On July 2, 2026, North Carolina enacted Senate Bill 595 (S.L. 2026-31), a sweeping revenue bill that includes numerous updates to the state’s tax laws. While much of the legislation consists of technical corrections and administrative changes, several provisions carry meaningful implications for businesses, pass-through entities, estates and trusts, employers, and individual taxpayers.

As with most “revenue law changes” bills, the goal is not to create new taxes but to update existing statutes, align state law with federal provisions, and address areas where clarification is needed. However, taxpayers should not assume these changes are insignificant. Many may require adjustments to tax planning strategies, estimated tax payments, bookkeeping processes, and future return preparation.

Internal Revenue Code Conformity Update

One of the most important provisions in SB 595 updates North Carolina’s conformity date to the Internal Revenue Code through July 5, 2025. This allows North Carolina to adopt many federal tax provisions enacted through that date while continuing to identify areas where the state intentionally departs from federal law.

For taxpayers, conformity updates are critical because they determine whether income, deductions, and credits are calculated the same way for both federal and state purposes. While conformity generally simplifies compliance, it can also introduce new reporting requirements and state adjustments that must be tracked separately. Taxpayers should monitor guidance issued by the North Carolina Department of Revenue to understand how federal tax changes will flow through to state returns.

Research and Experimental Expenditures

SB 595 includes provisions addressing the treatment of research and experimental (R&E) expenditures. According to legislative and industry summaries, North Carolina decouples from certain federal R&E deduction rules and requires taxpayers to make state-specific adjustments over time.

This change primarily affects businesses engaged in product development, technology, manufacturing, engineering, and other activities involving research expenditures. Companies should evaluate whether separate state tracking of Section 174 expenses is necessary and determine how the required North Carolina adjustments may impact future taxable income. Deferred tax calculations for businesses preparing financial statements may also need review.

S Corporation Loss Deduction Changes

The legislation modifies provisions involving S corporation loss deductions and shareholder adjustments. During the legislative process, lawmakers revised the effective dates associated with these provisions, moving certain changes into future tax years.

S corporation owners should pay particularly close attention to how losses are utilized and whether any required state adjustments affect their individual returns. Proper shareholder basis calculations remain essential, and business owners should ensure that losses claimed for federal purposes continue to receive the appropriate treatment under North Carolina law.

Partnership Audit Conformity

Another noteworthy provision aligns North Carolina more closely with the federal Centralized Partnership Audit Regime (CPAR). This federal framework significantly changed how partnerships are audited and how tax assessments are administered.

Partnerships should review their governing agreements and determine whether updates are necessary regarding the appointment and authority of partnership representatives. Owners and advisors should also understand how state-level assessments may be administered in future examinations. Although many taxpayers will not encounter these rules immediately, proactive planning can help avoid complications if an audit occurs.

Estates, Trusts, and Net Operating Losses

SB 595 includes revisions affecting estate and trust taxation as well as certain net operating loss (NOL) provisions. Legislative summaries indicate changes involving individual and estate NOL limitations and fiduciary taxation rules.

For fiduciaries, trustees, and executors, these changes may affect future tax planning opportunities and reporting requirements. Taxpayers with existing NOL carryforwards should consult their tax advisors to determine whether revised state rules alter the amount or timing of deductions available on future returns.

Employer Withholding Requirements

The bill also contains modifications to employer withholding procedures and filing thresholds. Legislative summaries indicate that employers with withholding amounts within certain ranges may be subject to updated filing frequency requirements.

Businesses should review their payroll processes and confirm that withholding deposits and filings comply with the new standards. Payroll providers will likely address many of these changes automatically, but employers should not assume all adjustments will occur without review. Confirming compliance can help avoid unnecessary penalties or notices from the Department of Revenue.

New Historic Rehabilitation Credit Opportunity

One provision that may generate significant interest among larger businesses is the creation of a state tax credit for qualifying rehabilitation expenditures related to eligible corporate campuses. The legislation establishes a credit equal to 40% of qualified expenditures that qualify for the federal rehabilitation credit when specific requirements are met.

Although the eligibility standards are narrow and generally target substantial redevelopment projects, the credit could represent a significant tax incentive for companies investing in historic corporate properties within North Carolina. Taxpayers considering redevelopment projects should evaluate eligibility early in the planning process and coordinate with both tax and legal advisors regarding certification requirements.

Practical Planning Considerations

While SB 595 contains dozens of technical revisions, the provisions most likely to affect a broad range of North Carolina taxpayers include:

• Internal Revenue Code conformity updates
• Research and experimental expenditure adjustments
• S corporation loss deduction rules
• Partnership audit conformity
• Estate and trust tax provisions
• Employer withholding requirements

Business owners should review 2026 estimated tax payments, evaluate state-specific adjustments that may differ from federal treatment, and ensure that tax planning strategies developed under prior law remain appropriate. Likewise, individuals with ownership interests in pass-through entities should discuss these changes with their tax advisors before year-end planning begins.

Final Thoughts

SB 595 is primarily a technical tax bill, but technical legislation often has a direct impact on compliance and tax planning. Changes involving conformity, pass-through entities, partnership audits, and business deductions can affect both current returns and long-term planning strategies. North Carolina taxpayers should stay informed as the Department of Revenue releases additional guidance and consult with their CPA to determine how these provisions apply to their specific circumstances.

This blog post is for informational purposes only and does not constitute tax, accounting, or legal advice. Laws and regulations are subject to change, and the information provided may not apply to all situations. Consult a qualified professional for guidance specific to your circumstances.

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