structure. As part of those changes, House Bill 97 eliminated the taxpayer’s ability to use associated debt to offset the value of real estate when calculating the franchise tax base. As an example, a taxpayer may hold 20 million dollars worth of land in inventory with 15 million dollars of existing debt related to that land inventory. Under the old system, the corporation was only taxed on a tangible property base of 5 million. Under the new calculation, the base would be 20 million. Homebuilders and other corporate entities that hold real estate have been particularly impacted by this change. House Bill 97 also changed the minimum franchise tax from $35 to $200. If you have any questions about how these changes may impact your business and potential strategies to mitigate the franchise tax, please contact our office.