USA: Tax Issues for Businesses

Business Taxes

As a business owner, you have federal, state, and local tax requirements. Each state and locality has its own tax laws. Common types of business taxes include the following:

Income Taxes

All businesses, except partnerships, must file an annual federal income tax return. Partnerships file an information return. Almost every state levies a business or corporate income tax, though each state and locality has its own tax laws. Your tax requirement depends on the legal structure of your business:

• A Limited Liability Company (LLC) gets taxed separately from the owners of the business.
• Sole proprietors report their business and personal income taxes using the same form.

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn and receive income during the year. State business and personal income tax systems use the graduated method in some states and the flat rate method in others.

Employment Taxes

The federal government requires businesses to pay employment taxes, such as:

• Social Security and Medicare taxes.
• Federal income tax withholding.
• Federal Unemployment (FUTA) Tax.

All states require businesses to pay state workers’ compensation insurance and unemployment insurance taxes. These states/territories also require a business to pay for temporary disability insurance:

• California
• Hawaii
• New Jersey
• New York
• Rhode Island
• Puerto Rico

Sales and Use Tax

States may impose a tax on the sale of goods and services. Rates may vary by county. As a business owner, you may have to:

• Pay a vendor tax. You pay tax on the sale of goods and services. 
• Collect a consumer tax. You collect the tax from the buyer and then send the tax money to the state.
• Pay and collect a combination tax. You pay a vendor tax and then pass on the tax to the consumer. You then collect the tax and send the tax money to the state.

Depending on the state, you may have to register to pay and/or collect sales tax.

Exclusions and Exemptions

Exclusions in sales tax often include food, clothing, medicine, newspapers, and utilities. Since food is a necessity, some states do not tax food. In addition, certain groups are often exempt from paying sales tax. Charitable, religious, and educational groups are often excused from paying sales tax under certain conditions.

Use Tax

Many states also have a use tax. Rates may vary by county. Similar to a sales tax, a use tax is imposed for the storage, use, or purchase of personal property that is not covered by the sales tax. Typically, this applies to lease and rental transactions, or to major items purchased outside of the state, such as automobiles.

Depending on the state, you may have to register to pay and/or collect use tax.

Property Tax

Each of the 50 states have different definitions of what property is taxable. 

• Some states collect property tax from businesses in commercial real estate locations. If you lease the property, check your lease to see if you or the owner is liable.
• Some states also collect property tax for business assets, such as vehicles, computer equipment, and peripherals.  

The amount of tax to be paid is figured on the total value of the property or on a certain percentage of the value. 

Business Tax Resources

Federal

To find federal tax requirements for businesses, visit:

• Internal Revenue Service (IRS): Business Taxes.

State and Territory

To find state and local tax requirements for businesses, refer to these resources:

• Internal Revenue Service (IRS) State Government Websites directory. 
• Small Business Administration (SBA) State and Territory Tax Resources.

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