While it might not be the most exciting part of launching your business or running your new company, properly addressing your organization’s numerous tax obligations is one of the most important aspects of business ownership. 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. Read ahead for information on identifying the common state corporate taxes that you may need to pay, as well as for few tips on how to approach them.
Five common state-level taxes
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 — Some states impose a use tax on the leasing or rental of equipment or storage spaces. Use taxes are similar to sales taxes. The main difference is that use taxes are levied in situations that do not involve an ownership transfer of goods or property.
- Sales taxes — A sales tax is imposed on the sale of physical goods in most states. This tax is typically a percentage of the total sale price of the goods in question. Both the buyer and seller often pay a part of the burden.
- Income tax — 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.
- Property taxes — 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.
- Franchise tax — A franchise tax is mandatory in some states. The tax is purely for the right to conduct business from within a specific state. It serves no explicit purpose beyond raising funds.
How to approach state tax requirements
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 to also in speaking to a reputable business accountant. A professional accountant will be able to help your organization ensure compliance with both state and federal financial regulations at all times. The accountant may also help you find ways to legally lower your tax burden.