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State Tax Requirements Affecting Small Businesses; Part 3

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State Tax Requirements Affecting Small Businesses; Part 3

By JamieD
Published: April 23, 2010

Each state has the authority to impose its own tax laws - which means that not all businesses across the country are taxed equally. Understanding what your state obligations are and how it affects the success of your business can help you find the best tax environment for your business. This is part three in our series on State Issues that Affect the Survival of your Small Business. See Part One and Part Two of this series for more information on state taxes that affect your small business.

Property Taxes

Property taxes are imposed according to the real estate value of land, buildings, or other sites, as defined by your department of revenue.

If you own property, yo;re required to pay property taxes. Where you choose to locate your business, as well as where you choose to invest in business facilities, will be largely affected by your locatio-s property tax rate. Unlike many other taxes, property tax is not levied by the state but rather local jurisdictions- such as cities and counties. The stat's role is to impose a maximum rate for those jurisdictions.

Because property taxes are determined by local jurisdictions rather than the state, a busines's property tax can vary greatly from location to location' even within the same state. For more information on the property taxes required by your location, visit your state and local department of revenue or tax office.

Estate Taxes

An estate tax is the federal tax imposed on a perso's assets at the time of their death' including business assets. In addition to the federal tax, many states also impose their own version of an estate or inheritance tax.

Estate and inheritance taxes are imposed on assets and earnings that were taxed during a perso's lifetime - this includes a perso's business and business assets. Business owners should be aware that the beneficiaries who receive their assets may not be in the position to manage the business or be able to pay the associated taxes, which could ultimately force them close or sell the business. If you one day plan to pass your busines's assets to another person (for example, if you plan to transition family-owned business to a sibling or dependent), look into your state's estate and inheritance tax laws so you can make plans for the future.

For more information on whether or not your state requires an estate or inheritance tax, see your state tax website. For more succession planning tips, read Death and Taxes - Estate Planning and Trust Terms for Your Business.

Internet Taxes

Internet access taxes are imposed on Internet use.

Although the Internet Tax Freedom Act of 1998 prohibited direct taxation of accessing the Internet, the law grandfathered several states that were currently requiring some sort of internet access tax. For small and online businesses, this tax can be quite costly. Although the Internet provides small businesses with benefits, such as an increased availability of information and new markets, these benefits are offset by states that require this tax.

Although it is now illegal in most states to impose Internet access taxes,10 states are still legally allowed to continue to taxing users. The following states require some variation of Internet tax: Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington, and Wisconsin.

Fuel Taxes

Fuel taxes are imposed on the sale of fuel - including gas and diesel.

Many small businesses rely on motor vehicles in one way of another. Whether you run a delivery service, operate a mobile business, or provide transportation services, the cost of operating a vehicle can impact your bottom line. Gas and diesel taxes levied by your state directly impact these costs. For businesses that use a lot of fuel, it's more cost efficient to operate in places with lower gas and diesel taxes.

Gas taxes are levied according to cents per gallon. The following states have the lowest gas tax rates (all under 19.5 cpg): Alaska, Georgia, Mississippi, Missouri, New Jersey, New Mexico, Oklahoma, South Carolina, Virginia, and Wyoming. The following states have the highest gas tax rates (all over 33 cpg): California, Connecticut, Florida, Hawaii, Illinois, Indiana, Michigan, Nevada, New York, and Washington.

Diesel taxes are also levied according to cents per gallon. The following states have the lowest diesel tax rates (all under 19.5 cpg): Alaska, Arizona, Kentucky, Mississippi, Missouri, New Jersey, Oklahoma, South Carolina, Tennessee, and Wyoming. The following states have the highest diesel tax rates (all over 32.9 cpg): California, Connecticut, Hawaii, Illinois, Indiana, New York, Pennsylvania, Rhode Island, Washington, and Wisconsin.

Next up...

Next week we'll follow up with more state issues that effect your business's survival by focusing on environmental factors - including crime rates, utility costs, and other 'hidden' issues that impact your business.

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