State Tax Requirements Affecting Small Businesses; Part 1
by JamieD, Former Moderator
- Created: April 2, 2010, 9:28 am
This is part one in our series on State Issues that Affect the Survival of your Small Business.
In addition to federal tax obligations, small businesses are also required to pay state and local taxes. Because each state has the authority to impose its own tax laws, not all businesses across the country are taxed equally. Understanding what each tax is and how it affects the success of your business can help business owners find the best tax environment for their business.
Personal Income Tax
Personal income tax is a tax imposed on the total income of an individual or business filing as an individual.
Sole proprietorships, partnerships, and S-Corps, which comprise about 90% of all businesses, file taxes as individuals. Because of this, personal income taxes influence business and economic decisions more than most may think. Economic factors, such as working and investing costs, are affected by personal income tax rates. The higher a stat;s personal income tax rate, the higher the cost of these operational factors.
10 States with the Lowest Personal Income Tax Rates: 9 states do not require personal income taxes- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states are closely followed by Illinois with a low personal income tax rate of 3%.
10 States with the Highest Personal Income Tax Rates: Hawaii and Oregon top the list with 11% rates. Wisconsin, Idaho, Minnesota, North Carolina, the District of Columbia, Maine, New York, Vermont, California, and New Jersey all have personal income tax rates of more than 7%.
Individual Capital Gains Tax
The tax imposed on the profit resulting from an individua-s investment in a capital asset.
Capital gains taxes directly affect the rate of return on your investments and risks. In some cases an investor might be taxed a high capital gains tax for an investment in a small business. This impedes the small business owner's ability to acquire funding from investors. States with high capital gains taxes restrict entrepreneur' access to capital and making it more difficult to obtain funds.
10 States with the Lowest Individual Capital Gains Tax Rates: 8 states do not require capital gains taxes' Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Mexico and Illinois have the lowest rates of 2.45% and 3%, respectively.
10 States with the Highest Capital Gains Tax Rates: Oregon has the highest capital gains tax rate at 11% followed by California and New Jersey with rates of just over 10%. Hawaii, Iowa, Idaho, Minnesota, North Carolina, District of Columbia, Maine, New York, and Vermont follow these states with rates of at least 7%.
Corporate Income Tax
A corporate income tax is a direct tax imposed on a compan's profits.
State corporate income tax rates affect the return on all of a busines's investments. The corporate tax affects more than a busines's purses strings; it also impacts business decision making. Because corporate tax rates vary so much from state to state, business owners are often influenced by these rates when choosing locations and investments.
10 States with the Lowest Corporate Income Tax Rates: 5 states do not require corporate income tax' Nevada, South Dakota, Texas, Washington, and Wyoming. These states are closely followed by Ohio, Alabama, Colorado, and Michigan, all with tax rates of less than 5%. Mississippi, South Carolina, and Utah all tie for 10th place with tax rates of 5%.
10 States with the Highest Corporate Income Tax Rates: Pennsylvania, the District of Columbia, Iowa, Minnesota, Massachusetts, Alaska, New Jersey, and Rhode Island have the highest corporate income tax rates in the country with rates of at least 9%. Delaware, California, and Maine closely follow these states with high tax rates of 8.7%, 8.84%, and 8.93%, respectively.
Corporate Capital Gains Tax
The tax imposed on the net total of a corporatio's capital gains, or profit from a capital investment, is known as a capital gains tax.
Similar to individual capital gains taxes, corporate capital gains taxes directly affect the rate of return on a busines's investments and risks. States with high corporate capital gains taxes also restrict entrepreneurs access to capital making it more difficult to obtain funds.
10 States with the Lowest Corporate Capital Gains Tax Rates: 5 states do not require corporate capital gains taxes - Nevada, South Dakota, Texas, Washington, and Wyoming. These are closely followed by Ohio, Hawaii, and Alabama each with capital gains tax rates of less than 4.5%. Alaska and Colorado round out the top ten states with rates of 4.5% and 4.63% respectively.
10 States with the Highest Corporate Capital Gains Tax Rates: Pennsylvania, the District of Columbia, Iowa, Minnesota, Massachusetts, New Jersey, and Rhode Island have the highest capital gains tax rates in the country, with rates of at least 9%. These states are closely followed by Delaware, California, and Maine with rates of 8,7%, 8.84%, and 8.93%, respectively. Indiana, New Hampshire, Vermont, and West Virginia are tied for 10th place with the of rate 8.5%.
To Be Continued...
We'll follow up with more state tax requirements next week, and in the coming weeks we'll highlight other regulations and issues that affect small business survival across the country. Hopefully these articles will give business owners a better understanding of what to expect from their state when starting a business.
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