North and South Carolina tax on selling a manufacturing company

Two owners sell similar companies for the same price. One lives in Charlotte and sells the stock of a North Carolina corporation. The other lives in Rock Hill and sells the assets of a South Carolina S corporation, a plastics molder feeding an upstate assembly plant. They will not keep the same amount, and the difference comes from a handful of rules worth understanding before any structure is negotiated. What follows explains how the layers work with 2026 figures. The modeling for your own sale belongs with a transaction-experienced CPA.

The federal layer

Most of the tax on a business sale is federal, and the federal system taxes different pieces of one sale at different rates.

• Long-term capital gain on stock or goodwill held more than a year is taxed at 0, 15, or 20 percent depending on taxable income, according to the IRS, and a sale of this size lands mostly in the 20 percent bracket.
• Unrecaptured section 1250 gain from selling depreciated real property is taxed at up to 25 percent.
• Depreciation recapture on equipment is taxed as ordinary income, and IRS Publication 537 notes it is reported in the year of sale even when the price arrives in installments.
• The 3.8 percent net investment income tax applies above $250,000 of modified adjusted gross income for joint filers and $200,000 for single filers. The IRS says it does not apply to income from an active business, and it excludes gain on property held in a business to which the tax does not apply. For an owner who actively runs the company, that often keeps the sale outside it, a point to confirm rather than assume.

For a manufacturer the recapture line matters most. A company that took accelerated depreciation on a floor full of presses or machining centers can find a meaningful part of the price taxed at ordinary rates, whatever the headline says about capital gains.

North Carolina

The North Carolina Department of Revenue lists a flat individual income tax rate of 3.99 percent for tax years after 2025, with further reductions possible from 2027 if revenue triggers are met. The Department publishes no separate schedule for capital gains, so the same flat rate applies to the gain on a sale as to salary.

A C corporation selling its assets faces a second state layer. North Carolina's corporate income tax rate is 2.00 percent for 2026, down from 2.25 percent in 2025. The corporation pays tax on the asset sale, and shareholders are taxed again when the proceeds are distributed, which is a large part of why C corporation owners generally prefer to sell stock. Our comparison of an asset sale versus a stock sale covers why buyers push the other way.

South Carolina

South Carolina reworked its individual income tax in Act 110 of 2026, effective for the 2026 tax year. The Department of Revenue's Information Letter 26-20 sets two brackets: 1.99 percent on taxable income under $30,000, and 5.21 percent of taxable income minus $966 at $30,000 and above. The top rate can fall further from 2027 if revenue growth triggers are met.

South Carolina also lets individuals, estates, and trusts deduct 44 percent of net capital gain under S.C. Code section 12-6-1150, and that section counts gains passed through from partnerships and S corporations. Act 110 amended the rate schedule and several deductions but did not amend that section. On qualifying long-term gain, the deduction brings the effective top state rate to roughly 2.9 percent, which is 5.21 percent applied to the 56 percent that stays taxable. Recapture taxed as ordinary income is not net capital gain, so it does not get the deduction. For owners in Rock Hill and Fort Mill, that makes the allocation of the price even more consequential.

Allocation decides which rate applies

In an asset sale, the buyer and the seller each file IRS Form 8594, which allocates the price across seven asset classes using the residual method. The classes run from cash (Class I), through receivables (Class III) and inventory (Class IV), to equipment, buildings, and land (Class V), to other intangibles such as a covenant not to compete (Class VI), and finally goodwill and going concern value (Class VII).

The two sides want different things. The buyer wants more of the price in equipment it can depreciate quickly and less in goodwill it recovers slowly. The seller usually wants the reverse, because goodwill tends to produce capital gain while equipment produces recapture and inventory produces ordinary income. A payment allocated to a non-compete is generally ordinary income to the seller as well. The allocation is negotiated like price, and it should be modeled before the letter of intent, not after.

York County and cross-border owners

The Charlotte metro puts many owners on one side of the state line and their company on the other. A Mecklenburg resident who owns a York County company, or a Fort Mill resident who owns a Mecklenburg plant, can end up filing in both states, with rules on which state may tax which part of the gain and credits for tax paid to the other state that limit double taxation. The answer turns on residency, entity type, and where the assets sit. Our FAQ on two-state sales covers the filing and clearance steps, and the sourcing work belongs with a CPA who prepares returns in both states.

Questions to bring to your CPA

• Asset sale or stock sale: what does each leave me after tax at this price?
• How much of a likely allocation is recapture, inventory, or non-compete, taxed as ordinary income?
• Am I involved enough in the business that the net investment income tax does not apply?
• Does closing in December rather than January change the state result?
• If I live in one Carolina and the company sits in the other, where is the gain taxed?

For the broader picture, our FAQ on taxes on a business sale summarizes the variables, and our year-end timing post covers the calendar side. For a confidential read on what your company might sell for, the number all of this starts from, call (704) 343-6770.