Corporate income tax is something that businesses need to consider. Lower taxes means a better handle on the expenses a business has to carry. Additionally, when taxes are lower a small business keeps more disposable income and can often invest in the things that will help them grow the most.

Consider that the United States has a corporate tax rate of 21%. That means this portion of business profits goes to the government. You are likely wondering how and where your business can pay less in taxes.

The benefits of lower tax rates are numerous and include:

  • More disposable income to help your business grow
  • A boost in saving and investing for your business thanks to lower taxes
  • Higher growth in the long-term for your business
  • Increase the competitiveness of your industry in the marketplace
  • Lower corporate debt may reduce the motivation behind income shifting

Owners, employees, and even customers feel the impact of higher tax rates for small businesses. So let’s uncover the state with the lowest taxes for small businesses.

Income Tax vs. Corporate Tax

 

An income tax is a tax imposed on individuals or entities in respect of the income or profits earned by them. Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.

A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels

 

North Dakota

 

North Dakota bears a corporate income tax rate of 1.41%-4.31%. As a result, the Peace Garden State hosts a tremendous benefit to small businesses. Having one of the most considerable growth rates in the U.S. is also a terrific sign for small business owners.

 

New Hampshire

New Hampshire is also a massive draw with ZERO income tax or sales tax. However, businesses are responsible for filing and paying Business Profits Tax (BPT) at 7.6%. Nevertheless, no taxes on wages earned still put the Granite State in the conversation for small businesses.

However, New Hampshire does tax dividends earned on investments and interest. The state is quite savvy in pulling in tax revenue in business-friendly ways.

 

South Dakota

In the lead for the state with the lowest tax for small businesses is the Mount Rushmore state. South Dakota has no costly taxes like state income tax or corporate income tax. Add to that a labor force with a high rate of participation.

In South Dakota, your small business can keep more of its money. Additionally, your company may even build a team of employees who hold more of their earnings. No state income tax and low sales tax earn this state a spot ahead of others.

Meanwhile, there are still other tax revenue considerations for states. So let’s look at a few additional considerations for taxes for small businesses. 

Sales and Excise Tax for Small Businesses

Other tax revenue streams that states consider are the sales and excise tax. For example, in North Dakota, a 5% sales tax rate is placed on most retail sales. Customers pay this tax to the seller, who reports it at tax time.

In addition, city or county taxes may apply. These may include lodging and restaurant taxes or even an expense on your vehicle rentals. Administering the city’s taxes in this category is the Office of the State Tax Commissioner.

Where excise tax is different is how it applies to specific goods or services. For example, if you buy a car, there is an excise tax to pay. This tax can fall on the manufacturer or customer, depending on the specific tax. 

Handling Small Business Property Tax

The Mount Rushmore state again performs well for small business property tax. There are exemptions from the personal property for tax purposes. So your business could buy things like tools for work, office printers, toner, chairs, and desks. Meanwhile, you would not pay taxes on those purchases.

In North Dakota, property tax can appear in several ways. One is the locally assessed property tax. A small business or an individual could be responsible for this tax. It is a tax on land and other assets on permanently structured land. Counties determine and collect this expense.

On the other hand, is the centrally assessed property tax. This tax applies to property of a specific type. Things like pipelines, investor-owned utilities, and airlines are on the list. The State Board of Equalization establishes the value of these properties, and then taxes apply accordingly.

 Conclusion

Finding out more about how and where your business can be successful includes a conversation about taxes. Business owners have their futures to consider.

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