Form CD-405: North Carolina C-Corporation Franchise and Income Tax Return

Form CD-405 is the annual return every C-Corporation uses to report North Carolina corporate income tax and franchise tax in a single filing. For tax years beginning in 2026, the corporate income tax rate is 2 percent of state net income, the franchise tax is $1.50 per $1,000 of apportioned net worth with a $200 minimum, and the return is due by the 15th day of the fourth month after the corporation’s tax year ends.

Who Has to File

Any C-Corporation doing business in North Carolina or receiving income from North Carolina sources must file Form CD-405.¹ That covers corporations chartered in the state, foreign corporations qualified to do business here, and foreign corporations actually conducting activity within state borders. A corporation that is inactive but still chartered or domesticated in North Carolina must file a return each year, even with no business activity.²

The franchise tax is separate from the income tax and reaches further. It applies even when a corporation’s activities are shielded from income tax by federal Public Law 86-272, because the franchise tax is imposed for the privilege of doing business in the state.³ S-Corporations are not subject to corporate income tax under G.S. 105-130.3 and file a different return, not CD-405.

The Two Taxes and the 2026 Rates

The income tax portion is 2 percent of North Carolina taxable income for the 2026 tax year.⁴ The rate continues stepping down under a legislated schedule, but the franchise tax is not on the same path. Even after the income tax reaches zero, the annual CD-405 filing obligation remains because of the franchise tax.

The franchise tax rate is $1.50 per $1,000 of the corporation’s tax base, with a minimum of $200 owed regardless of how small the base is, and that minimum applies to inactive corporations too.² For tax years beginning on or after January 1, 2023, the base is a single figure: the corporation’s apportioned net worth.⁵ A corporation classified as a holding company under G.S. 105-120.2 gets a franchise tax cap of $150,000 when the tax is computed on the net worth base.⁶

Filling Out the Return

Download the form and instructions from the NCDOR website under Taxes and Forms, then Corporate Income and Franchise Tax. The Department does not print or mail tax booklets.³

Start With Federal Taxable Income

The income tax computation begins with federal taxable income before the net operating loss deduction, taken from Federal Form 1120, Line 28 minus Line 29b.⁷ From there, apply North Carolina additions and deductions. Common add-backs include state and local income taxes deducted federally and special federal accelerated depreciation. Common deductions include interest income from U.S. government obligations and adjustments under G.S. 105-130.5B for previously added-back depreciation. Multiply the resulting North Carolina taxable income by 2 percent to get the income tax before credits.

Compute the Franchise Tax Base

Net worth is determined from the corporation’s books as of the close of the income year. Under G.S. 105-122, it equals total assets (without subtracting accumulated depreciation, depletion, or amortization) minus total liabilities, computed under generally accepted accounting principles. A corporation that does not keep GAAP books uses the accounting method from its federal return.⁵

Two adjustments matter most. Depreciation, depletion, and amortization come off using the federal income tax method. Debt owed to a parent, subsidiary, or affiliate is added back unless it creates qualified interest expense under G.S. 105-130.7B. The intercompany debt add-back catches many first-time filers and can substantially increase the franchise tax base for corporations with related-party loans.

Apportion if You Operate in More Than One State

Corporations with income taxable inside and outside North Carolina apportion using a single sales factor under G.S. 105-130.4: North Carolina sales divided by total sales everywhere.⁸ The same factor applies to both the income tax and the franchise tax.³ Errors in sales sourcing are a common audit trigger for multistate filers.

Apply Credits and Prior Payments

The final sections handle tax credits and payments already made. Report estimated tax paid through Form CD-429, overpayments carried forward, and any incentive credits (research and development, renewable energy, and similar). Each credit needs supporting documentation attached to the return. Unsupported credit claims are disallowed.

Estimated Payments During the Year

A C-Corporation that expects to owe $500 or more in North Carolina income tax for the year must make estimated payments using Form CD-429.⁹ Installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year, which is April 15, June 15, September 15, and December 15 for a calendar-year filer.¹⁰

To avoid underpayment interest, timely pay at least the smaller of 90 percent of the current year’s income tax or 100 percent of the prior year’s income tax. Large corporations as defined in IRC § 6655 must meet the 90-percent-of-current-year test; the prior-year safe harbor is not available to them.¹⁰ Payments can be submitted electronically through the NCDOR eServices portal.¹¹

Deadline and Extension

CD-405 is due by the 15th day of the fourth month after the corporation’s tax year closes. That is April 15 for a calendar-year filer, and the same fourth-month rule applies to fiscal-year filers based on their year-end.

