State Corporate and Business TaxesPublished:
By definition, a corporation (chartered by the state where it is operated) is considered a unique entity by law, separate from those who own it. In general, domestic and foreign corporations conducting business within a state are subject to that state’s corporate income tax. For multi-state corporations, tax is often calculated using an apportionment ratio.
State corporate and business taxes are important factors to keep in mind if you are deciding where to start a business. Employers are typically required to pay state and federal unemployment taxes (SUTA and FUTA, respectively) as well as workers’ compensation (in the event of injury or illness related to the job). Note that in certain states, only employers with a specific number of employees are subject to these taxes.
The following information explains the taxes that businesses can expect to pay in some selected states:
- In California, New York, New Jersey, Rhode Island, Hawaii, and Puerto Rico, employers must pay temporary disability insurance for their employees. This provides compensation for an employee who cannot work due to sickness or injury, even if the injury is not job-related.
- Oregon allows corporate excise and income taxes to be paid on a quarterly basis by electronic funds transfer (EFT.) The state also requires a corporation to make estimated tax payments if it expects to owe $500 or more in tax that year.
- In Indiana, corporations are subject to a flat rate of 8.5% on all corporate income. Businesses that serve food and beverages must also pay a County Innkeeper’s Tax, with rates that vary by county.
- All Louisiana corporations must apply for a Louisiana Revenue Account Number to register for taxes (including corporate income and franchise tax, sales and use tax, withholding tax, and severance tax). Businesses may file withholding taxes on a quarterly, monthly, or semi-monthly basis. Business owners may also register their tax account online, provided that they’ve been assigned an account number.
Corporate tax rates vary greatly from state to state. A business that earns over $100,000 a year in Hawaii is subject to a 6.4% tax rate ? however, that same business in Iowa would be taxed at 10%. In Vermont, a business only has to generate $25,000 a year in profits to be taxed at a whopping 8.5% ? but in New Mexico, a business can earn $1,000,000 a year and be taxed at 7.6%.
Many states (such as Alabama, Florida, Delaware, and Indiana) have a flat rate corporate tax structure. This means that all corporations, regardless of their size and yearly earnings, are taxed at the same rate. The flat corporate tax rate ranges from 5% in Utah, to 9.975% in Washington, D.C.
States with no corporate taxes include Nevada, South Dakota, Texas, Washington, and Wyoming. Businesses in these states are still responsible for workers’ compensation and unemployment insurance, as they are required in every state.
In addition to corporate tax, businesses may be liable for property taxes, sales and use taxes, unemployment taxes, and withholding taxes. Corporate taxes are considered less stable than personal income taxes, because corporate profits tend to fluctuate widely during a regular economic cycle and react strongly to economic conditions.