The Business of Taxes U.S. corporations pay the third-highest corporate tax rate in the world, but this is a collective figure from all fifty states—
The Business of Taxes
U.S. corporations pay the third-highest corporate tax rate in the world, but this is a collective figure from all fifty states—and taxes vary greatly from state to state. For instance, corporate tax rates can vary from Iowa’s 12 percent to South Dakota and Wyoming’s zero. While the majority of states collect corporate income taxes based on a company’s revenue; other states impose a flat, fixed rate. These are things you need to consider in your business plans.
You also need to think about finding the right location for your business, which involves more than just market prospects, accessibility, and profit. While those are important considerations, low state taxes can also make huge positive impacts for your company as you move forward.
Paying less tax allows you to have more money in the bank, letting you reinvest in both the business and in your employees. This gives you headway for faster growth, and more profit in the long run.
Possibly one of the most tax-friendly states, Wyoming is one of the few states that don’t have a corporate income tax or a personal income tax. This practically eliminates the major business taxes that new entrepreneurs owners often have to think about.
In place of those absent taxes, Wyoming collects an annual license task, also called the franchise tax or fee. This tax imposed on Wyoming businesses comes up to just $50 or two-tenths of a mill per dollar of assets ($.0002), whichever amount is greater. And considering the fact that you’re essentially free of the heavy taxes, this annual license task seems like a winning alternative.
The Silver State can be very attractive for those who are seeking to start new companies, as only those who gross revenue in a taxable year exceeds $4,000,000 are required to file the Commerce Tax return. There are still a couple of taxes businesses in Nevada are subject to, however, such as the modified business tax (MBT). The MBT is dependent on the amount of wages you pay out each quarter.
Previously having the highest corporate tax rate in the region, North Carolina has dropped to having the lowest. Thanks to its recent tax structure reboot, the graduated income tax brackets have been swapped out for friendlier flat tax rates.
It also looks like things are starting to shape up for the state even further. There’s been a drop in the tax rate in the last few years, from 2018’s 5.49 percent to 2019’s 5.25 percent. If these figures are any indication of what’s in store for the Tar Heel State, then now may be a good time to set up shop and start your company right when its economy is just beginning to flourish.
Similar to most states, Alaska collects a corporate income tax. On the other hand, unlike most states, it doesn’t have personal income tax, or any franchise or privilege tax usually imposed on businesses. This is great news for small businesses, because unless you own a C Corporation, your business income and net worth will not be taxed.
“The Last Frontier” is now definitely at the forefront for many small business and startup entrepreneurs. While Alaska does have the usual business-related taxes, such as accumulated earnings tax and alternative tax on capital gains, these are not required for small businesses. And if you do get taxed on the value of your business property, the rate is capped at a reasonable 3 percent.
For many entrepreneurs who are just starting their businesses, Florida’s minimal small business regulations and less stringent requirements for new businesses are welcome advantages. While the state imposes a 5.5 percent income tax on corporations, LLCs, sole proprietorships, and S corporations are exempt from this state income tax.
Additionally, there are tax incentives offered by Florida’s local government, which allow you to utilize credits against the corporate income tax. These credits include paying for taxes, assessments, and salaries, and for making further investments in your business within the state.
South Dakota has become a popular destination for budding entrepreneurs and industry hotshots alike. This may be thanks to state laws like the South Dakotan Trust that provide businesses and individual assets with an exhaustive level of protection: against claims from irate business partners, creditors, suits filed by disgruntled clients, and virtually everyone else.
The state also has no personal income tax, corporate income tax, business inventory tax, or personal property tax. If that’s not enough to convince you to form an LLC in South Dakota and operate from the state, then maybe the ease and convenience of starting a new business will. It’s a 5-step process which includes registering your business with the state for just $125 and obtaining an EIN—a process you can breeze through.
Utah’s corporate taxes come in the form of the franchise tax and the income tax, but only the C Corporations are required to pay. So unless your business is a traditional corporation, these state taxes will not apply. However, if your business income passes personally through you, you’ll have to file those on your personal state tax return. The state also has a fixed 5 percent franchise tax on corporations.
It’s good to know that when you pay these state income taxes, you can rest assured that the tax revenue will and must go into public and higher education spending—something that the state government is adamant on. In more ways than one, your business taxes are actually helping invest in a more educated workforce.
Indiana’s corporate tax rate differs for each type of business structure. For example, state taxation on pass-through entities like LLCs, partnerships, sole proprietorships, and S corporations are dependent on personal income. Generally, corporate tax rates in the state are based on adjusted gross income, at a flat rate.
You’ll be happy to hear that Indiana’s tax rate is set to decrease every 12 months, too. From 6 percent in July 2017, it’s now projected to decrease to 4.9 percent after June 2021. This tax cut comes in a package that also lowers individual income tax and personal property tax rates—all good things, especially when you’re thinking about building a brand new business and life in the state.
While you’ll probably never be completely rid of taxes, it’s important to go into a new business venture knowing that tax rates are manageable! Expand your business know-how even further, check out our Business Blogs for more resources.