For tax years beginning on or after January 1, 2025, the filing extension is seven months from the original due date, which takes a calendar-year corporation to November 15.¹² The extension covers filing only, not payment. Tax owed is still due by the original due date.¹³

One safe harbor is worth using. If you file under an extension and pay at least 90 percent of the total tax due by the original due date, the late payment penalty does not apply to the remaining balance, provided you pay that balance plus interest before the extension period expires.¹⁴

How to Submit and Pay

The Department accepts electronic filing of CD-405 through NCDOR-approved tax preparation software using the Modernized Electronic Filing (MeF) program, the same channel used for federal e-filing.¹⁵ Most commercial packages that handle corporate returns support North Carolina e-filing. Electronic filing gives faster confirmation of receipt and reduces processing errors.

To file on paper, mail the return with any balance due and the payment voucher (Form CD-V) to:³

North Carolina Department of Revenue
P.O. Box 25000
Raleigh, NC 27640-0500

Payments can go through electronic funds transfer in the NCDOR eServices portal, credit or debit card through the state’s website, or a check or money order with the payment voucher. If the Department finds discrepancies after processing, it typically issues a notice of proposed assessment or a request for additional information; responding promptly keeps interest from growing.

What Late Filing and Late Payment Cost

Miss the filing deadline (including any extension) and the Department assesses a penalty of 5 percent of the net tax due for each month or partial month the return is late, capped at 25 percent.¹⁴ Net tax due means the tax on the return minus timely payments and allowable credits. If you filed under an extension, the penalty runs from the extended due date.

For taxes assessed on or after January 1, 2023, the late payment penalty is 5 percent of the tax not paid by the original due date. Beginning July 1, 2027, that structure changes to 2 percent per month or part of a month, capped at 10 percent.¹⁴

Interest accrues on unpaid tax from the original due date until payment. For January 1, 2026 through June 30, 2026, the interest rate is 7 percent. The Secretary of Revenue resets it every six months, so check the NCDOR site for the current rate if you are paying later in the year.¹⁶

Records to Keep

Keep records supporting the return for at least three years from the date you filed it or two years from the date you paid the tax, whichever is later. Understating gross income by more than 25 percent extends that to six years, and records for a return never filed or filed fraudulently should be kept indefinitely.¹⁷ These are federal guidelines; matching or exceeding them satisfies North Carolina’s audit window as well.

1
North Carolina General Assembly. North Carolina Code 105-130.3 – Corporations
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North Carolina Department of Revenue. Frequently Asked Questions about NC Franchise, Corporate Income, and Insurance Tax
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North Carolina Department of Revenue. 2024 C-Corporation Tax Return CD-405 Instructions
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North Carolina Department of Revenue. Corporate Income and Franchise Tax Rates
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North Carolina General Assembly. North Carolina Code 105-122 – Franchise or Privilege Tax on Domestic and Foreign Corporations
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North Carolina Department of Revenue. CD-18-1 Franchise Tax – Definition of a Holding Company
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North Carolina Department of Revenue. Form CD-405 North Carolina C-Corporation Tax Return
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North Carolina General Assembly. North Carolina Code 105-130.4 – Allocation and Apportionment of Income for Corporations
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North Carolina Department of Revenue. Filing Requirements
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North Carolina Department of Revenue. Underpayment of Estimated Tax C-Corporations
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North Carolina Department of Revenue. eServices
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North Carolina Department of Revenue. Extensions
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North Carolina General Assembly. North Carolina General Statutes 105-263 – Timely Filing of Mailed Documents and Requests for Extensions
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North Carolina Department of Revenue. Penalties and Fees Overview
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North Carolina Department of Revenue. eFile for Businesses
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North Carolina Department of Revenue. Interest Rate
17
Internal Revenue Service. How Long Should I Keep Records?