As a business owner, you’re responsible for a number of taxes. Some may be federal or local, while others are state taxes. So, what are the types of state tax obligations you need to keep on your radar?
State tax obligations
Your state tax obligation depends on your business’s location and the state you do business in. Each state has its own set of rules pertaining to the various state taxes.
You may be responsible for handling the following types of state taxes:
Corporate income tax Gross receipts tax State sales tax Excise tax State unemployment insurance tax State income tax
Corporate income tax
If your business is a corporation, you must pay a corporate tax rate on business income. There are both federal and state corporate tax rates; however, we are going to focus on the state rates.
The majority of states levy corporate income tax in addition to the federal rate. Currently, there are 44 states that impose a corporate income tax on corporations. South Dakota and Wyoming do not have a corporate income tax. And, four states impose a different type of tax instead of corporate income taxes (which we’ll get to later).
Corporate income tax rates vary by state and range from 1% to 12%. In most cases, a corporation’s rate is based on how much the corporation earns.
If you own a corporation, report your profits and losses on Form 1120, U.S. Corporation Income Tax Return. You must also report your personal income on your individual tax return.
Again, corporations are taxed at both the federal and state level. When a corporation pays taxes on its taxable income, it must pay the rates set by the federal and state levels.
If you’re structured as a corporation, contact your state for more information on paying state corporate income tax.
Gross receipts tax
Instead of corporate income tax, some states levy gross receipts taxes. These states include:
Nevada Ohio Texas Washington
Along with not imposing corporate income taxes, South Dakota and Wyoming also don’t levy gross receipts taxes.
Gross receipts tax is a tax certain businesses must pay on gross receipts. Gross receipts include your company’s total revenue from all sources without including any deductions (e.g., returns, discounts, operating expenses, etc.). In short, gross receipts is the total amount of revenue your business collects throughout the year.
If your business is in a state that imposes gross receipts tax, you must pay a gross receipts tax rate on your business’s revenue. For example, if your business collects $100,000 in revenue during the tax year and your state imposes a 0.26% gross receipts tax rate, you must pay $260 to your state for gross receipts tax.
Like corporate income tax, gross receipts tax varies from state to state. And, your gross receipts tax liability can vary depending on your type of business and how much revenue your company earns.
If your business is located in a state with gross receipts tax, reach out to your state to learn more information about your rate and liability.
State sales tax
The majority of states require businesses to collect sales tax at the point of sale. Business owners are not required to pay sales tax. Instead, customers are responsible for paying sales tax on their purchases.
Although businesses are notContinue reading