One of the most important factors to consider when choosing a business structure is the taxation implications of each company type. Beyond the federal tax obligations common to all businesses in the country, there are a number of state-level taxes that your business may need to address as well, depending on where you are located. The impact of these taxes on your company’s bottom line cannot be overstated. Read ahead for information on identifying the common state corporate taxes that you may need to pay, as well as a few tips on how to approach them.
While many states have a nearly identical set of state corporate tax laws, there may still be considerable variation from state-to-state. However, there are a few commonalities to take note of. Here are five types of state-level corporate taxes applicable to businesses in most states:
Use taxes are collected on certain services or rentals that your business supplies to its customers. These taxes are very similar to sales taxes, but they are not applied to physical goods. The taxes are collected directly from customers or clients, and then are paid back to the state at a later date.
Sales taxes are imposed on nearly all transactions that involve physical goods. This tax is typically a percentage of the total sale price of the goods in question. They are collected directly by your business, and are paid by both the provider and end-level consumer.
The amount a business owes for corporate income taxes is directly related to a business’s profits. Some business structures (LLCs, S corps, etc.) aren’t liable for these taxes at the corporate level. In these cases, income taxes are instead levied on the owner’s personal tax returns. If you are taxed only at the personal level for your income taxes, this is considered “pass through” taxation.
The purpose of property taxes is usually to fund local infrastructure that will benefit surrounding businesses. The amount owed is determined by the value of property a business owns in a certain jurisdiction. Taxable property can include anything from land and buildings, along with significant equipment and other assets.
Many states impose a franchise tax on all corporations (and some partnerships). Despite the name, this is not a tax required only on businesses that use “franchising” as part of their business model or expansion plans. Instead, this is a tax that is levied on every company operating within the state.
Failing to address your corporate state tax requirements can lead to serious consequences that range from fines and penalties, all the way to a forced suspension of your company’s right to conduct business. As a result, it is recommended that you not only invest some time in understanding the specific tax laws in your desired location of incorporation, but also in speaking to a reputable business accountant. While these services may require an initial investment, they very often pay for themselves sooner than later, and help protect you from any fines or penalties for operating illegally.
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Swyft Filings charges only $49 + state filing fees to incorporate your business. Filing fees vary from state to state. If you have a question about a specific state, feel free to email or contact us at 877-777-0450.
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